Gjensidige Forsikring ASA (GJF) Earnings Call Transcript & Summary

Good afternoon, everyone. My name is Mitra Negård, and I am Head of Investor Relations. Thank you for joining us today. The topic of this webinar is an update on our claim savings program, which we announced at our Capital Markets Day in 2023. With me here today are our 2 speakers, CEO, Geir Holmgren; and Executive Vice President for Claims, Vivi Kofoed. Our CFO, Jostein Amdal, and I will participate in the Q&A session afterwards. The presentations will take approximately 20 minutes. We will open up for your questions after the presentations. These can be typed in the box on our website. This webcast is being recorded and will be posted on our website afterwards. The presentation slides were made available on our site just a few moments ago. So without further ado, I hand the word over to Geir.

Thank you, Mitra, and good afternoon, everyone. It is now 20 months since we established our joint claims organization across our Norwegian and Danish operations and 15 months since we launched our claims savings program, aiming towards savings of NOK 800 million. I'm very pleased with the strong progress in this program with deliveries exceeding our target, well ahead of plan. Claims handling is a key part of our integrated value chain and instrumental to succeed in the general insurance industry. Gjensidige is market-leading in claims handling and efficient high-quality claims handling is a strong contribution to our overall group deliveries. We have improved our customer self-service solutions and ensured high efficiency through an optimal balance between human and digital interaction. That has given us a sound competitive advantage in Norway, but we don't rest on our laurels. To succeed in becoming a leader in the Nordic region, we must be the best at our core business across our markets, realizing the full potential between Norway and Denmark by developing and utilizing best practices across borders is a high priority. And we will continue to invest in technology and expand utilization of data analytics in all aspects of our operations. Vivi Kofoed will now join me here. She has been in Gjensidige for a total of 17 years, holding several roles across the group. She has had a current role as responsible for the claims division since August last year. She will provide you with insights into what we have achieved so far and how we will continue to enhance our claims handling processes. Vivi, the floor is yours.

