Mark B. Webb is president and chief executive officer of CGU Group Canada, Ltd.
On the opening pages of its 1999 annual report, CGU Group Canada, Ltd., tells the story of a time management consultant who uses a large Mason jar for illustrative purposes. He fills the jar to the top with rocks of varying sizes. He then adds gravel, which fills in the space between the rocks; then sand, which seeps into all the cracks and crevices too small for the gravel; then, finally, he pours water to fill the jar to the brim. What's the message behind all this? Put in the big rocks first or there won't be room for them later.
On the pages that follow, the report explains that, to CGU Canada's management, this message translates into a commitment to handle the fundamentals of the business first--the big rocks. Then, like the sand, gravel and water, everything else will find its proper place.
The rule applies in particular, says Mark Webb, president, when it comes to building a huge, new insurance organization that is made up of large and small companies. The various insurers comprising CGU Group Canada, Ltd., were assembled less than two years ago with the merger of several culturally and geographically diverse companies:
* First, in October 1997 General Accident acquired Canadian General Insurance Group.
* This was followed by the worldwide merger of the 300-year-old UK-owned Commercial Union, which had large U.S. and Canadian operations, with General Accident, which was founded in Perth, Scotland, 125 years ago but had a major U.S. operation in Philadelphia.
Despite the mammoth job of integrating all of these companies into a single whole, a smaller company was added in 1999 when CGU Canada acquired GAN Canada and its subsidiary companies. And, the M&A pace still hasn't eased. Earlier this year, CGU plc announced the planned divestiture of its U.S. property/casualty business; and the pending merger of CGU plc with British insurer, Norwich Union plc., into a company that will be called CGNU. Needless to say, this is a lot of change!
Asked what effect the merger with Norwich might have on CGU Canada's current plans and strategies, Webb says bluntly, "Not a lot." While, at this writing, the deal is still awaiting approval by the respective regulators, he expects that the Canadian operation will continue pretty much as is, but with access to world-class technology and other resources.
James D. Hewitt, Executive Vice President, CGU Canada
And what about the U.S. P-C divestiture, Rough Notes asked? "CGU plc made this decision because the opportunity to become a market share leader in the United States is remote," said Webb. "The Canadian company is the Number One property/casualty insurer in the country, and to duplicate our position in the United States would be very difficult to achieve."
Today, CGU Group Canada, Ltd., includes six companies with 17 offices throughout the provinces and 2,500 employees throughout Canada. Based in Toronto, the organization has assets of $4.6 billion and nearly $1.6 billion in net written premium. (Editor's Note: While this premium volume may not seem large by U.S. standards, keep in mind that the entire Canadian insurance market represents less than $19 billion in total premium.)
Ross A. Betteridge, Executive Vice President, and Chief Financial Officer, CGU Canada
And if integrating six companies' operations, products, policyholders, staff and broker relationships were not enough, the company has tackled a number of internal changes. It has, for example, completely overhauled its pricing process; set out to implement an e-commerce "master plan"; improved the efficiency of its broker and staff relationships; implemented a segmentation strategy; and internalized the claims processing function of its various companies. CGU Canada has a full "jar" indeed.
Integrating myriad broker relationships
So how does CGU integrate and forge solid relationships with the brokers who sell the products of the various companies that have become part of the CGU organization? In this, as in the overall integration of the staff, operations and products themselves, the company's philosophy is to tackle the "big rocks"--the most important jobs--first.
The "big rocks" in this case involve building stronger relationships with CGU's selected partners through better communication. This rule applies to both good and bad news: "If you try to sugarcoat bad news, it will come back to haunt you via a lack of credibility," Webb says.
And there was definitely some bad news. According to Webb, challenges with broker relationships are inevitable in changes of this magnitude. "The biggest one involves maintaining an excellent level of service as you load the service relationship with additional tasks, such as moving business from one system to another," he says.
