Those who worry about outsiders taking over the insurance industry should be reassured when they witness not only Joseph Plumeri’s success but also his passion for the industry.
Less than four years ago, Plumeri came to the industry from Citigroup with next to no idea of what loss ratios and combined ratios were. Having spent more than 30 years in banking and securities, he was not closely familiar with insurance accounting nor had he experienced the traditions of Lloyd’s of London.
“All I know is that you are supposed to spend less money than you make,” said the dynamic leader, now chairman and chief executive officer at Willis Group Holdings Ltd., the British global insurance broker with more than 300 offices in more than 100 countries.
Pulmeri, the first non-insurance executive to head the 175-year-old firm, said he finds the insurance industry exciting and invigorating. “I’m like a kid.” Judging by his record at Willis, he’s a kid with a talent for motivating people and managing money.
He came to Willis in October 2000 and by 2001, he had taken Willis from private to public ownership. During that year, the company was recognized as the third best performing IPO listed on the New York Stock Exchange.
Today Willis is the world’s third largest insurance broker. Last fall, Willis reported its fifteenth consecutive quarter of record results with revenues up 19 percent for the first nine months of 2003 to $452 million, almost all from new business.
At a recent New York City luncheon address sponsored jointly by the Association of Professional Insurance Women and the New York chapter of the Society of Chartered Property Casualty Underwriters, Plumeri told the several hundred in attendance that the formula for success in the insurance business is not complicated.
“You’re supposed to spend less than you make,” he repeated. Very simply, the industry must become disciplined about operating profit and less dependent upon investment income. “If you depend on something else to bail you out, you won’t have a sound industry.”
The industry’s failure to consistently realize an operating profit has resulted in low returns for investors. “When you don’t make it, nobody will buy your stock and you won’t have a company left after awhile,” he noted, adding that even in its best years of the last decade, the insurance business could only boast a 4 percent to 5 percent investment return.
“You’d think somebody would have figured out that we need to get the combined ratio below 100,” he said, displaying his
newfound understanding of insurance terminology.
His “outsider” experience has given him a different tack on how the industry can improve its financial results. He does not agree with others that higher rates are the solution. While it’s important to maintain adequate pricing so a company remains solvent, he looks to another remedy to fix what ails the industry: more sales.
“Rates are not the biggest issue. We need to remember that people gotta’ buy what we sell. In other businesses, people don’t have to buy the product every year—they can use their old one.”
The industry has little excuse for not selling more, he suggests. “This industry makes a client feel good. We don’t have to create a need like other industries. The need is there.”
He downplays the benefits of acquisitions. “Relying on acquisitions for growth does not make us a growth industry. We have to create new accounts. When the mergers and acquisitions department is bigger than the sales department, you’ve got a problem.”
Pointing to a chart of top brokers, he proves his point. “Sixty percent of the top 10 insurance brokers are no longer around because they have been relying on acquisitions rather than sales culture. All you do is rearrange existing accounts that way.”
The industry should focus more attention on keeping its current accounts, and then it should add new business. He is quick to share his mantra on sales. In order of importance, he advocates: “Keep what you got. Get more from what you’ve got. Add to what you’ve got.”
Plumeri is no longer confounded by combined ratios and insurance terms. But he acknowledges there still are some things about insurance that perplex him.
“Why does it take so long to get out a policy?” he asked, suggesting there are times clients are lucky to get their contracts before their renewal date. In the securities industry, an order can be confirmed within 30 seconds, he noted.
Plumeri recalls his maiden visit to Lloyd’s. Before he arrived, he envisioned a modern and sophisticated operation with high-speed technology in the world’s biggest and most famous insurance marketplace. What he saw was quaint.
“I saw men with big folders walking back and forth and then waiting in line in a box to place insurance,” he laughed.
“We’ve got to be more efficient,” he stressed. “Pigeons are faster than us.”
The answer, he believes, lies in technology. Brokers must develop their own technology rather than continuing to rely on insurance companies. He advocates a system similar to what the New York Stock Exchange uses.
“The technology may not now exist but we have to create it,” Plumeri urged, at the same time volunteering to lead a group of brokers in negotiations to get the technology off the ground if that would help.
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