Thank you so much, Geir. Good afternoon, everyone. My name is Vivi Kofoed, and I am responsible for the claims division. I'm proud to share with you the results of the claims cost saving program we launched in November 2023, aiming to reduce claims costs across Norway and Denmark by NOK 800 million by 2026. Today, I'm pleased to announce that we have reached our goal 2 years ahead of schedule. As of January this year, we have achieved NOK 812 million to cost savings from our program. This strong performance is based on a strategic, disciplined and data-driven approach supported by strong collaboration with close partners and across divisions in Gjensidige. Approximately 75% of savings has been realized in Norway and the rest in Denmark, measured against the 2022 baseline. Our main focus in the period has firstly been to achieve strategic and operational enhancements. We are capitalizing on shifting market dynamics and a rising number of claims by leveraging scale and rethinking operational efficiency to drive sustainable improvements. Secondly, we have continued to harvest on technology and analytics. Advancements in technology and data analytics has enabled us to obtain cost reductions, and we have utilized artificial intelligence to optimize our claims handling processes across both markets. Thirdly, we have made a strong effort to establish a solid operational foundation in Denmark, enabling us to realize further synergies and improved operational efficiency going forward. Now let us dive into each of the key savings areas. Fraud. Fraud is a global challenge growing in complexity. Our ability to prevent and uncover fraud attempts is crucial in a rapidly moving tech landscape. We have an established and highly efficient fraud function in Gjensidige, which identified the first AI-generated fraudulent document in 2024. We have successfully implemented fraud prevention measures that have given us significant savings by NOK 71 million. The most important enabler for fraud-related savings are in our in-house developed AI-powered anti-fraud model tools. These models are self-learning built on advanced analytics and machine learning and combine these with multiple internal and external data sources to detect anomalies. We have embedded our fraud models into a new operating model in Denmark, concentrate -- Norway, sorry, concentrating fraud-related tasks to a claims specialist, and it has proven to be very efficient with a higher accuracy and also beneficial in terms of further development for our models through dynamic feedback. The new operating model and the development of the fraud models had led to an increase in the number of controlled cases by 65% since 2022 and improved accuracy or hit rates by 40% over the same period. These 2 factors combined has led to an almost 3x higher fraud savings over the past 2 years. Moving forward, we will continue to refine and expand our fraud models. We see AI as a key enabler. Our models are scalable and will continuously improve through machine learning and adding new data sources, detecting fraud before payouts. By integrating our forgery detection systems into claims handling document systems, we move from reactive response to more proactive fraud prevention by scanning all documents going forward. Based on encouraging results in Norway, we are now implementing the fraud models in Denmark and expect to see significantly impacts on fraud detection there as well. Moving over to procurement. Geopolitical shift and inflationary pressures require that we continuously adapt to evolving conditions. And so far in procurement, we have generated NOK 248 million in cost savings across both Norway and Denmark. As you all know, the motor market is evolving with an increasing share of electrical cars with several high-voltage components, sensors and also large glass surface. To adapt to these shifts, we have renegotiated supplier contracts and optimized our partner network for more cost-efficient claims handling. In Norway, we have further improved our sophisticated steering model for motor insurance, allowing automatic steering of damaged vehicle to the most cost-effective workshops, creating sustainable savings. We have also automated the steering model, which ensures real-time supply monitoring and optimizes cost and quality for every claim. By optimizing our partner network and steering repairs to preferred workshops, we have increased the share of repairs rather than changing it with new spare parts. As an example, we have increased the share of windshield repairs in Norway by 7% over the past 2 years and the most efficient partner workshops in our network operate at an 11% lower average cost than regular workshop. By steering 5 percentage points more repairs to our partner workshops, we have, therefore, also achieved significant cost savings across our portfolio. We see an increased demand for health insurance. Gjensidige is the leading provider of health insurance in Norway and has a #3 position in Denmark. We have taken proactive steps to secure the right capacity for our claims handling, while at the same time, maintaining cost control to ensure sustained profitability in a growing market. In Denmark, our key initiatives include renegotiating with existing suppliers, obtaining significantly better terms and conditions from hospitals and clinics and expansion of our supplier network with agreement based on attractive terms and conditions there as well. Integrating our treatment selection tool, which efficiently steers customers to our preferred partners and allows a speedier process towards the customers. And we are also very pleased with the result because despite of general inflationary pressure, we have reduced payouts for health insurance in Denmark by 14% while maintaining good service quality. When we look at travel, we see global events such as geopolitical instability had significantly impacted the travel patterns. Key tourist destinations have seen fluctuating demand and medical flight routes have had to change. We have responded by rethinking our claims handling approach and renegotiated supply agreements in the top 10 major tourist destinations, ensuring we maintain both cost efficiency and a high-quality service for the customers abroad. A good example is Turkey, where we have reduced average claims cost by nearly 50% in 2024 by outsourcing cost control of invoices to a new partner. Through a strong partnership with REDGO, we have been integrating our claims processes with their efficient roadside assistance, enhancing operational efficiency and streamlining workforce. We are now offering a 24/7 availability and a strong feet on-the-ground presence, optimizing the customer journey and reducing claims cost. Up till now, we have realized significant synergies, bringing total savings of NOK 68 million. One of the main drivers is the implementation of the first-line claims management in REDGO. We have improved the first-line support, enhanced data collection and establish an optimal process to handle claims. As the system for REDGO and Gjensidige now has become fully integrated, key data are now -- will now flow seamlessly, unlocking 2 main benefits: optimized supplier steering, REDGO's towing network now uses Gjensidige supplier model, directing more claims to preferred workshops. And by utilizing our unique service from, REDGO for accident site data sharing, REDGO's reports and photos now feed directly into Gjensidige's system, improving both claims handling, damage prevention and limiting claims cost. Rapid technology advancement and increasing pressure from multiple parts of the value chain driven by, among others, a rising number of weather-related claims has led us to rethink our approach to operational efficiency. We have achieved NOK 420 million in cost savings through targeted initiatives across 12 categories. In Norway, we have reorganized the property claims process, moving the decision point to a pool of claims handler with technical expertise to ensure more accurate settlements. In Denmark, we have introduced a new AI-powered tool, which helps handlers assess claims, recourse more precisely and efficiently, and this has increased recourse claims by 9% over the past year. We have increased automation of claims processing across both Denmark and Norway by 3 percentage points during the past year, enhancing efficiency and reducing costs. And we have particularly good results in health insurance, where we have reached 99% digital claims reporting in Norway and 89% in Denmark. Higher automation is not only a benefit for us, but also highly appreciated -- is also highly appreciated by our customers, which experiences a more swifter claim process. We see further potential for efficiency gains through leveraging AI, automation and data-driven decision-making. We also see a very interesting potential from further developing image recognition for motor claims in Norway and Denmark. With 41% reduction in carbon intensity, we are well on track to deliver on our 2030 ambition as well. 80% of our carbon footprint comes from motor repairs, making this our primary focus area. Our reductions of carbon intensity has up till now been driven by a higher share of used spare parts and steering of repairs to partners, which comply with our sustainability requirements. We have clarified warranties for used spare parts for most car brands, enabling a wider application of used spare parts going forward. Used spare parts are not only beneficial in terms of carbon footprint, but also to reduce claims costs, as you can see from the example. This applies particularly to EV components where used spare parts and higher share of repairs instead of replacements are reducing both cost and emissions significantly. While we remain focused on short-term cost efficiency, we are equally committed to creating solutions today that provide strategic advantage and drive further value in the future. We are building the future of claims handling with a vision that ensures a great customer experience is based on operational excellence and a high cost efficiency. Our ambition is structured around 3 key areas: firstly, to expand the use of AI in our claims handling processes toward our customers, ensuring faster and more accurate decision-making and enhancing the customer experience, of course. Secondly, to roll out the future operating model across Norway and Denmark, we are developing an intelligent hybrid model that merges AI and the capabilities of the expertise in our claims specialists. This will allow us to manage fluctuation in claims volumes without having to increase our resources linearly. And thirdly, to broaden the use of advanced analytics across the entire claims value chain and partner network as well. Well, I've now reached the end of my presentation. And to summarize the key points, we have delivered on our cost-saving programs, 2 years ahead of plan. We have delivered strong cost efficiency across multiple product lines and processes, and we've proven the power of AI and further strengthening technology-driven claims management. And of course, not the least, we have established a scalable foundation for further operational excellence in Denmark as well. Thank you so much for listening. I will now hand you back to Mitra.

