Playing to win on the global stage

Rough Notes, May 2000 by Boone, Elisabeth

With a redefined mission and a focus on core business, Chubb claims the world as its market

After decades of making obeisance to the great god Diversification, the property/casualty business is now being forced to take account of the drawbacks of a strategy that once reliably produced impressive growth and profits. With the domestic commercial lines market just beginning to climb out of the cellar, insurers increasingly are seeking to sharpen their focus and concentrate on product lines and markets where they have confidence they can make a profit.

One such insurer is the Chubb Group, whose management team is pursuing growth in carefully defined markets while at the same time divesting itself of interests in non-core business areas. We'll talk with top executives of Chubb to learn the key elements of its strategy, the impact of this new direction on independent agents, and the results the insurer expects to achieve. For an overall view of Chubb's goals and initiatives, we'll begin with John Degnan, president of The Chubb Corporation, which serves as the holding company for Chubb's insurance subsidiaries. Then we'll speak with executives from Chubb's major divisions: standard commercial lines, personal lines, specialty commercial, and multinational.

When and why did Chubb decide to pull back from the "be all things to all people" approach that had dominated the property/casualty business since the late 1960s, when carriers like Chubb began to form holding companies to serve as the vehicles for diversification?

Well into the 1990s Chubb, like most of its peers, was committed to offering a diversified portfolio of products and services to a broad market. "In 1997, we decided a better strategy would be to divest our interests in non-core businesses-life insurance and real estate investmentwhen the market would pay us a hefty reward, and focus on what had been our core business throughout our 115year history: property/casualty insurance," Degnan explains. "We backed away from being a global financial services provider because we didn't believe we had to own it all. We redefined our mission: to be the preeminent global provider of specialized insurance products. The price we received for our life insurance company was a good return on the investment, and the sale of our real estate holdings reduced our debt and gave us a low debt to equity ratio. This allowed us to make acquisitions like Executive Risk. Our strategy is to grow organically and make strategic acquisitions that bring us products or expand our geographic spread, not just increase our market share. We don't see ourselves as a great consolidator."

Multinational expansion

A key corporate goal for Chubb is to derive 33% of revenue from outside the United States by 2005. What was the rationale for establishing this objective, and how does Chubb plan to achieve it? "The domestic property/casualty business is mature," Degnan observes.

"We see significant growth opportunities overseas." Non-U.S. business now makes up one sixth of Chubb's revenue, Degnan says. "Had we not disengaged from Royal & SunAlliance in 1995, the percentage would be higher. I'm confident we'll achieve our goal." Chubb now has 132 offices in 31 countries, plus managing general agencies in Hong Kong and Denmark and a surety company in Argentina. "Chubb is one of only two U.S. property/casualty companies with licenses in China; we have offices in Beijing, Shanghai, and Shenzhen," he comments. "We're also one of only two U.S. insurers that has approval to do business in India. By 2005 we expect these offices will be contributing significantly to our growth."

Strategies for the future

What other major goals and initiatives does Chubb plan to pursue over the next few years? "In the short term, our first priority is to restore our standard commercial lines book to something approximating profitability," Degnan responds. Second, "We want to better position ourselves to compete in the specialty commercial market. We're making a recommitment to improving our ability to bring new products to the market. Executive Risk (which Chubb acquired last July) is a smaller, more entrepreneurial entity with a shorter product development cycle," he explains. "By combining our strengths, we can create a powerful marketing opportunity" Another key objective is to make use of Internet technology to streamline functions and control costs. "We want to find ways to use the Internet to accelerate growth and support our agents," Degnan explains. "Our agents now have access to online claims information and multiline quoting facilities. Too many insurers see the Net as a vehicle for direct sales, instead of using it to enhance the efficiency of agency operations and improve customer relations."

For a closer look at each of Chubb's major business units, we'll talk with the executives in charge of those units, beginning with standard commercial lines.

COMMERCIAL INSURANCE

Producing 26% of the insurer's $4.2 billion commercial premium volume for 1999, Chubb Commercial Insurance manages middle market package, workers compensation, auto, and umbrella products. Senior Vice President and Managing Director Paul J. Krump, an 18-year Chubb veteran, is worldwide manager of the division and is responsible for turning this unit around and restoring it to profitability. The division targets a wide range of middle market risks: high tech (including electronics and software), biotech, broadcasters, wholesalers, metal manufacturers, and museums, among others. Selected products also are offered to smaller accounts.