In times of uncertainty, the leaders of insurance companies often lead the conversation about the future. One of the most eloquent speakers on that subject is Antonio Huertas Mejías, CEO and chairman of the global insurance company MAPFRE. Huertas, who has been in his current role since 2012, is also a committed promoter of innovation in financial services. He believes, for example, that digital transformation has created a threshold that companies must cross. Those that understand the new technologies will become fundamentally different, and those that don’t will not be able to compete.
MAPFRE is headquartered in Madrid. It is the benchmark insurer in Spain, one of the 10 largest insurers in Europe, the leading multinational insurance group in Latin America, and (after its 2008 acquisition of the Massachusetts-based Commerce Insurance firm) one of the top 20 companies in auto insurance in the United States by market share. It also has roots in innovative management, having been founded in 1933 as a landowners’ cooperative in Spain. (Its original name was Mutualidad de la Agrupación de Propietarios de Fincas Rústicas de España, or Cooperative of the Group of Owners of Rural Estates of Spain.) In all regions, MAPFRE offers automobile, property and casualty, health, and life insurance, as well as insurance against business risks, including those related to cybersecurity and supply chain disruption.
Huertas’s approach to leadership is based on his concept of the social company. In his view, a company should be managed as a sustainable socioeconomic system, fully respecting ethical principles and social and human rights. He combines this conviction with a strong bottom-line business ethic, grounded in commercial, technical, and financial experience. Participating in the development of technology projects has also established him as a promoter of leading-edge enterprise technology, with an eye toward the platforms and risks that all companies will have to face over the course of the next few years.
S+B: Last year, in PwC’s annual survey of chief executives (pdf), we observed a high level of optimism about future economic growth. This year, the feeling is not so positive. What is your outlook?
HUERTAS: We’re entering a new stage in which growth is slowing down, but only slightly. Rising global tensions, complicated in part by the escalating U.S.–China trade talks, affect growth in both mature and emerging markets, and this will lead to a certain amount of slowdown across the board. From our standpoint at MAPFRE, there is a lack of synchrony in the economic changes taking place, and outside the U.S.–China situation, certain regional and national political dynamics are also hindering growth, as is the case in Italy, Mexico, and Brazil.
Overall, we aren’t too concerned about the effect on insurance activity. In emerging and mature countries alike, economic players will continue to need adequate insurance solutions, all the more so in the context of the complexity of the current economic landscape, and this gives us reason to be optimistic.
S+B: Which markets have the best growth prospects in insurance?
HUERTAS: MAPFRE is far and away number one in Spain, so our expectations there are modest, though we always expect to be slightly ahead of average market growth. In emerging markets, we have ample room for growth due to the low existing penetration of insurance. We don’t rely as much on market expansion as on having public policies that enable insurance development.
Let’s take Mexico, for instance. If the new government introduces social policies to help a large portion of the population find formal jobs, this will naturally increase insurance demand. In Brazil, policies such as these were introduced a number of years ago. What’s needed now is stability, flexibility, and a little bit of breathing space to drive growth. Turkey is where we see perhaps the greatest uncertainty. There’s a lot of volatility and it’s difficult to foresee what will happen next, so we’re taking measures to protect our existing business before looking to expand further there. We’ve adopted prudent policies in the U.S., so we’ll see slower growth there, but we’re decidedly bullish on Europe in terms of developing our digital platforms.
In general, we’re feeling positive, despite the uncertainty produced by the global economic context.
S+B: And in Asia?
HUERTAS: These markets are challenging for Spanish companies, due to cultural differences and access limitations. We had originally based our Asia growth on our presence in China, but we’ve been unable to really get moving there, so we’ve shifted our attention to other projects. With limited resources and a complex operating environment, we need to set priorities. As far as Asia goes, we have a reasonable presence in insurance, reinsurance, and assistance, but in terms of our global volume, it’s small, and we’ve decided to keep it that way for now. We’re active in Indonesia, the Philippines, Singapore, and of course China, and look forward to further development in the future in southern Asia, where insurance penetration is low.
S+B: Aside from geography, what are the prospects by business line?
HUERTAS: In non-life insurance [property, casualty, and automobile], competition is up. The players are getting bigger and products are being commoditized, which makes it very difficult to stand out, so the ability to innovate and disrupt takes on even greater importance.
In the area of major industrial risks, business is inching upward. The economy continues to grow, which means insurance needs to do so too, driven by volatility, greater risk, and the complexity of operations.
