00:00 - 25:00
Welcome to Innovators and Ideas brought to you by RBC Capital Markets. Today, we're at our Global Financial Institutions Conference in New York, and we're joined by Louis Marcotte, CFO of Intact. Louis, thanks for being here. Thank you for the invitation. Glad to be here. Louis, maybe we could start by you telling us a little bit more about intact touch on maybe your vision, your mission, and your purpose.
25:02 - 56:17
Sure. Absolutely. So as you said, I work for Intact Financial Corp. That's Canada's largest PNC insurance company, and I'm the CFO. We've been in that role for a little more than ten years. We have annual revenues of approximately 23 billion CAD. That's 30,000 employees. And our current market cap is around $40 billion. Our operations are located mainly in Canada but also in the U.S., the UK, Ireland, and we also have a couple of offices in European countries.
56:20 - 01:23
Our mission is simple. We're here to help people, businesses and society prosper in good times and be resilient in bad times. We see ourselves as a purpose driven company based on values and a firm belief that insurance is about people, not things. As a leading provider of PNC Specialty and RSA Insurance in Canada and beyond, you have a unique perspective on what's powering sort of markets in this space today.
01:24 - 01:46
You've helped steer and tack to outperformance through arguably one of the more extreme eras of macro volatility in market history. Can you talk us through the changes you've seen in recent years in this space and touch on some of the strategic or innovative ideas that have helped intact, specifically succeed during this period of disruption? Sure. You're right. There's been quite a bit of change.
01:46 - 02:11
Let me take on a few amongst others. The first one that comes to mind for me is technology and data. And you've heard about car safety devices, autonomous cars, electric cars, connected cars. We talk about insure techs, quantum computing, artificial intelligence, cyber risks, just to name a few of those changes on that front. So we've done quite a bit over time.
02:11 - 02:35
But let me share a couple of items that I think are more interesting. Firstly, built. We have built the largest telematics program in Canada and means that we can track our consumers or drivers or clients driving patterns as they drive their cars, and that gives us quite a bit of predictability in terms of their the how they're prone to have accidents or to drive properly.
02:35 - 03:04
That's built largely on lots and lots of data and taking advantage of the quantum capabilities to deal with that data and gives us a lot more predictability over time. So that's one example. The second change of 0.2 is climate. That's pretty obvious. We know global temperatures are up one at 1.1, 1.2 degrees from pre-industrial levels. That means we've incurred four times and natural hazards over 30 years.
03:04 - 03:28
That's that's a huge change. So what have we done on that front first? Clearly committed ourselves to net zero by 2050, but also helped build a strategy around helping and winning in this fight. But on the underwriting side, what have we done? Some examples. Expanded our water protection offering to customers to better protect them against water related damages.
03:28 - 03:50
We've doubled down on adaptation. We believe that some of the climate change is here to stay and therefore we got to work on adapting our the way we live to those changes. And we've also adapted our pricing and risk collection based on machine learning based models. And that's really state of the art. One thing that's different from others we've invested in on restoration.
03:50 - 04:15
So we are now owning a business that repairs homes or businesses when there are damage from weather. And the outcome of that is our personal property business has delivered ten points of margin on average over the last ten years. So that's a pretty good, pretty good outcome. The final element, I'll talk about societal change and disruption, whether it's items like working from home, the digital engagement from customers, how that has evolved over time.
04:15 - 04:39
It is quite a bit of change going on there. And what have we done? Firstly, we have a strong belief that the customer decides who wins and disruption will start. As far as we're concerned and distribution. So on that basis, we've built very strong brands that resonate with customers. First and foremost. Secondly, sticking to providing second to none service.
04:39 - 05:06
And we measure that. And finally, the third to third leg, I like to point out here is our distribution force, which today provides a very clear connections to our customers, but it also gives us optionality should distribution patterns change over time. I want to talk a little bit about the needs and expectations of your customers. How are they changing in today's markets and how are you using technology to make sure your products and services continue to meet those needs going forward?
05:06 - 05:27
Sure. So I'll focus on a couple of changes that we see with customers, whether they be personal customers, personal lines, customers or commercial lines customers. First, we think we think they're looking for a greater ease of access, even more so than after the pandemic. So how do how do they put their hands on the product or the indemnity?
