Chubb Specialty brings strength and savvy to the challenging market
for executive protection and professional liability
By Elisabeth Boone, CPCU
Chubb Specialty's top management team is headed by Ralph E. Jones III, president and chief executive officer, at left; and Robert C. Cox, senior vice president and chief operating officer, at right.
Kidnap and ransom ... extortion ... fraud ... workplace violence ...
These ominous-sounding risks seem to inhabit a different world than do generic exposures such as business property, commercial automobile, or inland marine. Complex, costly, often global in scope, and frequently involving the stark equation of life and death, these exposures require the focus, discipline, and skill that only a seasoned specialty underwriter can provide. And in the aftermath of the September 11 terrorist attacks on New York and Washington, this challenge becomes exponentially more compelling.
Such an underwriter is Chubb Specialty Insurance (CSI), one of the three strategic business units of global giant Chubb Corporation (the others are Chubb Commercial Lines and Chubb Personal Lines). CSI's resources are dedicated to creating solutions for the executive protection and professional liability exposures of a wide range of entities, both public and private, for-profit and nonprofit.
Chubb Specialty ended 2000 with premium volume of $2.1 billion, representing 8% growth, and posted an impressive 91% combined ratio for the year. CSI has about 1,000 employees, of whom about half are based in its Simsbury, Connecticut, headquarters, with the remainder located in field offices throughout the United States and in Canada, Europe, Asia/Pacific, and South America. CSI's products are available to independent agents both on a direct basis and through wholesalers. CSI is represented by a network of some 4,000 independent retail agents throughout the country, and it also distributes its products through about 150 wholesalers.
Key members of Chubb Specialty's management. Standing, from left to right: Ralph Jones; Sean M. Fitzpatrick, senior vice president and chief underwriting officer; and Bob Cox. Seated, from left to right: Joseph C. O'Donnell, senior vice president and managing director, Executive Protection; Debra Palermino, vice president, Human Resources; and Paul F. Romano, senior vice president, Health Care Group.
Ralph E. Jones III, president and chief executive officer, offers some insights into CSI's structure, mission, and strategy. "CSI is a very important franchise, and a long and successful franchise, for the Chubb organization," he says. "It started in the 1960s with a group that focused on financial institution customers. Another unit, the crime insurance department, targeted large companies that purchased employee dishonesty and crime insurance, and then in the 1970s followed these customers into new lines of insurance: fiduciary liability, kidnap/ransom, directors and officers liability." In the 1980s, Jones continues, CSI's focus shifted to executive protection and, in 1992, it introduced an employment practices liability policy. In July 1999, Chubb Specialty acquired Executive Risk, and the resulting synergies make CSI an undisputed leader in its field.
Targeted business units
Chubb Specialty is organized into five business units, Jones says. "The largest is our Executive Protection business in the U.S., which is about
$1.1 billion, and that focuses on five core products: directors and officers liability, fiduciary liability, crime insurance, employment practices liability, and kidnap/ransom. We provide those coverages to large Fortune 500 customers as well as smaller and middle market risks. For example, we write D&O for 6,000 private companies in the U.S., and there are probably 684,000 private companies that are potential insureds in the United States." The U.S. Executive Protection business is managed by Joseph C. O'Donnell, senior vice president.
The second largest department at CSI is Financial Institutions, which focuses on all lines of property and casualty insurance for banks, insurance companies, stockbrokers, venture capital companies, asset managers, and similar businesses. It is headed by James P. Bronner, senior vice president.
The third CSI unit is Executive Protection business outside the United States, which represents about $230 million in premium and writes CSI's core specialty lines for customers based or domiciled outside the United States. About half of that revenue is in Europe, with $80 million in Canada, and the rest in Latin America and the Asia/Pacific region, including Australia.
"This is probably the fastest growing and most profitable part of Chubb Specialty, because we're essentially ahead of the liability curve," Jones remarks. "There's quite a bit of demand overseas, particularly for D&O coverage for leaders in positions of responsibility, but there isn't quite the intensity of exposure to lawsuits overseas that there is here in the U.S., with our contingency fees and class action litigation, particularly shareholder suits. Our growth in this area," Jones continues, "has been based on following customers and developing new products to meet their needs in a reliable and stable way."
Debra Palermino, vice president, Human Resources.
"This is an organization that prides itself on building an environment in which people understand each other's responsibilities and know how to work together."
--Debra Palermino
Fourth, at over $200 million in premium, is Chubb Health Care. Headed by Paul Romano, senior vice president, this division provides specialty lines coverages such as medical malpractice, managed care E&O, D&O, and provider stop loss.
