The Australian Prudential Regulation Authority (APRA) is ramping up pressure for health insurance companies to amalgamate, as part of the sector’s “financial recovery plan”.
At an industry level, the rationale for a largescale M&A push is clear. But at a company level it is often less so, explains Police Health Chief Executive, Scott Williams.
“Consolidation of the health insurance industry is certainly a positive thing when you look at the bigger picture: The “pie” is getting smaller, but there are the same number of people trying to cut it. Each person’s wedge is getting smaller,” he told Informa Connect ahead of the Health Insurance Summit.
“Smaller firms will find it tough to weather out these conditions and, understandably, APRA doesn’t want large numbers of market exits happening under its watch.”
However, something which is right for the industry as a whole, may not be right for a particular company.
“Making yourself bigger doesn’t guarantee your survival. In fact, an amalgamation could turn out to be a total disaster, if poorly thought-out or executed,” he added.
Williams, like many CEOs, faced uncertainty before spearheading his firm’s recent merger. With the journey now nearing completion and looking to be a success, he shared some tips with Informa Connect.
Play the infinite game
When deciding on whether a merger was appropriate for his business, Williams sought inspiration from his favourite Author and early Ted-Talker, Simon Sinek. He found Sinek’s mantra, “play the infinite game” immensely useful for validating his decision-making criteria.
“The idea behind this mantra is to look past short-term, finite metrics – like getting a 5 percent return in two years – and focus on longer term objectives,” he said.
“In our case, we realised a merger could help us make considerable, long term regulatory savings and transfer those cost reductions to our members. This proved to be a strong basis for our decision.”
Get the culture right
Completing a merger is not the end of the process. In fact, it is just the beginning, said Williams.
“Often the real challenge lies in navigating the change and uncertainty a merger brings to your newly-formed organisation,” he said.
“In my view, creating an agile culture is the best way to deal with this change. You need to have everyone on board and personally invested in your united business goals.
“Getting there takes time. We completely revamped our values, using a vertical approach to develop and endorse them. Values drive behaviour; and behaviours are a reflection of culture.
“Getting these fundamentals consistent creates a workforce that truly shares a committed vision; and, by default, a willingness to adapt and achieve the desired purpose.”
William sought external communication expertise to bolster the efforts of his internal teams.
“We needed to really understand the different segments of our 60,000-person membership and make sure our messaging – about why we were doing what we were doing – was consistent,” he said.
“We were very glad we went to this extra effort as both the lead-up – and immediate aftermath – of our merger announcement demanded a great deal of time and attention.
“We wanted to convey the message simultaneously to all of our stakeholders, for political reasons.
“In a single day, we conducted presentations for all of our staff; contacted presidents of relevant associations we are partners with; and spoke with stakeholders such as the private health insurance ombudsman, the regulator, and the Department of Health.
“I would strongly advise other companies to get an extra pair of hands to make sure the messaging surrounding their merger is on point.”
Pick the right time
Williams’ parting advice is to make the decision when the waters are calm, not in the midst of a typhoon.
“A caveat for any merger or acquisition, is to not do it during a period of crisis. If you do that then, by default, it will be a hastened decision and likely fraught with risk.”
Scott Williams is the Chief Executive Officer of Police Health and a (self-titled) “reformed M&A novice”.
Presenting at Informa Connect’s Health Insurance Summit 2020, Williams will share further details of his firm’s recent deal and discuss the intricacies of his strategy.
Learn more and register.