FR: After many long discussions with our own experts and the brokers we decided to open it up to the brokers at cost price, enough to cover the administration cost. This is not a goldmine for us. We strongly believe that if MIP becomes the market standard then this provides value for all. The brokers are interested in this and can use it to enhance their relationships with clients.

AL: What about the industry initiative started by Ferma and Airmic along with the brokers in London—do you support this or do you see it as competitive to MIP?

FR: At Zurich we fully support this initiative and do not see this as a source of competition to MIP as this does not replace the need for individual insurers to improve the service they offer to customers. It is important to reinforce that Zurich is actively involved in the discussions currently around creating a market solution and are fully supportive. Zurich has many years of experience in collecting and understanding information on this complex topic and we want to ensure this knowledge is shared throughout the insurance industry so we can contribute to a global standard.

AL: What is your wider plan for Zurich in this market?

FR: I have been a member of the management team since 2004 so the business is not new to me. When you are working out a strategy you have to consider the state of the market. We are now still in a very soft part of the market cycle. But in the corporate customer segment we are quite strong in many countries in Europe. We do not intend to grow in every geography and in every class of business because this may prove to be detrimental in a soft market. Rather, we have selected specific areas in which we would like to grow. As an example, financial lines clearly represents an area with profitable growth potential for Zurich and is a market in which we are very strong. Another area we are looking at expanding is the middle market segment as we believe that our value proposition could give us an extra edge also with the commercial customers. There are a number of regions in Europe where the middle market is not so developed and where we have introduced a number of pilot schemes. This market is defined by those customers with between €50m and €500m turnover but at times it is not as straightforward because each market has very distinct characteristics. These are big sectors in countries like Germany and Spain but they are very different and so we have to adjust our business model to best serve this market segment in each country. The premium volumes per customer are lower of course and this means that we need to adapt our offering compared with the bigger customers. Unlike the traditional corporate customers, the commercial ones have lower premium volumes and less complex insurance needs. Hence, when entering the middle market we have to be leaner and deliver a range of more standardised products—such as combined products.

AL: Why have you not targeted this market before?

FR: Because it is not simply adapted. It is all about making the underwriting process and the distribution through brokers leaner. This calls for a different approach but Zurich is in the best place to leverage on its existing expertise in the corporate segment to best cater for the needs of the middle market customers. One big advantage we have in this market is brand awareness. Zurich has been around since 1875 and therefore is not a new player.

AL: What about the core large corporate insurance market—when will that turn and how?

FR: This year we have experienced a number of major catastrophes. We have seen an increasing trend of large industrial claims on the property side and the economy speaks for itself. On the investment side yields are not much better so there is a need to focus on the technical results. Therefore all the ingredients are there for the market to turn. Nevertheless insurance companies are not reporting excessively negative results, thus not triggering a market turn. But it is still too early to say, the year is not over yet. It will be interesting to see the results in Q3 and Q4.

AL: Are you surprised that capacity remains so high and in what sectors is it most evident?

FR: This is an individually underwritten segment and so it’s not that easy to comment about the general market. But you can still see some companies expand more to natural catastrophe areas and others to areas where frequency of loss can be quite high. This is all underwritten on an individual basis. At Zurich we are monitoring premium level on a weekly basis and clearly see growing pressure on rates. If you look at most customers their ambition is to grow but if the economy continues to stagnate it places a limit on the growth of insurers too.

AL: What about service? Surely this high level of capacity and the stubbornly flat market means that the industrial insurers must be competing more on service?

FR: We could be accused of competing too much on price in the past and this has been a tool used for years. But really this is not possible anymore. We have to compete on another level and the corporate insurance market is really where we can make an impact with better service on global claims and risk management. Our growing focus is on servicing our customers in the best possible way. We are really trying to show the benefit of being with an insurer that has a genuine global presence and support on the ground especially when natural catastrophes occur as in New Zealand, Japan or Australia. We do have local operations in all these countries and there is a big advantage to being on the ground in the neighbourhood. It makes it easier to sell insurance solutions and advise on risk management rather than just push products.

AL: Which leads us neatly onto the topic of innovation. Customers are screaming out for faster and better innovation currently. What is Zurich doing to meet customer demand for more innovation in key areas such as supply chain?

FR: In my view innovation does not mean underwriting all sorts of risks. Many proposals arrive for risks that are simply impossible to execute. If a proper assessment and analysis cannot be performed we absolutely cannot take such risks into our balance sheet. The customer will have to retain them. We cannot underwrite any type of risk just to maintain market presence. Having said that innovation is happening but perhaps in many small steps rather than one big bang that is easier to see. I could give many examples of year on year improvements in products and services that we offer.

AL: Such as?

FR: One example is that Zurich is one of the few insurers to offer a specific supply chain insurance product. Supply chain risk management is critical to many companies and this dependency is only growing. In an increasingly interconnected and complex world, organisations are more dependent on their suppliers, a supplier’s supplier and so on. The supply chain insurance product is tailored to the needs of the client, and can dovetail with other coverages. It includes an in-depth risk assessment, and covers disruption to named suppliers and supplies for both physical damage and non-physical damage. We have already seen significant interest, particularly from high tech, pharmaceuticals and manufacturing sectors, and this is certainly something that we want to develop further. Again maybe some day there will be a product that turns the industry upside down but for now our products work pretty well.

AL: What are the big issues that the market faces in your view?

FR: The main concern for all insurance carriers today is profitability and the impact on our industry of the wider economic development. In a nutshell if the economy shrinks there are fewer things to insure and this is an issue for us clearly. On top of the lower insurable base, tighter budgets may result in lower spending on risk prevention measures leading to an increase of the underlying risk. Also more stringent regulation and capital requirements—used by governments as responses to the global financial crisis—may imply more complex compliance risks. Given all this uncertainty it is crucial for us to maintain disciplined price levels—or come up with more appropriate ones—that we can defend from a commercial point of view. There are lots of issues to consider but right now how you navigate the present economic environment is key—what strategies you select as an insurer is obviously one of the main dilemmas. Within the insurance industry what is on my mind is how much capacity is out there. Capacity is still there and we are waiting to see how much there will be looking forwards. Everyone wants to grow. In such a competitive environment the profitability of the insurance industry really depends on optimising what we can control, that is our internal structure, our processes, the risk selection, and our cost structure. Tight control over our processes and increasing efficiency are of the utmost importance to maintain profitability in such a soft market.

AL: What about technology in this respect. Can you make smarter use of technology to improve the process?

FR: This is always a big question and I think all companies are always hungry for the killer application to bring down costs to minimum levels. This will be a key differentiator in the future for managing the cost base.

AL: Why would a corporate insurance manager use Zurich rather than the competition?

FR: I would of course say because of our international programme business (IPB) because this really is the core of our offering. We definitely have the best international network in the industry and have our own operations in up to 60 countries. We can therefore use our own system and are not reliant on partners. We are not afraid of complexity as we have over 3,000 IPB experts working on delivering tailored insurance programmes for our customers. Overall Zurich has about 9,500 claims and 1,000 risk engineering professionals to best serve and advise our customers. We also have an ‘AA’ credit rating to back up the promise to customers and are structured in the right way to deliver solutions that are competitively priced using MIP and MIA. If we feel the concept is compliant then the next step is to make sure that the system is more efficient in areas like cash flow and issuance of policies making a better use of technology for example. You are to an extent reliant upon others to play their part such as brokers and don’t control all the levers but we are trying to improve and are putting a lot of emphasis upon speeding up the process, so as to ensure the full satisfaction of our customers.

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