Also, as integration of the companies moved forward, CGU Canada decided that using fewer, more focused brokers would be a good move. As a result, the organization reduced its number of broker relationships. "When we looked at the business direction we wanted to take, we found that there were a lot of program/business clashes. We've divested both products and brokers who didn't fit into our new segmentation strategy going forward," said Webb.
In both commercial and personal lines, CGU Canada is emphasizing a segmentation strategy that tailors products to certain market segments. "We've found it is a successful way to grow our business, but it requires some hard decisions," says Webb. In particular CGU Canada's "Prime" line focuses on creating specialized insurance programs that add value, such as for metalworkers or for the real estate industry.
As with broker relationships, CGU also is weeding out unprofitable products and business. "In the next couple of years we're going to refine our product portfolio," says Webb. In fact, CGU probably won't grow substantially in the short- to medium-term.
The importance of communication
Webb says that CGU learned that when massive structure changes happen, you have to communicate openly to staff and brokers in a timely, accurate and honest manner. "They need to know what's going on. These are the people who have relationships with policyholders and prospects, and they make the transactions happen." He says that CGU also emphasized staff and broker feedback with regular Q&A sessions.
CGU also got the word out to brokers about its new strategy through its regional Broker Councils, increased the organization's presence at important broker conferences, and revamped its "Broker News & Views" newsletter to provide more timely and relevant information. Moreover, the organization enhanced its Internet-based broker links, making rate manuals and other business-critical information more accessible.
One way that CGU Canada is committed to do this is through technology. The organization's e-commerce strategy focuses on connecting its broker partners via computer links with its people, products and market intelligence. For example, its IMAGE software is used by large-volume personal lines brokers to quote and issue policies online. "We're also running a test market in Ontario where we're putting an underwriting system into the brokers' offices, called CGU Plus." Webb says. "We see increased cost efficiencies and enhanced relationships through this move."
Looking toward the future
It's been two years since the General Accident/Canadian General integration, and the company now has completed three more. Says Webb, "We learned so much from the first integration, we strive to develop and enhance our knowledge and to learn from our experience. Indeed, our ability to acquire the right businesses and smoothly integrate them will remain an important "big rock" to our company in the foreseeable future."
Are other acquisitions on the horizon? "If a company's products and strategies are a good fit we will consider future acquisitions," says Webb. "Ultimately, we're looking for longer-term profit in order to build shareholder value."
Webb notes that, with the union of several major insurers, CGU is proving that it deserves its place as the Number One property/casualty insurance market in Canada. "Despite the major time and dollar costs consumed by the various corporate integrations in 1999, we've already begun to see many of the benefits --increased market share, higher business volumes and reduced operating expenses."
In the past year, CGU also has reinforced the idea that its broker business partners are very much the public face of CGU across Canada and seeks to equip them to communicate and reinforce the brand in the minds of existing and potential policyholders. "It takes a great deal of thought, consultation and analysis to determine what you want your company to mean to people," he says. "We realized we had to introduce our brand gradually and carefully--to make sure that every member of our organization and broker force understood what we wanted CGU to represent in the minds of our customers."
Most of all, in 2000 and beyond, Webb says, the primary task of CGU Canada will be to deliver on what it has been promised. "We have to put our words into practice. Coast to coast, we've been working together to deal with the 'big rocks' of taking CGU Canada into the future by tackling the important tasks first." *
Comments by Mark Webb, president, CGU Group Canada, Ltd.
Looking at the broker model in Canada, there is a growing trend toward both broker consolidation and insurer-owned brokers, which are alternative models to the long-standing independent broker model. The ultimate goal is to drive savings out of the structure and find synergies within. Unfortunately, often the reason driving these changes is that agency principals have not planned for perpetuation of the agency and they are looking for a way out of the business.
What happens in these new models is that the client relationships suffer. People are the foundation of broker business and the relationships between policyholders and agency principals are often lost in these new models.
While consolidation might look attractive, frequently the relationships no longer hold together. This direction is not creating a stable environment. I think the traditional broker system is alive and well. There is a real opportunity to build good relationships and lower costs with clients and with insurers. The old model is best. Why shift from a definite win/win philosophy to one that is not as certain?