This month Chubb Specialty announces the formation of its fifth business unit, ChubbPro, which arranges professional liability coverages for lawyers, accountants, insurance agents, and other professionals. The new unit represents premium volume of about $120 million that was moved from CSI's Executive Protection business, and is headed by Sean Fitzpatrick, senior vice president. "We're creating a separate business unit for professional liability so we can better serve our E&O customers and expand our E&O writings faster and more profitably," explains Robert C. Cox, senior vice president and chief operating officer. "Brokers are looking for that kind of dedication," Jones adds.
Joining forces
As mentioned earlier, Chubb Specialty achieved a milestone two years ago with the acquisition of Executive Risk, Inc., a leader in the executive and professional liability market served by CSI. "That transaction was completed in July 1999, and is working out quite well," Jones says. "We're growing and making money as a combined organization. Executive Risk was known as a very entrepreneurial business. Our health care business originated in Executive Risk as well as our wholesale business, which is quite large as well. Chubb Specialty had a very modest wholesale book, and Executive Risk brought over $150 million in premium from wholesale producers, which represents just under 10% of Chubb Specialty's total volume of $2.1 billion." In addition to health care and wholesale business, the Executive Risk merger moved Chubb Specialty into another new arena, program business, which represents about $70 million in premium. "All of this business is intact and growing," Jones remarks.
"My view of the report card on the success of an acquisition is whether we're growing and making money," Jones says. "At the time Executive Risk was probably the number three player in D&O, and the combination gave us stronger market share and leadership in several lines of business. The largest writer of D&O is probably AIG, and Chubb is now second."
Gaining an edge
As a major business unit of one of the world's largest and most well-respected insurers, Chubb Specialty definitely doesn't have an identity crisis. It does, however, encounter some formidable competition. How does CSI seek to position itself in its markets and gain an advantage over competitors?
"Probably our biggest single advantage is our reputation," Jones responds. "It's highlighted in our advertising material, where we use the theme 'It's Chubb or It's Chance.' Chubb is a Triple A-rated insurance company, and being a highly rated, financially sound company becomes even more important given the impact of the September 11 terror attacks on the insurance community." In addition to being a strong, stable carrier over many years' time, Chubb also prides itself on its claims and service reputation, which Jones says is a distinguishing feature "particularly in the very sophisticated lines of coverage we handle in the areas of directors and officers liability and employment practices liability and similar sensitive coverages."
Paul Romano, senior vice president, Health Care Group.
Another key advantage Jones points to is Chubb's ability to cover its insureds' needs in whatever jurisdictions they operate. "Our worldwide distribution network and ability to handle liability claims for a multinational insured virtually anywhere in the world give us quite a powerful advantage," he observes. Yet another benefit accompanied the Executive Risk merger, Jones notes: the ability to bring products to the market quickly. "We've capitalized on that strength throughout the organization," he says. "We try to position ourselves as being our customers' business ally."
A look at market trends
Well in advance of the terrorist attacks, Bob Cox says, Chubb Specialty's markets were firming in line with the overall trend in the industry. Comments from the executives in charge of CSI's major business units offer useful insights into both current conditions and emerging trends in these specialty markets.
Health Care. Leading off is Paul Romano, who heads up Chubb Health Care. "With respect to specialty insurance for health and managed care organizations, it's almost impossible to generalize, but to varying degrees the conditions are comparable across all the lines we offer this market segment," he says. "Generally the results for the industry have not been good. As a result, most of the major carriers in this business are in some form of recovery or are withdrawing capacity. In some severe instances, particularly in medical malpractice, carriers have had such significant financial problems that there have been state seizures of those organizations, or orders from state insurance commissioners to withdraw from certain lines of business."
Joe O'Donnell, senior vice president and managing director, Executive Protection.
"With Forefront Portfolio, our new product for the private commercial market, we'll be looking to grow that business significantly over the coming years."
--Joe O'Donnell
Careful planning and judicious underwriting have been key factors in Chubb Specialty's ability to weather the soft market storm. "The last years of the soft market, coupled with an uptick in severity in some of these lines, have really been damaging to a lot of our competition," Romano observes. "We've had the good fortune to survive this state of the market without significant problems in our book of business. Since 1997, when we were solely a D&O provider in the marketplace, we've entered the managed care errors and omissions market, the providers excess and reinsurance market, and the medical malpractice business for facilities and organizations. We don't do stand-alone physicians and surgeons malpractice. During the soft market, we assembled our business as carefully as we could. Now, with the improving conditions around rates and placement, the volatility in the health care marketplace is showing some signs of settling down.
"We have a very attractive currency right now in the marketplace," Romano continues, "particularly because of our Triple A rating and the strength of our paper. The marketplace values our capability even more highly than it did before, and current conditions are making us a go-to market in many of those lines."
