Following the release of Zurich’s 2007 UK results, which revealed flat premiums of £2.06bn, flood-hit profits of £91m and a combined operating ratio of 104.8%, Tom Flack asked chief executive Guy Munnoch 12 key questions.
1. What is your feeling about Zurich UK’s results?
“Our premium result was strong. But for the change in your pocket, it’s a level movement. In a market that is shrinking by around 4%, that is relative growth.
“But for the floods, we would have improved our profits and our combined operating ratio on the previous year. A benefit for us is that we took our time in assessing our flood losses, whereas some of our competitors are adjusting their results because of theirs.
“There is no embarrassment in terms of the UK performance. It’s been a good year for the group, for the European business, and for the UK business – and we want to shout about it.”
2. Do you see any signs of the market hardening? If so, how will it affect Zurich’s rating strategy?
“I see no evidence yet of hardening. On the personal lines side, post-flood consumers will acknowledge that movement is appropriate. On the commercial front, I would like to think fleet will be the first to move; my sense would be in the second half of this year.
“The Zurich attack on underwriting has been measured and controlled, and has gained an upbeat reputation. The market has gone into a deep trough, but we haven’t taken it down to the point others have. When the upturn comes, our pricing upturn will be less than theirs. It’s good for the market and the shareholders.
“Looking forward, the onus is on both broker and insurers alike. If we do not take action, it will become totally unsustainable.”
3. Zurich has been criticised for its lack of focus, in particular its distribution strategy. Can you set the record straight?
“Our strategy is multi-distribution, multi-segment. If you say it is unclear, I would say actually it is the market that is unclear. Ask the question of AXA or Allianz and their answer would be the same. Only the likes of Tesco and Direct Line have pinned their tails to the donkey.
“The real opportunity is making bold assumptions as to how distribution will emerge. My sense is that with brokers, direct writers, portfolios, MGAs – all the various routes to market – then the future of distribution compared to how it currently stands will be significantly different in three years.”
3. Zurich was recently ranked 14th out of 17 major insurers in Newsquest Specialist Media’s research on broker service. Has the Broker Alliance Programme, launched last year, improved service?
“Over the past two to three years, most insurers have decreased the number of brokers to whom they give differentiated service. In the past 12 months, we have bucked that trend.
“Zurich works with 3,000 brokers – 600 of them are part of the Broker Alliance Programme. We have broken it down so those brokers that do not fit into the community to which most insurers pitch we provide with a differentiated service – for both them and each successive level down. We have spent a lot of time segmenting brokers, then creating a value proposition applicable to each segment.
“Service to brokers is about renumeration, service, support and access. It’s one thing, for example, to have access to an account manager. But all 600 members of our programme have access to an underwriter as well. The ‘flash to bang’ of information tends to be slow. Until this programme was in place, the view of Zurich could have been one of confusion because of our expertise in different fields – but the response over the past year has been excellent.”
5. In recent years, Zurich has struggled to grow its personal lines business. Is that still the case?
“That’s a fair point. In the past six to eight months we have created a focus, I would agree, that was not evidenced in the past. That focus, both in terms of leadership and proposition, delivered strong growth in the second half of last year. Our motor book is now worth half a billion pounds.
“To deliver that we put in place full-cycle EDI, added new home products. We created the infrastructure to support the leadership. In the past 18 months, we have also created a single sales force and we’re seeing opportunities for our commercial clients to use us for their personal lines.
“So we’re on the front foot – and delighted how it’s gone in the second half of 2007.”
6. Looking to 2008, in terms of growing the business will you continue what you have started, or do you have other plans? Does this include acquisitions?
“Our focus is on organic, not inorganic growth. But if a strategic opportunity arises, we shall exploit it.
“In terms of growing the business, our property investors, construction, private clients, navigation and general – where we are market leaders – will continue to grow.
“Other areas where we see an opportunity is where we can sub-segment the business. This includes food and beverage, sports, leisure and entertainment, and charities. It’s about not wishing to spread our underwriting footprint too broad, but recognising that where there is a need, we will fill it.”
7. You talk about segmenting the business further. Is there not a danger you are attempting to be all things to all men?
“No, no – quite the opposite. That is what sub-segmenting is all about: you focus on a distinct part within a market. We do not enter markets where we do not feel there is a growth opportunity to be found.
“Take our new marine cargo business. We recognised a gap in our armoury. The business has already gained significant traction in a small time.
“Overall, in the past 12 months, we have seen double digit growth in all areas where we have that focused approach.”
8. Are you concerned that more and more power is being channelled into the hands of distributors? What are your thoughts on tied agencies?
“The clarity of the environment in which we insurers operate is changing. Is this good or bad? Well, recognising there is vertical integration, there is an opportunity for both manufacturers and distributors to enjoy the proposition. It’s just a changing relationship. If that comes with a higher commission, so long as distributors are providing more service, the system can work.
“I’ve seen more change in the past year, and there is more change to come in the next two or three years, than will have been evidenced in the past 30 years. That cannot be bad for the industry. Buying behaviour has changed, and so distribution must change. Insurers that are creative, innovative and nimble will be the ones to succeed. That is why we are clear about which spaces we chose to occupy.
“As for tied agencies, though they haven’t taken root in the UK to date, there is no reason why this movement should be denied, as long as conflicts of interests are clearly mapped out. For some insurers, it may be a route if that is the natural progression of changes in distribution.”
9. In this current climate, is there a chance that there could be a high profile insurer casualty down the line?
“I think that’s a fair assessment. I also think it is a European question. If you look at the number of large European players, one could speculate that there are too many insurers with too little market share. So there could be consolidation on a European basis. Insurers buying insurers has been talked about for as long as I’ve been in the industry – though it hasn’t happened.”
10. Looking at the market from a European perspective, is there a distinction between Zurich UK and European businesses? What can be learned from the European insurance model?
“We have absolute alignment with UK and Europe, where we now serve in 11 countries.
“I sit on the European board. You can be more informed about distribution when you have the broader European lens to look through. Naturally, you will have different elements in different countries.
“You have to recognise that the UK is a mature broking community. We also have a different business make-up in the UK from Europe: in the UK, the business is split 40/60 in favour of commercial lines; in Europe it is the opposite. When you talk about the distribution landscape is changing, you always think UK. But if you lift up a level, you recognise that across Europe it is different, where you find tied agents, not brokers. Across Zurich’s European business, the split is 50/50.”
11. If you could be a superhero who would it be?
I would have to say Ranulph Fiennes. There’s a lovely quote: ‘The definition of leadership is that perfect blend between nobility and humility.’ To me [Fiennes] has both in spades.”
12. What do you do to relax?
“I like to exercise. If it’s in the blood, you can’t get rid of it. I survive on Mars bars. I’m going to run 16 miles in the morning.”
Guy Munnoch's career
20 years army service, including as a tank commander
Entered insurance industry 1992, after recommendation from
Towergate deputy chairman Patrick Snowball
Held senior posts at Zurich, including claims director, and managing director Zurich Commercial and Municipal
Appointed chief executive Zurich UK, 2006