Interview: Stephen Lewis, Zurich

Zurich irritated brokers last year. The UK’s ninth largest insurer hiked its prices in motor to the point where it effectively left the market, wiping £200m – around 25% – off its personal lines premium base. Add to that its baffling matrix management structure and its tendency to have different underwriters for different lines, and it’s not always an easy insurer to work with.

But that’s all about to change, chief executive Stephen Lewis and his management team tell Insurance Times. In December Lewis, who had been in post a little over a year, split the UK business into three, represented today by their managers

David Smith (commercial broker), Anne Torry (Zurich Municipal) and Karl Bedlow (personal lines). The idea? To make Zurich easier to do business with. It also plans to rebuild its presence in personal lines.

But the team reveals an uncompromising vision: growth will not come at the expense of profit. This seems to run deeper than the “profitable growth” platitude parroted by others. As they showed last year, Lewis and co are willing to walk away.

At 42, Lewis is younger than many of his fellow chief executives. Maybe that’s why he’s buzzing with energy. Zurich is known for impenetrable jargon, but Lewis speaks clearly despite a stint at its head office from 2004 to 2009.

He kicks off by explaining the restructure. It started with a reshuffle at the top of the global group, under worldwide chief executive Mario Greco. That led to a review of the general insurance business and the buzz phrase ‘global to local’.

Lewis says: “It’s a recognition that we need to leverage globally, but deliver at a local level. It also involved stripping out some of the complexity that had built up over the years.”

Lewis has given the business heads responsibility for everything from sales to claims, hoping this will make it easier for brokers and customers to deal with Zurich and for it to respond. “The purpose is to make big beautiful,” he says. “We’ve got to become easier to deal with.”

But the job is far from over. Lewis pinpoints three battlegrounds: ease of doing business, expertise and scale. The first is the reason for the restructure and is a tacit admission that Zurich has not always been the most customer-friendly organisation.

“We’re a big organisation with many routes in, and we’ve got to continue to work to make it easy for our customers to get the access they require and to give our people the tools to do the job,” Lewis says. As well as the restructure, this means an overhaul of Zurich’s legacy technology systems.

The second area, expertise, is self-explanatory. “We plan to invest in building the right technical capabilities,” he says.

Finally, scale – a touchy subject for Zurich after last year’s withdrawal from motor. Lewis is sticking to his guns, though. “You need scale in a market if you want to be influential. Yes, we were fairly draconian, but the average combined operating ratio on motor for the whole industry was 123%. We were burning capital – we had to respond.”

But did Zurich let its brokers down? “There’s an element always of baby and bathwater,” Lewis says. “But we’re in the process of refining that and giving the right access to our regional partners. Let’s make sure we’re comfortable, then we’ll be ready to provide the capacity. Just because we step back, it doesn’t mean we won’t be back there, supporting our distribution over the medium term.”

But don’t brokers value consistency? “Absolutely,” he says, “but our consistency is our technical discipline.”

It’s a clever spin – but it remains to be seen whether brokers agree. Zurich will certainly be looking for their support in its quest to expand: “We see opportunities for growth,” says Lewis. “But it will be profit before growth.”

Bedlow hints at plans to re-enter the motor market in the second half of 2011. Which businesses will Zurich be looking to write? “The profitable bits,” he quips, adding: “It’s about controlled re-entry to deliver growth and navigate this market in a profitable way.

“This is no longer what it was five or 10 years ago in terms of just a pure scale play – you’ve got to do everything well.”

While Zurich’s personal lines business dominated headlines over the past 12 months, it would be wrong to overlook its substantial commercial and public sector segments. Indeed, the normally smiley Lewis sounds a tad defensive as he points out: “We shouldn’t lose sight of the fact that if I take our commercial footprint – £1.3bn – together with global corporate in the UK, getting close to £0.9bn, we’ve got £2.2bn of commercial business in the UK.

"By any measure, this is a top-quartile business, and has been for five to seven years. We’ve got some work still to do in retail, but we’ve got a very credible play.”

On that note, commercial boss Smith outlines his plans. “The industry is gloomy, but we’re not,” he says. “We’ve got a new contractors’ combined proposition coming out. We will be recruiting around the country, and there will be a continued focus on acquiring SME portfolios. Growth isn’t easy and we won’t slavishly pursue it – only where we can add more value to the market to enable us to extract a higher price.”

Public sector – largely local government – business is a significant string to Zurich’s bow, but an increasingly tricky area. Just two days into her job at the helm of Zurich Municipal, former chief operating officer Anne Torry is grappling with the challenge of public sector cuts.

This centres on making sure local authorities don’t take a short-term view and slash their expenditure, creating problems in the long term. “Our role is to help our customers understand the total cost of risks, and to help them make the right trade-off calls,” she says.

It’s going to be another tough year for the insurance market, but Zurich is unlikely to provide any surprises. Lewis has his hand firmly on the tiller and has recognised and reacted to criticisms. Will it be enough? “You will never get everything right,” he says, “but when something is actually wrong, you have to move to stop it. I would rather take 10 decisions and get two wrong than take no decisions at all and not move forward.” As management speak goes, that’s not too bad.