The plan to bring together Zurich's commercial and municipal divisions has raised eyebrows. The merger's architect, Guy Munnoch, talks exclusively to Michael Faulkner

It has been a turbulent time for Zurich over the past two years. The insurer has lost three divisional managing directors in that time; two on the personal lines side - Ian Owen and Mark Winlow - and one on the commercial side - Peter Burrows.

Winlow's departure saw UK chief executive Ian Stuart take on responsibility for the personal lines division. And following Burrows' exit, Guy Munnoch, managing director of Zurich Municipal, expanded his remit in June to head the commercial division in addition to the insurer's public sector practice.

The move was met with some surprise in the insurance world and has left some unsure of Zurich's strategy.

In the months following the move, Zurich denied there would be wholesale changes to the two divisions, but said it would result in some amalgamation of processes "where there were synergies". But it has not been specific about what this would ultimately mean, despite being at pains to emphasise it would retain separate distribution strategies.

Munnoch describes the decision to combine the two divisions under the title Zurich Commercial and Municipal (ZCM) not as a merger but as a "convergence".

"The word merger I've always associated with being so much a demand by shareholders pushing two organisations together to get cost reductions and so forth. That is not the case," he says.

"The rationale behind looking at converging the two organisations was a realisation that Zurich Commercial and Zurich Municipal were on very similar strategies, and actually converging."

One aim of the convergence, he says, is to share best practice between the two divisions. He cites the example of customer segmentation. "Zurich Municipal has a very clear customer proposition. We've built up an insight of what our customers need that is second to none, helped by the fact that we have a direct relationship, but also helped by Zurich Municipal having been around for over a century".

He says Zurich Municipal was able to segment the social housing market into four, whereas it had previously been thought of as a single market. "This allowed us to focus on the areas where we believe that we can add most value."

This expertise, he says, is being transferred to Zurich Commercial. For example, in the construction market Zurich is looking at the niche areas "beyond pure construction" such as demolition and structural steel erection.

"So using the skill set that we are bringing across from Zurich Municipal, we're helping Zurich Commercial to take a larger market and sub-segment so that the proposition we offer to [the sub-sets] is that much more tailored to their needs."

Ultimately, Munnoch describes the ZCM strategy as moving towards being a "multi-niche specialist", using the strengths of each organisation. Zurich Municipal, he says, is already a specialist "in its own right", while the commercial side is gradually becoming that way, moving away from being "a bland vanilla-type" organisation to developing specialisms such as construction, property investors and mid-sized corporate business.

"At the moment about 60% of Zurich Commercial is specialist, and we are seeking to grow that specialism to maybe about 75% to 80%."

So the new ZCM strategy will see Zurich look to increase and sub-segment its commercial book. Will this lead to the insurer pulling away from certain markets or trades?

Munnoch says there are no plans "at the moment" to do so, instead he sees this as an opportunity to create new markets where the industry's offering has "from a broker perspective not been as wide as it could have been".

In addition to the construction market, Munnoch sees the property investor sectors as providing "real opportunity of growth, particularly in the regions".

Munnoch also highlights the charities sector as a case in point. Zurich Commercial, he says, has now entered this sector following Zurich Municipal's long involvement this area.

The move will now provide an intermediated distribution channel, through Zurich Commercial, to contrast with Zurich Municipal's direct offering, he says.

But will this work the other way? Will Zurich be looking to introduce direct offering to previously intermediated lines of business?

While Munnoch says Zurich wants to grow both its direct and brokered commercial business, he says there will be "no move away from the intermediated market".

"We are not specifically going out to lure a market that has traditionally been trading with us through brokers to go on to a direct basis."

But he adds: "Ultimately it is the customer's choice. If the customer [comes directly to us] and says: 'Can you help us with that?', of course we would see what can be done." IT

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