We also see opportunities for life insurance and social protection. In developed markets, these can complement public social benefits. In emerging countries, where the government plays a smaller role in social protection, private life insurance policies, pension plans, and health insurance products have great potential. We have strengthened our knowledge, talent, and skills in these areas, particularly in life insurance, to gear up to meet this opportunity head-on. And the bancassurance channel [a partnership between a bank and an insurance company] is key here: We’re committed to increasing and strengthening our alliances with banks, holding on to the partners we already have while seeking new agreements that can help us improve distribution.
Digitization also opens up new opportunities. Already in some mature markets, it’s possible to sell basic life or risk insurance through digital channels, and we’re working on some new initiatives in this field.
Risks and Opportunities
S+B: How does the entry of major tech players impact the insurance sector?
HUERTAS: In my eyes, it will be more of an opportunity than a hindrance. As the tech giants’ interest in the insurance industry grows, we’ll be able to open up partnership spaces and create greater opportunities. The Geneva Association [the insurance industry’s leading global research group] has recently analyzed why more policies are not taken out. We surveyed people in developed countries with more mature markets, such as France, Italy, Germany, and the U.S., and it’s interesting because the responses are similar to those from emerging countries: Even though standards of living are higher, there is a lack of clarity in general about insurance, and people aren’t too sure what they need coverage for. In mature countries, people are somewhat wary of insurance, and they don’t really understand the role it plays until they need it. This is why having new competitors, structures, and technology — to help disseminate the offering and make insurance more viable — is ultimately positive.
Obviously, as new players learn the ins and outs of the industry, they’ll want to compete or hold on to some part of the business, and so we’re trying to forge partnership channels with them rather than compete against them. Working together with large tech companies, we can share learning on digitization and ways to monetize this transformation. If we, the insurance company, put up capital, then logically, we have to hold on to those activities that generate the greatest margins in order to guarantee their viability. There’s room for everyone, and approaching the process with a spirit of collaboration is now more necessary than ever.
S+B: What threats and risks do you see in the business?
HUERTAS: The usual problems worry us, and sometimes, they’re not problems; they're trends, environments, and cycles. Overregulation, for instance — is it a problem or not? We need regulation, but overregulation could become a barrier to economic growth.
Geopolitical complexity is a risk factor because it breeds insecurity, which is the main enemy of insurance. Insurance needs stability and predictability, and in the absence of this, insurance can become impossible to deliver, or pay for, as coverage reaches unaffordable levels for companies or families.
Many of the problems facing our society come from a lack of social cohesion. Social inequality affects us all. In global terms, economic conditions may have improved, but in real terms, when examined at an individual level within a particular country, inequality can be felt more and more. This perceived impact goes some way toward explaining the recent appearance of populist movements, which is one of the biggest threats to economic development. Any form of populism will always work against the stability that we need.
Another significant concern, which is in effect also an opportunity, is social and technological disruption. If we don’t tackle this issue properly, it’ll put an end to insurance as we know it. Consumer profiles and society have changed dramatically, and people expect and demand more from companies. Young people expect companies to be much more committed, more socially active, and more transparent. The economy of the future will comprise companies competing not just at the product level, but also in terms of meeting the needs of the communities they serve. Companies that aren’t up to this challenge or that have no vision will disappear, because society’s own technological evolution will end up doing away with them.
The lack of profitability in the financial sector also concerns me. MAPFRE competes, in many cases, with products from other financial-services firms. The banks know that with the current profitability models, it’s very difficult for certain activities to be viable. We need to work with broader profitability criteria, not just those based on the short term. We also need to ask stakeholders to have a long-term, 360-degree vision, which includes creating social value, not only material profit. At MAPFRE, for example, we did away with plastic packaging in November 2018. This decision creates value for society, as we’re helping to protect the environment. Companies can also be agents for social change, going beyond what the authorities stipulate.
S+B: Cybersecurity risk is currently causing concern for businesses worldwide. How is it being perceived in Spain?
HUERTAS: Spanish citizens and companies are not particularly aware of the problem. Cyber-risk insurance is being sold more on a supply than a demand basis in small and medium-sized companies. But the big companies like us are worried, because we’re exposed to the risk of collapse. At MAPFRE we play a dual role: We must protect ourselves while also insuring these risks for clients. It’s very difficult to offer an insurance policy for cybersecurity, because there’s not enough transparency and relevant information for us to be able to assess the risk properly. If the information isn’t accurate, cybersecurity is uninsurable.