Thank you, Vivi. We will now open up for questions. Please type your questions in the box beside the link to the webinar. We have already received our first question. It is from Michele Ballatore from KBW. Would the savings reached ahead of schedule trigger further savings? Can you help us quantifying those?

Well, first, we are very satisfied that we have reached target already. We have many ongoing measures. We are working with how to still further improve the way we are doing automation and probably getting more efficiency gains from that, but we will not put any more targets on the table. We still have one financial targets regarding the Danish business, which is coming through, the NOK 750 million in ISR results in 2026. We are now delivering on -- if you look at last year, at NOK 540 million, and we have -- everything we do on the operational side, both within private, within commercial and within claims will help us to achieve the financial targets we have set for the Danish part of our business.

The next question was around the same topic. So I believe it was answered now. So let us give our listeners and viewers a few moments to type more questions. Of the already realized claims cost savings, what has been the biggest positive surprise. That question is from Johan Ström, Carnegie.

The biggest positive surprise, I think I'm very happy to see that we have seen improvements both within fraud detection and the way we work with fraud when it comes to automation and how we use technology. And since we actually launched the program back in late '23, we also see that development regarding technology is very helpful. We see that generative AI is coming through probably much faster than expected a year ago. And we are also using that integrated in the claims processes going forward, which is -- I'm very optimistic on how we can improve our business on the claims side, both improving quality and efficiency and improve the customer satisfaction. So I don't -- perhaps you can mention something, Vivi, but I have not one specific topic, but it's all about everything we have achieved so far.

I think that's a very good explanation. For now, I think the biggest surprise for us was combining artificial intelligence with our workforce, seeing that we reached our target way ahead of time. So we're very happy with that. And I think as well the synergies that can be made now by -- we've laid a solid foundation. So we can now take this directly to Denmark, where we do wishes to see more improvements and to Sweden as well. So I think the synergies, the scale potential, but also the combination of man and machine has been a very pleasant surprise.

Thank you. Faizan Lakhani from HSBC. Could you provide the breakdown of how much of the benefit has come through via the expense ratio or cost ratio, which is in our accounts, versus the claims ratio.

Well, this program has focused on the claims handling process and how we do that most efficiently. And the benefits have come through, through the loss ratio, both actual payments especially through the fraud side, but also our claims handling expenses, but both are in the accounts recognized at the loss ratio claims expenses.

We have another question from someone who hasn't printed their name. You have headroom for savings in fraud, procurement and REDGO, should we expect you to reach those targets individually?

