Old Mutual Holdings recently disclosed that it had decided to deliberately let go of some business from its books that was poorly performing, bringing to focus the issue of price undercutting in the insurance industry.
Business Daily spoke to Arthur Oginga, the group’s chief executive officer, on the pricing issue in the company, the challenge of fraud and the progress in the company’s plan to dispose of real estate holdings.
One of the problems associated with the insurance business is price undercutting – from where you sit, how big a challenge is it, and what is the way forward for the industry to address it?
My simple answer would be that a reduction in prices is, in and of itself, not a bad thing for customers. If it is driven by efficiencies and better operating models, then that can only be good.
However, when it is done at the expense of service and customer trust, it is a problem. Our industry is built around a promise – a promise to indemnify a customer in the event of a loss event. That is about trust, and when we are unable to maintain trust through service delays and/or delays in fulfilling our promise, then we have a problem which impacts the industry.
Our challenge is that we are a highly fragmented industry with low product differentiation, so price ends up being the only competitive lever.
The industry should pass on efficiency gains where that is real but refrain from pricing that leads to erosion of the very foundation on which we are dependent. An appropriate sharing of value is what ensures long-term sustainability.
What was the key driver to Old Mutual turning around to post profits in its core business of underwriting?
Yes, our underwriting margin rose from a negative position in the last three years to 2.8 percent as of June, and one of the factors in turning profitable was pricing.
We have now priced our portfolio properly after looking at it on a case-by-case basis. At the end of the day, some people said we were too expensive and went to get services elsewhere, resulting in our top line remaining flat, but we accepted those decisions because we were losing money on some of those accounts. So pricing remediation is important.
There was supplier rationalisation as well. For example, we are now talking to pharmaceutical companies about the cost of drugs, particularly for chronic disease patients. We’ve also introduced pharmacy first, so rather than go to a hospital, go to a pharmacy first, and that’s picking up.
How has AI impacted your business?
We can say AI is now really embedded in our medical business, and it is very important to us in managing fraud and waste. We are processing claims faster as a result of AI. We are identifying exceptions quicker and then reviewing them for fraud.
Enhanced fraud detection helps protect both customers and shareholders across the group. AI is also improving how we understand customer needs, personalising engagement, and providing actionable insights to our teams.
We have six AI use cases now operating at scale, and have delivered just under Sh400 million in value this year. So AI is no longer an experiment; it’s becoming a core capability that improves customer outcomes, operational efficiency, and business performance.
There was word of staff restructuring. Was this the case?
I don’t know who said that, and I keep hearing that story, but we have not had any restructuring and are not planning for one.
You have become one of the first insurance companies to disclose the statistics on fraud in your business – what advised you to publish your fraud numbers?
Some people have misunderstood what we are doing when we are publishing our statistics around fraud. Within the insurance industry, fraud is a threat, and we want to be more transparent about what we are doing to combat fraud, because fraud costs not only shareholders but also customers in premiums.
So we are continuing to improve our fraud risk management and deliver stronger results. In the first half of this year, confirmed fraud losses dropped 69 percent, external fraud losses declined 90 percent, and we prevented over 60 million in attempted fraud. So these outcomes are reflecting our sustained investment in controls, governance, and awareness, while we continue to focus on insider risk and the overall control environment.
We hope that even other players will start disclosing their figures, then we can all join hands in an honest conversation to fight this threat.
You have been in the market selling some of your properties – what is the progress?
We are in good discussions with potential buyers of the tower. As you may know, with these kinds of transactions, until it is signed, you can’t bank it.
We have some offers that we are reviewing as well on some of the other properties that we are selling, like in Uganda. We will see a lot of progress in the coming months, and hopefully we should close by mid next year.
You have communicated of closing business in South Sudan. How soon do you see yourselves disposing of property in the young nation?
South Sudan is a difficult market, so obviously we do not see this happening soon enough. The reasons why we are exiting South Sudan are clear to everyone, so we have many other investors who are thinking the same way.
So circumstances are very difficult to find buyers for properties, especially given the size of our building in South Sudan. So that might be something that we will hold on to a lot longer, but the building is intact.
We’ve got a property manager running it now, so even after we exit, we will have a few staff there past December whose job mainly will be around the property and the liquidation of the company.
You injected Sh1.2 billion in Faulu Microfinance Bank earlier this year at a time when the micro-financing space has been invaded by banks and digital lenders. Can microfinance compete with banks and digital lenders?
Faulu just completed the implementation of a new core banking system, and together with a digital platform, that should make Faulu more competitive in the digital lending landscape.
The capital injection was to support the turnaround actions and the core banking system implementation so that Faulu, which has predominantly been lending to county staff, will lend to government staff while becoming a digital lender focusing on growth.
