Fathers of reinvention

A catchphrase across the industry in the past few years has been 'what is happening at Zurich?', as the insurer has shunned the press and subsequently the limelight. However, this has changed dramatically in the last few months and the insurer is now keen to shout about its plans.

Between meeting David Smith, head of broking, at the door and arriving in the boardroom, we have already discussed the British Insurance Brokers' Association's survey reporting there are around 4000 brokers in the UK. Smith says that although many are classified as motor brokers, many smaller firms also provide commercial insurance and that Zurich has 3300 agencies. He appears totally engaged in the market and is enthusiastic about the opportunities for independent brokers.

Restructures are fashionable and, at the end of last year, Zurich restructured into four areas: broker; commercial direct, which included Zurich Municipal; corporate partners and affinity; and retail.

The main difference for brokers has been to provide them with one point of contact for both personal and commercial business. Brokers are sceptical that such changes make any differences 'on the ground'. Smith agrees brokers are right to ask questions: "A lot of restructures give little benefit to the broker." Defending Zurich's efforts, he says: "There is a real tangible because, for the first time, Zurich has gone out and looked at the broker's business as a whole. By the end of March, each broker will deal with one account executive to deal across personal and commercial lines. Zurich's 10 business propositions will be immediately available to the broker."

How will this help brokers? Smith, who has visited over fifty broker chief executives and managing directors in the past three months, replies: "This will provide them more opportunity to understand the whole of Zurich, and in addition save them time. We believe we have reversed previous trends where insurers have focused on fewer brokers." Of course, one broker that Zurich has not done commercial business with over the past three years is regional broking giant Towergate, perhaps forcing Zurich's hand to reach out.

The new structure is also helping Zurich win new business. Smith says: "On the back of commercial relationships we have won two multi-million niche personal lines portfolios. Conversely on the personal line brokers we are also receiving more small to medium-sized enquiries from brokers we haven't seen this business from before." There are around 60 account executives serving all its regional brokers, although Zurich's "top 30" have bespoke accounts and there are 600 brokers in its 'broker alliance programme' with "growth potential and scale."

However, is it possible to get brokers excited about an insurer's service? They are convinced they can, and that although there is still a long way to go, feedback has been positive so far.

There have been further changes at the Swiss-owned insurer, including job cuts. By moving all personal broker business to Cardiff, around 90 jobs have been put at risk, although many will be redeployed to other areas. There have also been other cuts in Newcastle - where 500 people were released at the end of March - and a redeployment of staff from Portsmouth. Meanwhile, the partnerships side of the business is being aligned to Fareham.

Global alignment

Munnoch, who has been at Zurich for 10 years, says: "In the past two years, this is the first time (at Zurich) I've seen alignment globally through to Europe and the UK. This is an important transformation. Our vision has always been to be the leading multi-niche multi-distribution insurer in the UK. It all comes down to a selective portfolio. There has been a significant movement on learning across the country borders. We are embarked on centres of excellence, which allows whichever market, whether it is Spain, Switzerland, Germany or the UK, and ask how we then stimulate growth in other countries. Property investors is an example where we are taking the model from the UK to stimulate the market in other countries." Smith says: "We now have the same terminology and basic principles which give a uniformity to Zurich, we call it the 'Zurich way'."

The more joined up approach has seen a multi-million pound marketing campaign that has blitzed billboards, television channels, computer screens and magazines. The first roll out was a global campaign, and this is set to be tailored towards individual markets and, according to Munnoch, are about "a sense of security and corporate confidence". Having aligned principles, structure and distribution to the 'Zurich way', the insurer is keen to capitalise. Munnoch adds: "You have to earn the right to grow. We have a solid base and the combined operating ratio has improved from 111% globally to 94% which involved some tough decisions."

Munnoch continues: "We have a plan through to 2010. I have just finished a series of roadshows speaking to every member of staff - 5500 people. This was so everybody could understand where we are heading. My first 100 days (in charge) finished yesterday and we are moving with pace. We have done well in the first quarter and are keen to keep up the same level of energy."

Where can Zurich grow? Smith answers: "We believe we can expand our property investors' book into the regions where we are underweight." Richard Elliott, head of property investors, has already said he is looking to double the regional book and grow its overall market share to around 18%. Smith continues: "We also think there is potential to grow our construction account and also niche personal lines such as high net worth. Most of our lines are in a position to grow."

Munnoch adds that in the second half of the year Zurich will be introducing new product lines and segments in niche areas. He adds: "We are building capability and we will go to the market in a measured way." However, he will not be drawn on which products these are.

Many in the industry are still scratching their heads over Axa's recent broker acquisition strategy. Will the market change given recent broking consolidation?

Smith: "I think the change we have seen over the last few years is the pre-cursor to greater change over the next three. We are comfortable that what we have in place is designed to meet the challenges of coming years." However, he rules out underwriters sitting at brokers. Zurich already has a number of delegated authority niche schemes and Smith thinks there will be more requests but emphasises that "you have to ensure you don't lose your underwriting rigour - history says that large delegated authority schemes that are vanilla, over the cycle, perform worse than insurer led schemes." Munnoch adds: "It is earning the right to have delegated authority. You have to identify the right niche in which we have confidence." Smith continues: "We recognise the increasing trend towards delegated authority but we wouldn't put ourselves at the end of the spectrum where we would simply become a capacity provider."