Executive Protection-U.S. This business unit, headed by Joe O'Donnell, offers directors and officers liability, employment practices liability, crime, fiduciary liability, and kidnap/ransom coverage to all commercial accounts except those handled in the Health Care and Financial Institutions units. "Chubb Specialty has number one or number two market share in each of those lines of business," O'Donnell says. "The publicly traded D&O sector is an area where we've certainly seen some constriction in capacity in the marketplace, and we've also seen the need for fairly substantial rate increases over the past year and a half; we foresee that continuing into next year." In 1992, Chubb Specialty was one of the first insurers to enter the employment practices liability arena. "Because of evolving issues in the business and legal environment, we are seeing a definite need for rate increases for large employers with more than 1,000 employees, and those employers that have a high profile in the marketplace, like retailers and consumer product companies."
For employers in the private commercial market that have fewer than 500 employees, CSI recently introduced Forefront Portfolio, an updated version of a product originally launched in 1996. The product has eight optional coverage selections: D&O, EPLI, fiduciary liability, miscellaneous professional liability, Internet liability, crime insurance, kidnap/ransom and extortion, and workplace violence expense coverage. With this new product, O'Donnell says, "We'll be looking to grow that private commercial business significantly over the coming years. As Ralph mentioned earlier, we have 6,000 existing customers, but we believe there's a marketplace of 600,000 to
1 million potential customers that we'd be interested in writing."
Financial Institutions. Commenting on Chubb Specialty's Financial Institutions business is Bob Cox, who previously ran the department. Like Health Care, the Department of Financial Institutions (DFI) focuses on specific industry segments and provides D&O, E&O, fiduciary liability, and related coverages, as well as property, general liability, workers comp, automobile, and other P-C lines.
With respect to D&O, E&O, and EPLI, Cox says, trends are similar to those in the Executive Protection segment as described by Joe O'Donnell. On the property/casualty side, he notes: "DFI's book has benefited from the firming in the overall P-C market over the last couple of years, which preceded any firming trend in the specialty products. The property/casualty market continues to firm, and now we're seeing a firming in the specialty market as well."
This trend, Cox says, is likely to continue in the aftermath of September 11. "We think these events will accelerate the firming in the general property/casualty market; in fact, we're beginning to see some significant hardening in the property market. Generally we foresee the whole market firming up, irrespective of line of business."
Knowledge is power
Success in the sophisticated markets pursued by Chubb Specialty depends on a host of factors, chief among which are underwriting expertise and financial stability. Another essential ingredient, Cox points out, is industry knowledge. Two of CSI's five business units, Health Care and Financial Institutions, are distinguished by an industry focus as opposed to a focus on products. "We think these two businesses show that industry specialization really works," Cox remarks. "Having specially trained underwriters focusing on specific industries, with many of them coming from those industries, allows us to make better risk decisions over time. We know the industries better, and we understand the issues and events that shape those industries. The formation of ChubbPro, our newest business unit, is a continuation of this successful strategy."
Sean Fitzpatrick, senior vice president and chief underwriting officer.
Industry knowledge has the added advantage of allowing Chubb Specialty to bring new products to market more quickly. "By knowing the industries, we can quickly anticipate emerging risk management issues and needs of our customers," Cox observes. "When our customers have a risk management problem, they often come to us first, so we get a first shot at solving the problem. If we can solve the problem for one customer, we're often able to replicate that solution for other customers with similar problems, and that's where a lot of our new product ideas come from. This industry-specific focus is unique to CSI, and we think it's a very powerful business model."
Recruiting top-flight professionals for Chubb Specialty is a major human resources challenge. Debra Palermino, vice president, who joined CSI in January, says it's more than equal to the task. "This is an organization that prides itself on building an environment in which people understand each other's responsibilities and know how to work together," she says. This environment fosters cooperation between field people and those in central locations, as well as professionals in different disciplines, such as claims and underwriting. Palormino also emphasizes the importance of training, from both a technical and a nontechnical standpoint. "That's really a competitive advantage that we offer here," she comments. "We have an extremely robust training program for our underwriters worldwide, and we also provide excellent programs in areas like leadership and management."
What's ahead?
Everyone knows that the property/casualty insurance industry is one of the hardest hit business segments as a result of the September 11 terrorist attacks on the World Trade Center and the Pentagon. Even two months after the tragedies, it's impossible to calculate what the final toll on insurers will be. Well before the attacks, Cox points out, the property/casualty business was experiencing a significant "flight to quality," with insurance buyers increasingly seeking out insurers that have strong balance sheets and a history of financial stability.
"Given increased severity, increased frequency, and a sustained period of depressed prices, we believe there's a widening gap between the stable insurers and those with less sound financials," Cox observes, "and we believe the events of September 11 will only serve to widen that gap further. We think we're very well positioned to continue to grow and profit, and use the foundation of our financial strength to attract customers who will be more and more concerned about that strength going forward." *
For more information:
Chubb Specialty Insurance
Phone: (800) 432-8168
Web site: http://csi.chubb.com