05:27 - 05:51
They also value convenience, transparency and trust. Areas where insurance have generally been weak historically. And finally, in a high inflation environment, they are looking to maximize value for money in all their purchases. They are willing to share their their assets. We see the sharing economy and we see them willing to buy from less traditional sources. So those are three changes I'll point to.
05:51 - 06:17
And what have we done in light of those changes? First, double down on the digital and mobile experiences. Our apps are today the best rated insurance apps in Canada. So big believe that that fills some of the convenience and ease of access considerations. We've also invested in service again to deliver a second to none experiences. We think that's the core core core to the success of our business.
06:17 - 06:43
And one good example is the service centers we've established for our our automobile business, where customers are served by our staff, where they have an appointment at the service center and get the full service straight in one location. We think that's a big advantage. Finally, there's this notion of influencing regulation to facilitate innovation. We're not the industry that's necessarily known for innovation, some of it because of regulations.
06:43 - 07:04
And one really striking example is the the arrival of car sharing services in Canada was a lot linked to the fact that we've helped change the regulation. So that could be possible. Talk about Lyft, Uber or anybody else. We've helped influence the regulation to make that happens. So those are the ones I would say are top of mind to in this area.
07:04 - 07:27
I want to stay with the theme of innovation for a second. More specifically, talk about in lab. Can you tell us how and Tech Lab uses machine learning, data science, AI agility, but also UX and design thinking to help transform the user experience for millions of your customers?
Absolutely. This is leading edge stuff. We've now probably have 500 people working in our labs.
07:27 - 07:50
And let me give you a couple of examples that I think are really interesting. Firstly, the first area that we've tackled was fraud detection, and it's not surprising with all the computing power and the quantity of data we have. Fraud was one area where we could put some behaviors together, you know, from fraudulent claims, for example, we could not put them together in the past.
07:50 - 08:26
Now, with the computing power, we're able to put two claims together and identify fraud more easily. So that's one, you know, key element, fraud detection. The other one is to provide better models for segmentation or pricing. And again, that's a matter of putting more variables together. And we could put together in the past, our success has been largely driven by our capacities and data analytics, segmentation, pricing, and now we just have a lot more power to leverage our scale advantage on that front in terms of the user interface and design thinking.
08:26 - 08:54
What I think is interesting is we've now developed very recently personalized telematics activation flows, which basically means users who buy into the telematics product can actually activate it themselves. It looks very obvious, but the reality is one of our challenges is people getting the advantages of telematics. But actually not activating the system. And now we've sort of made it easier for them to do it.
08:54 - 09:25
And that's a user interface issue. So here design thinking applies and we try to improve the activation, which is good for consumers, as good for us as well. Another example is we've recently acquired from the RSA business of fairly big affinity business. And what we've developed on the design thinking, again, is a way for people who are members of those affinity groups to facilitate to more easily access the discounts and advantages they have from being from having an affinity offer from us.
09:25 - 09:53
So those are just a couple of examples. Whether it's machine learning, artificial intelligence or user interface that we leverage the lab and the lab delivers tangible benefits. In fact, we actually think that the lab delivers savings in our business over 100 million worth of over $100 million a year at this point. So it's a big impact. It's everywhere in the background, in the customer facing, but clearly very tangible financial advantages.
09:53 - 10:24
So you mentioned acquisition. So I want to turn to one of our favorite topics, M&A. You know, Intact has a track record of I think it's 19 successful PNC acquisition since 1988. Do you expect to see more consolidation in the industry in the near term and going through what you've gone through in your own career, but also at intact, You know, what kind of lessons have you taken from going through, you know, previous acquisitions in the space that you might want to share with folks in this audience?
10:25 - 10:46
Sure. So firstly, on the consolidation itself in the sector, let me take the countries one by one. In Canada, we certainly believe there will be more consolidation. There's been quite a bit and we were at the forefront of that consolidation. We still think 10 to 15 points of market share will change hands in the future. In Canada, something probably between three and five years.
10:46 - 11:09
Not all of it, but some activity in the next 3 to 5 years, but over time, 10 to 15 points. We also think it's going to happen in distribution. There is a lot of consolidation going on in Canada, distribution, and we think it will continue and the market remains extremely competitive and fragmented. So there's a lot of room for consolidation and the drivers of that change are not necessarily unusual.