“It’s very difficult to offer a policy for cybersecurity, because there’s not enough transparency. If the information isn’t accurate, cybersecurity is uninsurable.”
What’s more, this battle can’t be won alone. It’s got to be a joint effort between the public and private sectors, and even extend to a supranational level. No matter how much investment is made in protection, hackers will always be ahead of anything we can do. Eventually there won’t be enough capacity in the world to hedge those risks if we don’t all share information about what is going on: how many attacks we’ve suffered, what data is stolen, and so on. We have to agree globally about how to pool our efforts and share information.
S+B: Another significant threat is digital transformation and its repercussions on the business model of companies. What’s the impact in the insurance world?
HUERTAS: At MAPFRE we’re very concerned about digital transformation, because we have to prepare the organization for a new society and new needs. The corporate vision we want to have in the medium term is totally different from what it was before. Because the insurance business is highly regulated, insurance companies are the only players to have a license to operate in our market. Nobody else can cover the risks, because prior authorizations are needed, along with capital and solvency requirements. This protects us, but not from everything and not forever.
Those insurance companies that do it best will be the winners in this essential transformation. We need to showcase risk control and technical knowledge. There are people who think that with a handful of algorithms, we’ll be able to figure out all insurance policies and get it right every time, but underwriting doesn’t work like that. A huge layer of knowledge is needed to cover complex risks.
To be sure, simple risks are easier to manage with technology, thanks to the law of large numbers — if you can instruct algorithms to interpret what happens, you’ll get it wrong once or twice, but in most cases it will be right and you’ll make money. But that doesn’t work in the case of large, complex risks.
The Data-Driven Insurance Advantage
S+B: How has the use of data evolved in this industry?
HUERTAS: In insurance, we’re in a position of advantage, because we’ve always analyzed data to parse historical events to anticipate what will come to pass in the future, and so far it’s worked. When I started at MAPFRE, we developed a technological project that managed information in a very innovative way, and even now, 25 years later, this system still works, although obviously it’s filled out and been enhanced with new layers of information management.
But the world has changed, and now we’re talking about structured and non-structured data. At Verti [MAPFRE’s online insurance business], we developed an app that automatically compiles information on the behavior of drivers who voluntarily download it in exchange for insurance discounts. We can interpret this information and offer them differentially adjusted rates. This data can also be used to predict collections or fraud, reveal consumer behavior tendencies (for example, to buy particular products or abandon shopping carts), and optimize operating resources. Data is a modern-day miracle.
But the problem with data is that you see only your part. There’s a lot of data about consumers stored by other industries. If each of us worked only with the data we manage, we would be getting only a partial view of the customer. We should have the option to bring it all together, provided the customer — who should be the owner of all the data generated — agrees, because we could then offer better services. This is a whole new world opening up before us now and it has amazing potential, but we still have to take a quantum leap in order to understand the quality or best use of the data. The client has to be capable of monetizing his or her own data by getting better products and better prices.
I think that everyone should create their own personal data file and keep it encrypted somewhere to facilitate its total or partial use. But the means for enabling this hasn't been developed yet, and economic, industrial, and political interests prevent the problem from being resolved. Spain recently announced that political parties could look at the personal data of potential voters with fewer restrictions than those imposed on companies.
I think there is a revolution underway — we’re only seeing the tip of the iceberg now. Structured information is easier to manage, but then we have unstructured information, which depends on behaviors and the analysis of factors that weren't measurable before, but are now. Consider the Internet of Things; the amount of information it generates is huge. It’s exciting, and insurers love it. Mathematicians are now a rare commodity in society, because society’s need to manage data has increased.
S+B: How is the exponential increase in data use reflected in your business or in interactions with clients?
HUERTAS: There are many projects underway, but we’re still at a very early stage. Much has been done in the field of robotics and also in artificial intelligence, and we’re doing a lot in automation and digitization, but these efforts have yet to translate into significant savings or into generating sufficient additional income. Supply is, however, becoming more sophisticated, and it’s now much more personal. We’re currently launching a significant initiative in the field of digital health, where we’ll be able to manage huge volumes of data to detect customers’ needs and improve the services offered. This can now be done by analyzing information, using our own and external databases; researching online to find out what people do, what they need; and based on that, devising a completely customized and comprehensive offering.
