If you believe management consultants AT Kearney, Europe's 11 largest insurers are wasting at least £3bn a year by missing out on the economies of scale presented by the European single market (Insurance Times, May 10). Pan-European operations are the cost-saving alternative, they say. But Kearney wasn't the first to notice the potential of an insurance operation which spans the European market – Joel Aronchick, president and chief executive officer of Chubb Insurance Company of Europe SA, already has the model up and running.

“We have successfully built a multi-cultural, multi-lingual, multi-country, singular service platform for our high net worth business on the third floor of this building,” Aronchick, a self-confessed American “interloper” in Europe, says. “Agents or brokers in any of the dozen European countries we operate in can call a free-phone number and immediately get a local-language speaker who will attend to their needs. We get high marks from policyholders, brokers and agents who do business this way,” he claims.

Homogeneity is the key. Chubb's contracts of insurance differ very little from country to country, aside from the language and a handful of minor variables. “We pump thousands of similar transactions through the call centre, all operating with the same principle and basically the same contract.” And the success so far is just the beginning. The centralisation, and the economies, could go well beyond the call centre. “It could apply equally to premium collections, accounts payable, and other routine insurance company transactions,” Aronchick says. “We are beginning to look at a combination of a lot of our back-offices on a multilingual basis for our European business.” He says it is like digging a well – it costs a lot to do the drilling, but if it is done properly the savings will more than justify the initial outlay.

One centre
Chubb's next step could involve combining disparate UK functions into one centre – first claims, then other back-office activities. Later, continental operations could be incorporated as well. “It is not my vision that we would have one European platform for all our business,” he admits, “but each step is part of our programme to create operational efficiencies.”

It may not be as straightforward as AT Kearney would have us believe, however. The challenge is to keep service levels up. “How can you combine any operation, whether it is underwriting, service, or data processing, and ensure you can still best serve your customers and deliver value-added benefits, at the same time as you create cost efficiencies?” he says.

Answering that question has been part of his challenge since he took over Chubb Europe with a brief to rationalise the national business platforms that Chubb was beginning to evolve in each country. “We would have had 12 national platforms, each with a number of its own functionalities, creating a matrix of spaghetti that would be impossible to manage.” He began to unravel the tangle by centralising all Chubb's European information technology in London. “Delivery may be slower from the country manager's perspective, but it is much more efficient… Chubb has a lot of people in Europe, but our expense ratio is as good as or better than most of our competitors. Some Lloyd's businesses simply farm out their back-office, but our expense ratio is less than theirs.”

It is the way of the future, he says, as buyers become increasingly astute. “Unless you can consolidate policy and processing costs, operate more efficiently, and create more accurate, more timely services for the customer, someone will come along and take away what you think you do best.” That will in turn remove the insurer's ability to provide the services customers will demand, in addition to absorbing the losses they deliver, he argues. “It's a critical point in our near- and long-term plan,” he says.

Yet the key to a pan-European insurer's success will not lie in centralisation alone – far from it. “The most important part of process has to be the broker or agent,” he says. Despite Chubb's improved brand recognition in Europe, “the average buyer may not understand who we are, so the intermediary needs to understand our security, our breadth of coverage, and our claims philosophy. Then we have to service the hell out of that business, because we can't let the broker look bad.”

The third element is people who are well trained, enthusiastic, and who know a lot about the individuals they do business with. “Success breeds success,” he says. All the other elements – from product design and salesmanship to market research and pricing – are secondary. “If we can make the broker successful, then the broker will want to work with us. If we have priced each policy as well as we possibly can, the internal cost of doing business goes down over time.”

Fast expansion
Chubb Europe has grown rapidly, to a projected top line of about $700m (£493m) in 2001, and intends to continue to grow on the back of the core fundamentals. “Our three- and five-year organic growth plans should see us continue to grow at a high pace. We could double our size in five years,” Aronchick says. “Globally, one third of Chubb's business is in high net worth, but for Chubb Europe it is only 15% to 20%. We have only begun to build our high net worth business since we concluded a joint venture with Royal Insurance in 1995, so there is a long way to go.”

Chubb will also grow its commercial lines book. “Technology is an important sector for us. We believe we have a tremendous amount of underwriting knowledge in areas such as computer and life sciences, and other technology-related sectors.” The international business of UK, French, and German multinationals is another area of focus. “More and more medium-sized companies are becoming global businesses. They need an insurer with a global business, too. “

Even before its failed attempt to buy high net worth competitor Hiscox earlier this year, Chubb Europe was seen as having the resources and the desire to grow through acquisition. That reputation has kept Aronchick busy, as companies and Lloyd's agencies present themselves to him as potential adoptees. He opens a cabinet containing dozens of dossiers describing companies he has examined. “It is a correct view of us that we have done a very careful, detailed, and thorough analysis of a number of companies in the UK and on the continent,” he confirms, before playing down the likelihood of a major acquisition. “Our three- and five-year business plans continue to project strong organic growth. We have the distribution and infrastructure. If we found a company for acquisition, it would have to be complimentary.”

Despite being a well-recognised potential consolidator, Aronchick appears to doubt the logic of growth through acquisition. “Can you make a merger or acquisition that would add to your value as an organisation? Some of the prices are just too high and make no sense,” he says. “We have conversations all the time, but are rumoured to be involved in more than we are. However, we will continue to look, and you never know.”

Of course, growth will also come through rating improvements. Observing that trends in Europe are behind those in the UK, which itself is behind the US, Aronchick says the market outlook is positive. “The guys I talk to are very optimistic and happy that the market is turning towards a rational pricing environment.” However, he doesn't expect overnight change everywhere. “These problems are very embedded. It takes a long time to get the earned premium base to reflect exposures.”

He does not foresee a rock-hard market.
“I don't think we will see the kind of overreaction we saw in that last cycle, when we had offshore formations and customers had a real hard time finding coverage, but prices are going to be fairly firm and delivered by a lot of companies in a no-nonsense manner.” He insists that Chubb will not take a one-size-fits-all approach when it comes to rate increases, in part because it is less reliant on reinsurance than some competitors, and thus can price for its own account. “That's a competitive advantage we have, and hopefully we will be able to handle it correctly.”