It’s definitely not too good. There is no indication that the prices are going to do what they need to be doing, which is going up. The underlying costs of the commercial lines business are rising, the cost to repair buildings, the cost to repair automobiles, the cost to repair people—all are rising. As such, prices should be going up. At Fireman’s Fund, we are staying very disciplined on our pricing; we are increasing our rates appropriately. So it’s frustrating and very disappointing to see the lack of discipline in the industry. It’s bad behavior, and the industry should be ashamed of itself.

PC360: What do you think might be the catalyst to actually cause the industry to start to change?

The sad thing is, I don’t know that there’s one single catalyst that could do it. The only catalyst is not one that we want to think about which is a devastating incident that we pray never happens. But even a single large catastrophe, I’m not sure would be enough. I guess the only positive indicators are that it looks like companies have begun to run out of gas in the tank from prior-year reserve releases.

But there’s so much capital in the industry, and there’s nowhere to spend it, so companies are trying to say with all this capital we need to grow, and let’s invest in our growth even if it’s at prices we know are insufficient. So I don’t think there’s necessarily one event that will turn it. It’s just going to be this continuing erosion of profitability. But hopefully there will be an awakening of leadership that prices need to rise because costs are rising.

PC360: Both near-term and mid-term, how are you looking to grow the business?

Our first goal is to make an underwriting profit on each of our lines of business. So at the end of the day if we can’t grow because we have discipline around underwriting profit that will be something we’ll have to accept. But it’s still a very inefficient market, so there are lots of opportunities for us to grow. There are some areas of the country where we don’t have a large amount of volume, so there are opportunities on a geographic basis. There are product opportunities: highly protected risk is an area where we’re growing. We’re seeing some significant growth in our entertainment center. We’re seeing small business growth. We fully anticipate that we can grow this year.

Companies like ours, we’re not just disciplined around price, but we’ve gotten much better at what I call product management. So we really understand how to match rate to risk at a more detailed basis than we’ve ever done before. And the more segmentation you can bring, particularly in the commercial lines space where it hasn’t traditionally been part of the approach to the business, you’re going to find segments of the business that are available to you. So we believe if you really look at the pricing and the lack of efficiency in the marketplace, there’s opportunity out there.

Are there specific geographic regions that you’re looking at? And can you segue from that into your relationship with independent agents and any changes you have planned on that front?

There’s a whole bunch of the country where we don’t have a lot of business so it’s hard for me to specifically say we like this area a lot. But if I look at the map of the U.S., certainly there are major areas in the middle of the country, the Midwest states, where we see some significant opportunities. There are areas in the Southwest, whether it’s Arizona, Texas, New Mexico or Nevada. And the Southeast presents opportunities

I consider us a relatively small P&C company in the greater scheme of things, and when you’re our size, there’s not a whole lot of geographic areas that aren’t available. How does that relate to the independent agents? In a pretty significant way because we are an independent-agent-only company; there’s not a lot of us left out there. So if I’m an independent insurance agent and looking for an efficient partner—particularly an independent-agent-only company that’s also national, that has the combined financial strength of Allianz and Fireman’s Fund, and that also has everything from personal-lines auto all the way through complex commercial risk expert lines of business—we really fit that bill.

So there are opportunities to expand our independent agent base—and not at the cost of our current agents, but into areas where geographically we don’t have as much presence. And there’s real opportunity within the agencies that we already exist to write more business. We have not, by any stretch, maximized those relationships.

PC360: Much of Fireman’s Fund business today occurs west of the Rockies, and you have very heavy exposure in California. How do you feel about business in California in general, whether it’s entertainment or earthquake risks? Are you overexposed in California?

We’re really not. We love California, it’s home-field advantage for us. And we have a terrific ability to map our risk and exposures, whether it’s earthquake-related in California or wind-related in areas like Long Island and the Gulf Coast states. Our interest in expanding is not about not being in California; it’s just that we want to grow and we want to truly be a national company and to be that you’ve got to be able to write across all the geographies. And as we write more risk that is more geographically spread, I can take my capital and spread it more efficiently than in just cat exposed areas. That’s good for me, it’s good for Allianz, and it’s good ultimately for our consumers because it makes us a better company.

PC360: Talk about the relationship with Allianz.

