Zurich Financial Services Group, Suisse, Zurich
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This strategy has proved resilient through the financial crisis and continues to serve us well. Global Life complements our General Insurance and Farmers business segments, balancing the overall Group portfolio and providing opportunities for cross-selling and expense savings across the three segments.
Four ongoing trends give us confidence that we can perform even better: the high proportion of wealth held by “baby boomers” seeking retirement and inheritance planning solutions; the increasing need for private retirement and healthcare provision as governments’ provisions decrease; the transfer of pension risk from employers to individuals; and the rapidly growing middle class in developing markets. Global Life is well positioned to capitalize on all of these trends.
Full steam ahead
We have reaffirmed our commitment to the Global Life strategy and are now focused on accelerating its execution. We have simplified our structure to leverage greater efficiencies in reaching retail customers. We have defined and are now realizing growth strategies in Asia-Pacific, the Middle East, Latin America and the United States while selectively targeting growth opportunities in Europe. As we implement these strategies, we are simultaneously rebalancing Global Life’s geographic footprint into markets which offer higher growth potential and profitability. We are managing our product mix carefully, focusing on propositions that require relatively little capital and match our internal risk-based profitability measures.
Another way in which we are making an impact is through our six hubs, facilities which manufacture and administer our products and make it possible to get them to customers faster. Currently we deliver products from the European hub into Italy, Germany and the UK; from the Latin American hub into Argentina, and from our German-language hub into Germany, Austria and Switzerland. We are now extending our global reach, taking the protection products developed in Buenos Aires, for example, to the European hub for sales into countries across Europe. With six hubs contributing to the bottom line and one more hub in the final setup phases, we are well positioned to respond quickly to local, regional and global market opportunities.
Given our strong position, and the great opportunities we see ahead of us, we’re confident that the strategy we have in place at Global Life will place us among the top five European-based global insurers by 2013, as measured by new business value.
- Farmers is a unique fee-based model operating in the United States, comprised of Farmers Management Services and Farmers Re, which we own, and the Farmers Exchanges which are owned by their policyholders. Farmers Management Services receives a fee for providing non-claims management services to the Farmers Exchanges, which in turn sell insurance to individuals and small businesses. Farmers Re provides reinsurance to the Exchanges.
Under this unique structure Farmers intends to maintain its position in the top quartile for growth among U.S. peers, focusing on targeted customer retention measures, continuous improvements in distribution, and geographic expansion into the Eastern United States. Business operating profit at Farmers reached USD 1,686 million in 2010.
A source of confidence
With the persistent weakness in key U.S. auto and home markets, Farmers’ ambitious growth agenda may seem surprising. The multi-brand model is up to the challenge. 21st Century helps customers who prefer to buy Auto insurance without ever meeting an agent. At the Farmers Exchanges, the 17,000-strong agency workforce reaches out to those who prefer to meet in person. 21st Century customers therefore present expanded cross-sell opportunities to the Farmers agents. This dynamic is especially important for Farmers’ expansion into the Eastern United States, where 21st Century is blazing the trail. The Eastern expansion is further supported by advertising the Farmers brand on a national basis, which results in attracting new customers and helps retain existing ones. Retention is a key issue, especially in a flagging market. Other measures to improve retention include improvements in key customer touch points like billing and claims, and through product innovation – like Farmers Auto 2.0, with enhanced pricing competitiveness driving increased new business and retention; or the new homeowners product Next Gen 2.0, which offers better pricing segmentation. Farmers is constantly looking for such ways to improve the customer experience, then checking back with the data to make sure the changes have increased loyalty, and not diminished it.
In fact such data analytics are of growing importance to many of Farmers’ successes, not just in retention. In a volume business like Farmers’, size provides a tremendous informational advantage. Sophisticated data analytics help make sure that the rates match the costs, and to identify and strengthen relations with the best customers. This sort of sophistication gives Farmers particular confidence when looking at growing its offering of small business insurance – a market with many small local players.
- In 2010 we brought together many of the core processes common to all three of our segments and united them under a new function, called Group Operations. While much of the integration has been ongoing over the last few years, this is the first time they’ve come together under one single unit.
We’re putting all our weight behind the function. The Group Operations footprint consists of more than 6,000 employees, along with some 6,000 more who work for strategic suppliers. With a budget of USD 4.4 billion, USD 2.1 billion of which is allocated to information technology,Group Operations manages about 40 percent of the Group’s total expense base.
Laying the foundation
In exchange, all our businesses are counting on continued expense savings and quality enhancements in shared services, covering everything from printing to procurement. Core support functions such as IT and project management will continue to improve in terms of flexibility and responsiveness, helping the businesses to deliver on their ambitious growth and expense-saving agendas. Group Operations is now the organizational home for many of the tools that help our segments achieve their goals.
The entire set of sustainable, infrastructural changes and improvements grouped under The Zurich Way is also now in the hands of Group Operations. The Zurich Way will continue to be the program for driving global capabilities and spreading best practices throughout the organization.
To get a sense of the importance of the Group Operations contribution, consider the acquisition of U.S direct auto insurer 21st Century, now a key part of the Farmers Exchanges. This acquisition represented the most complex IT integration ever undertaken by Zurich, and the timeline was aggressive. Multiple legal entities were involved in the transaction, which created a unique set of challenges. Over 80 application and infrastructure services that 21st Century utilized from its former parent, including payroll and accounts payable, had to be switched over seamlessly to Zurich – many by the end of the first day that the deal was official. Our IT teams worked with business, legal and finance representatives to ensure a seamless transition in this complex acquisition. Despite all these challenges, the deal closed without a hitch and all temporary services were switched over to Farmers on or ahead of schedule. This is a textbook case study for a successful merger separation and integration, and more broadly, a precedent for the entire Group Operations team to honor as we shape the Zurich of the future.
Other notable successes in 2010 include more than USD 100 million in savings captured by harmonizing the procurement process, with more room for improvement going forward. Two shared services platforms operating independently in Europe and North America were merged into one. We’re generating substantial savings by restructuring IT infrastructure costs into variable costs through global outsourcing. And alongside taking these opportunities we will essentially be building a new Group Operations organization, one that is empowered to carry out the even larger tasks that are set for 2011 and beyond.
The benefits will go well beyond expense savings and efficiency. The ambitious work we’re undertaking in the Group Operations function is ultimately aimed at making our businesses more flexible and more capable in delivering one consistent Zurich experience for our customers. Internally, it will improve the careers and opportunities of the people working for us.