One big concern is that decision makers might be trusting biased data. Data says what it says, but in the end, it needs to be evaluated. I’m not saying all of this evaluation has to be done by humans, but there does have to be a humanistic view of the information, because if we base things only on the abstract data, we could end up losing our own values. The data might tell us that instead of having a government’s president elected by the people, it’s better to have a non-democratically elected professional manager, because that makes more sense from an economic perspective. From a broader societal perspective, that wouldn’t make sense at all.
We need to incorporate human behavior into every stage of data analysis. We need to involve sociologists and philosophers to humanize research and knowledge in business. This would enrich business relations, the interpretation of business environments, and the internal culture of companies.
Seeing People as the Solution
S+B: What are the implications of applying artificial intelligence (AI) in society — for example, in work models and job relationships?
HUERTAS: If we look at companies as economic bodies seeking only to maximize profits, I’d say that all AI techniques are going to be excellent because they’ll save us a fortune in expenses and boost profits. But neither I nor most other businesspeople think that way. We need to factor in our concern for the social environment we’re building so that our society can move toward greater cohesion. Technological progress and globalization should not destroy social values.
One problem is that, in effect, we are not capable of creating the jobs at the same pace that AI is doing away with them, and not all social classes are affected in the same way. We need to be very cautious when making decisions that may leave a lot of people hung out to dry. We need to help with training, shifting roles, and making new opportunities visible. We need to help people understand that working for the same company in the long term, right up to the age of 65, no longer makes sense. Professional careers will have interruptions; employees will have to receive ongoing training, and we’ll combine stable jobs with self-employment and entrepreneurship. We must change our approach and be very flexible, because all this transformation will erase many traditional views that we have about labor relations.
S+B: Do you think that this view extends into major corporations?
HUERTAS: I think that people share this view, but when you bring it into major corporations, the concept gets lost. It gets lost because there are additional interests: shareholders, market pressures, and so on. When we see companies merging and making people redundant, we need to think about how much trust we could instill if instead we created integration projects and synergies that would benefit everyone. We need to create hope, motivate people with new professional challenges and ongoing training, and prove with facts that we are indeed making progress for everyone.
S+B: What role do you see for public administrations in managing AI?
HUERTAS: So far, public administrations have been left behind in this debate. We can identify countries with successful economic models but social values we don’t believe in, where political and economic freedom can be limited and where the possibility of personal development depends on the role of the state. Is this the society we want? I don’t think so. If all we think about is maximizing profits, we risk losing the existing social contract. We can’t tell people, “You’re losing a job, but don’t worry, at least your kids will have one.” That’s not good enough; we need to offer solutions now.
S+B: In recent years, particularly in the financial sector, social value and business credibility have suffered. How can company leaders help restore them?
HUERTAS: We all stop believing in models when we see that they’ve failed us. If a part of the financial sector fails us, then we distrust the whole financial sector. If this message becomes generalized, people turn against the sector. But a whole industry shouldn’t be stigmatized because of the mistakes made by a part of that industry. And even if the industry doesn’t fail, the evolution of this entire framework we’ve been talking about — the relationship between capital and employment, the maximization of profits and the loss of social value — has become a serious problem.
This ties in with a book I’ve just coauthored with Iñaki Ortega, an economist from the Deusto Business School, in which we analyze the new society we’re heading toward, where the elderly will be in the majority [La Revolución de las Canas (The Gray Revolution)]. Older people are going to live longer and better, so instead of seeing them as a problem, we need to look at them as part of the solution. They’re the ones who can save this society by being more helpful, consuming more, and contributing more from a social perspective. This will lead to more opportunities, it’ll create more hope and excitement, and it’ll help do away with the despair that arises when social cohesion is reduced.
Why are elderly British people supporting Brexit? Because they’re desperate. They’ve come to the conclusion that their children and their grandchildren have been crowded out of jobs by foreigners, and they’re outraged. We need to have future senior citizens who live better and thus gain a more open-minded perspective about society. In order to do that, we must offer them means, leisure, culture, and intermittent work. The elderly have to guide society, because there’ll be more and more of them. And the young people will end up as elderly someday too, so it’s an initiative that will end up benefiting everyone. In the end, we need to make more people of all ages feel socially useful.
- Salvador Nacenta is a partner with PwC Spain. Based in Madrid, he leads consulting services within the financial sector in Spain.
- Justo Alcocer is a partner with PwC Spain. Based in Madrid, he is the partner responsible for the financial sector.
- Also contributing to this article was PwC Spain communications and marketing specialist Irene Roy Quílez.