11:09 - 11:39
It's performance, it's capital allocation, technology deficits or technology investments, regulatory environment and so on. So everything is ripe for more consolidation in the market. And we've now looked outside the country. We've been in the U.S., we've been in the U.K., and there are through we think there will be more consolidation as companies seek to improve returns, scale or leverage or technology platforms in terms of advice.
11:39 - 12:03
Listen, a couple of points that come to my mind when I think about M&A. Firstly, it looks obvious, but don't fall in love with your project. I think it's it's risky. You need to make sure you maximize both strategic and financial returns and not one or the other. I think it's both. That's critical. And it's it's been at the root of our success, I think, in terms of M&A over the time.
12:03 - 12:24
And to that effect, don't play with numbers to make it work. It's easy to fall in love with your project and make the numbers push the numbers to make it work. I will strongly advise against that. I think everybody likes to talk. How many acquisitions are exhilarating? There's a sense of power, of victory, urgency, teamwork that's really unique.
12:24 - 12:42
It's a great feeling, but the reality is you haven't achieved anything if the share price doesn't move. And I will say in the right direction, obviously, But that's what you're trying to do. You've got to be ruthless and ruthless on value creation. And if there is none or too little of it, just banks have the discipline to price.
12:42 - 13:12
And then if you go ahead, you will make sure value is created early on. There's something about speed, execution very early and capturing the synergies that you've identified. And I think those are key items for success and harmony.
As you look out a little bit more longer term and you think about some of the other train trends that are impacting the space and things that you think, you know, maybe investors in particular should be paying a little bit more attention to as things sort of evolve.You know, we touched on a lot of things, talked a lot about technology, You talked a lot about the impact and things that you're able to do for your customers. But I'm wondering if there are any other trends you think you guys are really keeping an eye on that more people need to pay attention to?
Well, if you look out ten years personally, I hope to be skiing with my grandchildren or enjoying a nice.
13:30 - 13:54
I'll join you. I'll join your client. Ten years is a bit short for you, so either skiing or the beach, but for B and C insurance, there's probably a lot of elements to look at. Some that come to my mind. On the car front, I think clearly cars will be much safer. They'll be electric. Probably some of them will be autonomous.
13:54 - 14:16
And it's probably likely that the risk pool of automobile insurance will be smaller than what it is today. It doesn't disappear, but it will shrink a bit because of the technology going into the cars. So that's something we are clearly monitoring. It doesn't evolve as fast as as we thought, but certainly gathering steam and we're monitoring this clearly going the other way.
14:16 - 14:39
I think insurance companies will be busy repairing homes and businesses following severe weather events. So that trend will not change. We've got to manage it. But that's something we we need to pay attention to. Again, we see weather being a bit of a tailwind to the insurance industry, but you got to be careful managing well. One big area of growth is cyber insurance, and I think that will be a big part of the PC landscape.
14:39 - 15:01
And I'm hoping by that time the risk will be well understood. That's important. And of course, I assume intact will be in the top five insurance companies in the world by that time. I hope you're right. I also do.
16:10 - 16:31
Thinking about maybe the industry more broadly now. Again, you know, what are the qualities that you think are going to really differentiate those who succeed from maybe those who don't in the space, and what, you know, what decisions essentially will define that success in the future?
16:31 - 16:52
Sure. I like to think, you know, what we what has led to our success in the past is probably something that will keep will be important for the future has to do around discipline, around the education. I like to think there is courage required to take the hard decisions, which is important, as well as sticking to your values.
16:52 - 17:20
Clearly important have a societal impact on just running the business and creating value. That's important, but there has to be good for society out of there. And then I think what with the additional stuff needed now, profound knowledge of technology technologies that play such a big role, we need people to understand it. The whether it's technology, it's data, or even digital marketing, it's just changed so much.
17:20 - 17:39
We need to be on top of that. And then you know what decisions will define. I think part of that is seeing trends quickly and acting on them I think is critical and probably, you know, reinventing the work for us so that you are able to see new trends that are not visible today, but they will emerge in the future.
17:39 - 18:19
And you need different views. And that's why diversity is important so that you get all those views and you're able to act upon them. And I think those are elements that will be key to for for the future and that will define leaders from users. That's excellent. Well, you know what? I think we'll end it there. Louis, thanks so much for joining us.
18:19 - 18:04
And, you know, best of luck for you and the rest of the conference. Thank you very much. Pleasure to be here.