There have been dramatic shifts in the ownership of distribution in recent times and Axa's chief executive Peter Hubbard said in last month's Professional Broking: "If brokers can think about underwriting, insurers can think about advice." What is Zurich's reaction? Smith says: "I guess Peter Hubbard's comment is: if it plays for one, it can play for the other. The market is polarising and there is a blurring of the lines. We are not unduly concerned about Axa's acquisitions and we have a reasonable account with all three brokers (Layton Blackham, Stuart Alexander and Smart and Cook). Any acquisition we would make in the future would be based around our customer strategy, not purely for volume."

Buying brokers

Following Zurich's acquisition of Endsleigh, will they consider buying commercial brokers? Munnoch replies: "We have never been shy not to follow the herd. We don't want to be cajoled or driven into a bland, unfocused acquisition."

Zurich has recently bought the shares they did not own from student-focused broker Endsleigh. The National Union of Students sold its 15% stake to Zurich but has maintained two seats on the board. Munnoch is keen to stress an arm's length approach despite having three senior Zurich executives on the board. He also emphasises the insurer's ability to learn from the broker.

Will there be a shift in the placement of business towards Zurich? The short answer is 'probably' but the new chief executive is keen to stress why. Munnoch, who is not on the board, explains: "You learn more about how you can structure your proposition more appropriately for that broker. The rules of engagement are clear when it comes to conflicts of interest and we are rigorous in ensuring this is an arm's length arrangement. Therefore, what we are doing is enjoying the opportunity to learn and create insight. It is just like any other partnership and you get to that position where you are hoping your share of that particular panel will increase."

Munnoch continues: "If you are buying brokers to generate volume you've got it wrong." When asked about Endsleigh's future growth he says this is 'down to Endsleigh'.

Another hot topic in the market is commission disclosure. Smith believes the industry needs to become more transparent. He comments: "I would sincerely hope the market comes up with a solution. Regulation should not drive disclosure. Disclosure should be a choice and the industry has work to do to show we are transparent. It is not an issue of saying the customer hasn't requested it - it is that the customer doesn't know what he doesn't know. I think there is a need to progress transparency. We have been an advocate of that for a number of years and have provided the broker with the opportunity because we don't pay contingent commissions."

He continues: "The reason for that is often misunderstood - the primary reason we did that is to allow brokers to prepare for potential disclosure - every Zurich commission can be disclosed at point of sale, and explained clearly to the customer. This offers a broker a choice of moving before regulation."

Is he hinting that contingent commissions might not be here forever? "I think there are two debates - contingent commissions and disclosure. By definition you can't be specific about exactly what your commission is if it is contingent."

Munnoch adds: "It comes back to treating customers fairly, if the customer understands what he is paying for than he will feel a sense of fairness in that contractual arrangement. The transparency and contingency element are completely aligned."

On the BIBA-led solution, Smith says: "I think it would be unwise to expect that would be sufficient."

Munnoch is more forceful: "It is a halfway house and nobody likes a halfway house. It is both moving a step in the right direction and an alarm bell to say we have to do something. From a Zurich perspective we are in a far better position than any others."

Smith adds: "I think brokers do need to accept the facts - read the signals there is growing pressure from the European Union or growing awareness from the Financial Services Authority in the UK that transparency is an issue and that the wise broker will become transparent as quickly as possible. Some people say brokers should move to all fee, I don't believe that, it would be a nightmare to explain to every customer, especially at the bottom end of the market, a fee."

Falling rates

Rates have been falling for some time and, although benign weather has helped insurers, the soft market is still causing concern. Zurich is the market leader for employer's liability and has always called for responsible, long-term pricing. Is this message being heeded by others? Smith says: "There are some relatively reckless prices out there but it is beginning to diminish. There are a couple of established players with some strange prices. As you go through a hard market you get more capacity and new providers, particularly in construction which is more volatile than other bits of business." Munnoch adds: "We are hopeful and confident the market will turn this year. Full marks to Norwich Union and Royal Bank of Scotland for moving motor rates up, which is the absolute professional and mature approach. You don't want to end up in a position that is entirely unsustainable."

Smith: "Our pricing across all our lines is absolutely sustainable. Motor fleet needs to rise and I think this will happen if the insurers lost money last year on motor fleet, and we have reduced our book over the last few years. Fleet goes up before the rest and I don't think this time will be any different."

Smith believes that this time next year we could be in a hardening market.

Last year, profits were up 20% and the combined ratio for UK was 92%, and the first quarter of 2007 has started well. However, there are challenges ahead, such as some local councils investigating the transfer of risks to a mutual. Munnoch, formerly in charge of Zurich Municipal, insists they are working amicably with the councils, although he has reservations about the long term suitability of the new structures.

There is time for one last Zurich viewpoint from Smith, which hints at Zurich's aims to do business with all kinds of brokers: "There is a commonly held perception - a myth from the past - that the regional broker market is always more profitable than the global broker market. That hasn't been the case over the past four or five years. The global market has been at the same level of combined operating ratio than the regional market."

CV - GUY MUNNOCH

2007: Chief executive officer, Zurich UK General Insurance

2005: Managing director, Zurich Commercial and Municipal

1997: Managing director, Zurich Municipal

1997: Operations claims manager, Norwich Union

1996: Managing director, Ajax (Cornhill Insurance)

1992: Operation director, Ajax (Norwich Union), held currently with the position of executive director, Norwich Union Risk Services (1995-1996)

CV - DAVID SMITH

2007: Managing director, broker, Zurich UK General Insurance

2005: Market management director, Zurich Commercial and Municipal

2003: Sales and marketing manager, Zurich Commercial

1998: Regional channel manager, Zurich Commercial

1996: Sales and marketing manager, Eagle Star Engineering

1988: Business development manager, Societe General de Surveillance SA.