Well, right now, just because we are quitting the program, we are not downsizing our ambitions on cost release. We found so many further potential savings, not just in fraud, but also in procurement. And by driving a more efficient operation, we will see even more savings there as well. So individual, it's not really that important to us. It's more important for the bigger picture, not letting us being limited by that.

Thank you. Jan Erik Gjerland, ABG. When were these synergies achieved as a linear process or back-end loaded?

I think this has been back-end loaded this it's of thing -- If you want to distinguish between one or the other, it's more in the back-end loaded, so it has increased in speed during the second half of 2024. That's the short and easy answer. And then it varies a bit between the different parts of it.

Herman Zahl, Pareto is asking the subcategory, explaining that you are ahead of schedule is operational excellence. Could you discuss why you are far ahead here? And if you feel well positioned to reach the targets in REDGO and fraud and procurement?

It's three wonderful questions at once. When it comes to operational efficiency, I think I talked a bit about combining artificial intelligence with our claims handlers is going to give us even further savings going forward. So we're not only viewing it from a Norwegian point of view. We're looking for it from a Nordic point of view, trying to enhance further scale. And when it comes to REDGO and procurement. Well, it all kind of like hangs in there together because REDGO is right now having benefits of our steering models in Gjensidige and procurement as well is close connected to the way we drive our operation. So everything is kind of like connected and the more connect things, the even bigger results we will see in the future, driving technology and data analytics across the whole value chain. That is where the big improvements will lie. So not just looking at it individually, but having a more holistic view to build a stronger value chain.

Vinit Malhotra from Mediobanca, how many of these savings are going to the net bottom line? Also, what is the surprise area? And was the effect of this already visible in the fourth quarter's strong underlying results?

I'll start on the latter part of that question, as I answered to Jan Erik's question, it's the speed of realizing these improvements have been catching up throughout 2024. So it's more a bit back-ended loaded. In a way, you can say all this has hit the bottom line, but you can't really distinguish this effect from all the other effects that hits our business in terms of claims frequency changes, claims inflation and so on. But in a way, this has all flown through the bottom line as such. And then some of these benefits are also, as Vivi explained, to the benefit of the customers to increase digitization and automation. But nevertheless, it will have a positive bottom line effect over the time.

I could probably add that if you look at what we had done during the last 18 months regarding repricing, changing terms and conditions introducing and increasing deductibles and having this claims program, a lot going on. And the totality or some it has of course, a very positive impact on the results now and going forward.

Thank you. Next question from Jan Erik again, have the recent weather events at the West Coast, Middle of Norway and Hadeland caused a lot of damages?

Yes, there has obviously been a lot of damages. But in terms of insured losses, it's a bit too early to tell how this will affect this, how much of this will go through in the natural perils line of business, how much hits our other businesses. And a large part of it has, of course, been losses to infrastructure and so on, which is not covered by the private insurance market at all. So it's a bit too early to tell. I'm sure we'll give you an update on that in the first quarter reporting in a bit more than one month ahead of us.

And we have also published a few press releases on this on our press room. So you can see a few updates on some of the days where we had the storms and flood. Next question from Ulrik Zürcher, Nordea. How much upside is left for Motor Norway with regards to workshop steering?

Well, a lot. That's a good question. Today, we steer approximately 92% of our damaged cars to our preferred partners in Norway. And in Denmark, the number's a bit lower. So in regard to volume, we can drive more -- steer more volume in Denmark to obtain or to achieve more cost savings. So I think in Norway, the focus is more on steering to repair shops, which can repair instead of replace or instead of using new parts, use used parts because in there, we see a lot of savings as well.

Next question from Faizan again, what levers do you have left to meet your below 82% combined ratio goal? Is it all now dependent on price increases?

It's a combination of working with cost efficiency in the group, working with terms and conditions, working with pricing, as mentioned. And of course, everything we do on the claims side is definitely helpful. Like the examples we have been through today. We will still work on finding improvements in the way we do our business operationally, having a positive impact on both the loss ratio, cost ratio and of course, on the top line when it comes to pricing measures. Anything to add, Jostein?

Just to remind you of the data points we gave you in the fourth quarter report, where we talked about how much is the average price now -- has the average price increased in the private segment in Norway, where not everything is, of course, being earned. We have higher price increases in place than what's reflected in accounts and of course, the positive on bond renewals in the commercial segments, both in Norway and Denmark, which will have a positive impact going forward.

