Flags on the map - why it's gone wrong at RSA

I can’t claim ownership of this perspective on why RSA has hit the buffers, culminating in chief executive Simon Lee’s departure on Friday 13 December, but in the blizzard of media stories that followed the top man’s stepping down, few commentators have analysed why RSA has got itself into this mess in the first place.

RSA is a ‘flags on a map’ business. The operating business divisions – UK, Ireland, North America, South America and Scandinavia (CODAN) -are separate business units with their own identities, their own culture and infrastructures, their own independent way of doing things. All they shared was a name, but the operating divisions were essentially independent of the mothership, and [this is speculative] as long as they delivered their numbers, they were left to their own devices.

A number of market watchers have noted that RSA seemed to be strongly focused on reporting against combined operating ratios (CORs); the lower the COR the better. In a world where low investment returns are the norm, reducing overall CORs is a good thing, isn’t it? But….

….Eyebrows were also raised about RSA’s reserve releases; flattering the numbers in the short term stores up trouble in the longer term. I also remember a very senior RSA manager telling me, when he left the business to work for another insurer, that one of the reasons he left RSA was because “they had no money.” 

So, if RSA adopts a don’t ask strategy, leaving its operating companies to do their own thing as long as they deliver their numbers, that extremely light touch from Group Centre creates a whole heap of trouble when things go badly wrong. I’m not close to the business, although I know many dedicated and brilliant people who work there, but I for one felt that the news from Ireland (didn’t the Irish Regulator flag that the Irish business was in trouble before anyone else?) came as a surprise to RSA Group Centre, and was one reason why investors were so angry with the Executive team. They - the exec - didn’t seem to know what was going on.

Moreover, and back to my flags on the map point, independence can be expensive; separate marketing, finance, HR and other REMF * functions in each BU are not synergistic, and often pursue their own cultural and business agendas outside the purview of the Group.  There is no single point of reference around which everyone can buy into.

I’m all for giving the some headroom to the operating divisions. Aviva Group Centre, where I worked for 18 months, was a ghastly (and expensive) Dementor** that sucked all life from its Life and GI businesses, but it did at least take a keen interest in what was going on outside St Helen’s. 

But there has to be a balance struck between oversight and ceding control. My sense is that RSA Plc, and chief executive Simon Lee, were content to live and let live, where perhaps a beady eye may have seen the problems earlier and prevented the resignation of a thoroughly decent man today.

* Rear echelon motherfuxkers (A US military phrase)

** Dementors (Harry Potter books: ghastly soul sucking spirits that guard wizard prison Azkahban)