For Fireman’s Fund, it’s a huge advantage. I can give you just a couple of obvious examples, but they’re important ones. As we went through this horrific economic crisis that obviously we’re still not completely out of, being part of Allianz was a huge advantage to us because Allianz very proudly did not go down some of the poor investment roads that others did; it is a very conservative investment company and is very financially strong. So we could look at our customer, both our agent customer and our policyholder customer, and with great pride say that we stand by them and we’re ready to meet our obligations around claim payments. And while financial stability has always been important to customers, whether high-end commercial customers or personal-lines customers, they are much more aware and asking questions around, “Who am I with? I want to validate that I’m with a company that will be able to meet its financial obligations to me.”

The second piece is that Fireman’s really needed to invest in our infrastructure. Our infrastructure was outdated and really needed to be brought up to speed, primarily in the technology space. And Allianz, even in the midst of the worse economic recession since the 1930s, invested in us. And I don’t know that I could have been part of any other organization that would have been bold enough at those difficult times to choose to invest. So as the market does become more appropriately priced and returns to matching the rate to the risk and the rates to the cost that we’re seeing, we’re going to be ready for that movement.

And as you look to expand across the US and become a truly national player, can you talk about the future for the smaller and mid-sized insurance carriers? Is there a future for them?

The smaller regional carriers are going to have to find their unique niches and play in that space. The reality is, there’s so much consolidation within the distribution side of our business that the distributors are clearly becoming national in their own right or at least super-regional. And so they expect to be partners with companies that can match their reach, whether it’s product reach or geographic reach. And so the opportunity for long term significant growth is going to be with the national players who can meet the needs of their distribution channel and the evolving customer.

And the second challenge facing regional carriers is technology; you’re going to have to invest in technology. We are finally becoming a much more technology-driven industry; it has taken us far too long, but we’re becoming much more technology driven. And also product: the sophistication around our products is growing, not just in the coverages but in the way they’re designed from a pricing standpoint. And to do that, you’ve got to invest in resources.

What about talent attraction and retention? It’s particularly a challenge for the insurance industry—what are you doing at FF to address it?

The industry has been almost borderline pathetic in that we haven’t really been able to attract people as much as we should, and it’s a shame because insurance is a powerful, very exciting industry. What we do is such important work. We protect individuals and businesses, and we do it really well—but somehow we allow ourselves to be painted in a negative light.

What can the industry do to improve its image?

The industry has not been able to come together on issues just in general; it has always been fractured: regionals versus nationals, agencies versus direct response, some companies thinking of national issues, some of state issues. We’ve always managed to separate on a lot of critical issues, but if there is one area where we should be able to unite, it’s around a public PR campaign about all the good things we do as an industry. We also have to make ourselves more attractive to this next generation by talking about what the industry really is all about—product development and analysis and data and technology and creativity and leadership. There are lots of really cool and fun jobs in our industry, and we’ve got to get out there on college campuses and on TV and radio and create a PR campaign around what a great industry this is

How do you envision that PR campaign unfolding?

Here’s what I see: A big Hartford stag walking down the street with a gecko on its back holding a Traveler’s umbrella, and they’re about to get hit by a car and a firefighter with a Fireman’s Fund hat saves the day, and then you’ve got the campaign.

The classic CEO question: What keeps you up at night? What are you most worried about?

Can we continue to build an employee population that really thinks like owners and feels like owners and feel licensed and empowered to do their job? Because at the end of the day if you have a strong culture within your organization of people who really care, people who are really committed, all kinds of good things will happen. And a lot of the problems that you have to face, instead of facing them with a handful of leaders, you’re facing it as an entire team of people. So I think about the culture a lot when I wake up in the middle of the night. We understand we’re a for-profit company, we understand that the bottom line is critical, but we also understand that it has to mean something to be a part of Fireman’s Fund. Employees need to really feel that purpose, to have an emotional connection.

Clearly, you also always worry about catastrophic events and your exposure to those and making sure you’ve managed your risk. And then a third piece would just be around technology. It’s a slippery slope: You’ve got to invest , you’ve got to keep up, but it’s such a constantly changing dynamic that it’s something you’ve got to be smart about to leverage those investment dollars effectively.

It’s fair to say that you’ve built a good reputation over your career for investing in technology to get smart about pricing. Can you elaborate about what you’re doing on this front?

We’re a very small writer today of automobile insurance, but we want to become a broader writer. We also want to write middle-market homeowners as well. And if you write in auto and home in the general market across the U.S., to do that in this day and age you have to have sophisticated products which means multivariate models and the ability to match rate to risk at a very segmented level. And to do that you have to have a sophisticated quote-and-issue-type technology platform. So that’s where some of the investments we’ve been making over the last couple of years have been.