Next question, Hans Rettedal Christiansen, Danske. How should we think around the improvement in the underlying loss ratio seen during 2024 and the claims cost targets that have been reached 2 years ahead of time, specifically, with regards to pricing above the claims inflation you have seen in the market and where you are in this cycle? Where have you seen the greatest savings in private or commercial?

I can start with the overall picture is you need to look at, as Geir answered on the previous question, on the pricing measures, what we've done on the terms and condition and what we achieved through the claims program here. It also adds up to the development you now see in the underlying frequency loss ratio. And you will see during 2025 in terms of improvements. And the split, Vivi, maybe you can -- on the split between Norway and Denmark, I think you have...

Yes. Well, overall, on geographics, we are 75% split in Norway versus Denmark. And in Denmark, private versus commercial is primarily commercial lines. And in Norway, it's a bit more 50-50. Yes.

So slight -- more or less reflecting the overall kind of volume we have in the different segments and subsegments really.

Exactly.

Jan Erik Gjerland again. Will you give some of the NOK 812 million benefits back to customers as lower prices?

Lower price is not on the table yet, I have to admit. We are working with repricing as we have talked about for the last 18 months. We are following the claims development very closely. And it's important to see what's happening with the frequency development as we have commented on quarter-by-quarter in the past. And having the strong focus is definitely important. We are working for improving profitability, see what we can do, both on reducing the loss ratio by examples we have seen today and of course, doing all the repricing we are managing at the moment.

Thank you. [ Van Nicoletti ], the next question, how do you expect regulation to affect the synergies between AI and claims handlers going forward? Are there any concerns that, for instance, the EU will catch up in a few years with more intense regulation and thereby disrupt the current cost targets and results?

That is a very good question, and I wish I had a 100% accurate answer to it because we don't know yet. What we know is we've been working with machine learning and artificial intelligence for several years now. And as an insurance company, we are used to working with tough regulations. So I think we feel very confident going forward on the way we're building our setup using data and data products in a way where we can steer around the regulation going forward.

Next question from Youdish Chicooree from Autonomous Research. We've seen consolidation in the Nordics lead to significant claims benefits for peers. Are you in a position where you would expect to be able to harvest claims benefits if you did an acquisition in Denmark?

Well, we are doing our considerations regarding opportunities outside Norway, of course, both in Denmark and in Sweden. That's part of our business, and we have been talking about that for some time regarding M&A and more structural transformative changes. And yes, of course, if you are going to do anything, it will definitely use all the skills and expertise and knowledge we have in our group to improve business. And if something happened and -- potential to do a transaction, we also will aim for having the best practice across our segments, across our customer groups, across our markets we are in, but it's very hard to mention something specific before we have anything on the table. It's quite hypothetic.

Thank you. Vinit has typed a new question. Just to follow up on initiatives going forward. I understand you don't have new targets, but there would be initiatives which could see more benefits? Or should we assume that targets are met, so there may not be a big push going forward?

We are definitely targeting more initiatives to increase our cost savings. I think we learned from this process is that because everything is connected, it is more beneficial to us to see it in a whole and not dividing the targets in bits and pieces. Yes. So we are definitely aiming for more cost savings going forward.

Yes. And to add, I'm very pleased to see that we have reached a target already ahead of plan. And I think if you look at cost discipline, it's a very strong cost discipline in Gjensidige and we will continue with that focus and try to improve the business day by day and also improving our cost efficiency and reaching that target will not make us put that kind of objective away. We will still continue trying to improve our cost efficiency in addition to everything else we do, improving loss ratio and increasing the top line.

What seems to be the last question is from Jan Erik. Where are the largest challenges now for claims inflation, average claims cost or frequency? And is it property or motor or both?

I think we see challenges or potential in all lines of business. There is -- we are extremely close to monitoring all parts of that equation, both the frequency and the average claim here. I think we give you quite good guidance every quarter in terms of where we see the inflation picture going forward. Nothing has changed in that communication and we're kind of vigilantly monitoring the development of claims frequency. We have had a special focus on motor over the last 6 to 8 -- 6, 7 quarters now. And I think we have met that development in a good way, but we just need to be on our toes, if something happens going forward. It's especially hard to predict about the future. But we'll try to explain as well as we can about what has actually happened there.

All right. There are no further questions. So thank you once again for all your good questions, and thank you for your attention. I hope you found this session useful. If you have any further questions, please don't hesitate to contact us in IR. And with that, we will conclude this session. Have a nice day.