Those popular 1970s graffiti books carried such slogans as "to err is human, but to really foul things up requires a computer". It's an adage that has come true for Paul Spencer, chief executive of Royal and SunAlliance's UK general insurance business.
"If we only had to merge the people, we could have done it smoothly, but merging systems is hugely complicated," he says. "And it wasn't helped by Y2K coming in the middle of it." That system failure led to the terrible service for which RSA self-admittedly became renowned. And Spencer apologises to brokers for that. "They have every right to bellyache about the service levels," he says.
But technology is also getting in the way of future plans. Spencer says he has established a single underwriting engine so that RSA writes all its business, whatever the sales channel, on the basis of one set of underwriting principles. That will mean the same core price for an identical product with the only price difference down to the distribution costs.
The problem is, RSA's current systems cannot deliver it yet, although Spencer promises success within the year: "We have one motor policy for the whole of the UK and we're well on the way to having a single household policy. Differential pricing will be a thing of the past. It's not that we want to differentiate between our customers, it's just that that's what our systems do," he says.
And Spencer says 15p in every £1 goes on expenses and 70p goes on claims, leaving just 15p on distribution. If RSA direct sells the product at 15% below the broker's price that would mean the company was claiming to spend nothing on distribution. Spencer says he won't do that. "I'm not a fool. I'm not going to sacrifice the 80% of my business I get from intermediaries for the 20% I have coming direct," says Spencer.
Spencer feels he can be optimistic about the future because RSA has put aside the root cause of its problems by having a single, strong leader at the top of the company. "We had two bosses and that wasn't working, so the perception in the market was that the merger wasn't working. Until the two bosses went, you couldn't get a single strategy," he says.
That strategy is markedly different. In a world of outsourcing, RSA has decided to move in the opposite direction in two areas. It has bought four bodyshops, just for starters, because it wants to see if it can run its own bodyshops successfully. If it can, it will buy more.
He is not afraid of finding the market just as tough as the hundreds of bodyshops that are going out of business because they are being squeezed by insurers. "Bodyshops are going out of business because they are badly run and they don't make use of economies of scale," he said.
It has also begun recruiting 100 in-house lawyers so they can handle all cases up to £50,000, which Spencer says will save the company a fortune. He already has 30 in place. Spencer refers again to his breakdown of costs. "Claims cost us 70p in the £1, so if I can make a 10% saving on claims I can take 7p off my premiums. To do that with distribution costs I have to cut commission in half," he says.
Spencer also plans to revolutionise RSA's products. Eventually, he wants to offer consumers the chance to buy a suite of products (both life and general) on an endless, monthly direct-debit basis. The suite will include insurance and investment products. The cover and premiums will continue until RSA, with due notice, makes changes, or until the consumer decides to stop the direct debt. There will be an annual renewal process.
On top of that, Spencer hopes to be able to allow consumers to choose to pay higher premiums so that, should they suffer financial hardship, lose their jobs, or need to reduce their outgoings because of family commitments, they can reduce or even stop paying without losing cover.
"The distinction between life and non-life products is an irrelevancy for many consumers. Through a life-cycle, that means people will need both investment and protection products. They will ask how they can protect their investments and how they can invest any surplus. To me, that artificial barrier between life and non-life will break down," he says.
That's not to say he wants general insurance regulated by the FSA to the same degree that it watches life. He wants GISC to succeed to avoid the FSA stepping in. But Spencer is not happy that GISC is proposing different regulatory standards for different sales routes. "That's totally unfair and GISC has to show that the standards everyone signs up to are as rigid as those faced by brokers. We don't want people coming in and selling to a lower standard – it ruins the industry. Anyone who has been through the pensions mis-selling wants to see standards maintained," he says.
And Spencer is bullish that RSA will fight off the competition no matter how big it is. He points out that RSA is the sixth biggest general insurer in the world and the biggest in the UK. And he knows from bitter experience that mergers to create bigger insurers will take others' eyes off the ball. "We are the biggest in the UK. We will be overtaken, but they will have a few years to get over their problems before they are a threat to us. We have huge economies of scale that can produce huge benefits for our customers," he says.
Fine words. Now all RSA has to do is live up to them.
