George KellerPresident and CEO
Winterthur International America
As more and more multinational companies recognize the necessity of tapping foreign markets for new business in today's global environment, the insurance industry has been hard put to keep pace in terms of providing the products and services those expanding firms need. In the United States, for example, just a handful of insurance companies have been truly international in scope for any given length of time. The question is how do insurance companies without a significant foreign presence equip themselves swiftly to become a major player in this era of globalization?
Of course, there is the merger and acquisition route, and there's no question that M&A activity has been heating up in recent years. And some insurers opt to form correspondent relationships with local insurance firms in foreign markets.
But Travelers has taken a different approach. Almost a year ago, Travelers Property Casualty and Winterthur Insurance Group announced that they were joining forces to sell insurance worldwide. The alliance is targeting large multinational companies with $200 million in sales volume and up, worldwide. At the outset, the companies signed an initial two-year contract whereby Travelers writes insurance for Winterthur's United States clients and Winterthur writes insurance for Travelers' clients overseas. Under the agreement, the companies pool premiums and split the risk and the accompanying paperwork 50-50.
George Keller
President and CEO
Winterthur International America
George Keller, president and chief executive officer of Winterthur International America and chairman of the operating committee for the new venture, views the match as an ideal one. "Basically, what happened here is that we have two companies that were, independently of each other, thinking about how to become global," he says. "Travelers is a powerhouse in the United States, but not as strong overseas. Winterthur is a major force in 27 countries, but not in the U.S. Both companies are strong in multinational industrial business. We were introduced by a third party, and the rest, as they say, is history."
John Stites
Vice President
Travelers National Accounts
John Stites, vice president of Travelers National Accounts and vice chairman of the operating committee for the new venture, said that both companies view the alliance as a long-term relationship. "Each of us has the same objectives," says Stites. "First, we want to extend to our current customers the new products and services they need as they become global. We have about 900 accounts that are U.S. multinational firms and Winterthur has just over a thousand that are primarily European-based multinationals. Therefore, the first objective for both of us is to grow our existing business by offering our existing clients the global products and services they need.
"Our second objective," says Stites, "was to form an alliance that would make us a major player in the global insurance industry. Let's face it, there are maybe a half-dozen insurance companies that are capable of providing global coverages and services. Now, we are up there with that half-dozen."
And Keller offers a practical example of what Travelers/Winterthur can do now, that neither company could do independently before. "There have been a number of catastrophes in recent months--Hurricane Floyd, earthquakes in Greece, Taiwan and Turkey. A good many of our clients have suffered losses in some or all of those spots. With this alliance, we can keep our clients abreast of what's going on and use the expertise of both companies to deal with those losses.
"We're committed to our clients any place in the world," continues Keller. If a client calls us with a question, we will return that call before 24 hours have passed. The same is true of claims inquiries."
Both Keller and Stites maintain that the alliance that has been formed is different from correspondent relationships that other insurers form with foreign entities. "There have been a good many 'loose' alliances that have been formed by U.S. insurers with overseas insurers," says Stites. "But they have not worked because the ties that bind are meaningless. Very often an insurer in a correspondent relationship with another company overseas just ends up reinsuring 100% of accounts back and forth. There is no sharing of the financial risk. With our alliance, we split everything down the middle, so there is a sharing of financial risk."
In addition, say Keller and Stites, the alliance has been constructed in such a way that there is a physical proximity with Travelers and Winterthur employees. In the United States, for example, buildings in New York, Los Angeles and Chicago house both Travelers and Winterthur personnel. "We work together, not just philosophically but physically as well," says Stites. (Travelers/Winterthur International has established a separate Web site also: www.trav-win-intl.com).
So far, according to the insurance executives, business has been good. The alliance officially began this past January, and to date it has taken on 19 accounts and boasts $36 million in gross revenues. "What is even more encouraging," says Stites, "is that 50% of that is 'new' business, new to both Travelers and Winterthur."
Stites says that the approach that has been taken, an alliance rather than forming a new company outright, is because under federal banking laws in the United States, the two companies are not allowed to form a new company directly. Nevertheless, both companies will take advantage of Travelers' parent company, Citigroup, and use sister-subsidiary Citibank's network of international banks to improve cash management.
In addition, Keller and Stites say, the alliance will be able to provide risk management expertise to multinational clients, a particular benefit to overseas multinationals that often don't have the level of sophistication in the area of risk management that United States multinationals have.
Will the two companies change their approach if federal banking laws are relaxed with the current financial services modernization bill currently before Congress? It doesn't appear so, at least not for the immediate future. "Right now, at any rate, we believe that keeping two separate cultures in a homogeneous environment is very advantageous," says Stites. "We're not sure whether forming a management company is the right way to go. What we've got now is working just fine," he says. *
©COPYRIGHT: The Rough Notes Magazine, 1999