Agent of change.

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Section: Finance and economics

Remodelling Allianz

Agent of change

The delicate business of reorganising Europe's biggest insurer

Dateline: MUNICH

TURNING ideas into reality is never as easy as chief executives would like. In Germany, where workers are represented on company boards and "consensus" is a cardinal social principle, it can be a particularly delicate operation. Michael Diekmann, boss of Allianz, Germany's (and Europe's) biggest insurer, has a clear idea of how his company should be structured. Although it is global, he sees its home market as Europe. And instead of the current five product lines, he wants only three: insurance, asset management and banking (through a subsidiary, Dresdner Bank). His plan, though, is causing grief in Germany.

At home, Allianz's traditional strength has been its network of insurance agents. Almost every village from Bavaria to Brandenburg has an agent, whose window sports the firm's blue eagle and who plies only Allianz products. The agents have been best at selling property and casualty (P&C) cover but increasingly they have been urged to sell life policies and health insurance too. Until now, P&C, life and health sales have been run by different arms of Allianz. Last month Mr Diekmann said that one subsidiary would do the lot.

Replacing three client databases with one will save Allianz lots of back-office costs. The heavily unionised workforce, however, sees the idea as a potential job-destroyer. The agents too, although they live on commission, fear that the drive to cut costs will erode their business. Last month Allianz began to offer car insurance online at prices well below those it quotes to agents and independent brokers.

This week Mr Diekmann explained his thinking to agents at a get-together in Athens. Online motor-insurance, he argued, is aimed at young buyers in big cities, whom Allianz agents hardly touch (they do best in rural areas). Surely, he said, the agents would rather these youngsters bought one Allianz product and became potential clients for more, than that other insurers sold them car cover online instead?

Allianz's biggest problem at home is the stagnation of its P&C business (worldwide, P&C provides 58% of the company's operating profit; life and health supply 21%, asset management 12% and banking 9%). For example, sales of car insurance, one type of P&C business, have been heavily hit by the increase in oil prices. The German restructuring may be the right course of action, but the bosses have not yet said how many jobs it will cost. Allianz sources say that this is hard to predict because the growth of the firm's business depends on market conditions and the possibility of retraining back-office staff as salesmen.

All this shows how softly Mr Diekmann feels he must tread. It does not help that, as in all big German companies, workers' representatives have 50% of the seats on Allianz's supervisory board. Even though these cannot outvote the management, they can make life awkward. The unions already have an eye on works-council elections next March.

Last month Allianz it said would adopt the legal form of a Societas Europaea (SE), a European creature, instead of a German Aktiengesellschaft, in order to effect a full merger with RAS, an Italian insurer of which it already owns 55%. An SE can have either a single, Anglo-Saxon-style board or the German two-tier model of management and supervisory boards. Allianz will keep two tiers, but wants to cut the membership of the supervisory board from 20 to 12. A change of system was never on: when converting to an SE, a firm with workers' delegates on its board can abolish them only by agreement. Fat chance.

Outside Germany, the merger with RAS will give Allianz a better hold over its businesses in Italy, Austria, Spain and Portugal, which will report directly to Munich rather than via Milan. It may later fold in another Italian subsidiary, Lloyd Adriatico. But it may be some time before Allianz carries out a similar merger with AGF, a French insurer of which it owns 60%. German cross-border merger rules favour the valuation of a court-appointed auditor over the relative market worth of the two companies. For AGF, the former would be so far below the latter that no minority shareholder would accept it.

The international bits of Allianz's reorganisation may in any case be less important than they appear. Cross-border sales of insurance are still not a reality, despite efforts to create a single European market for financial services. Allianz's SE status is likely to be approved by shareholders in February. But despite the firm's pan-European form, it will have to keep working country by country.

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