Industry the October 2012 issue

What If I’m Wrong?

In mid-2010, Jay Fishman watched as interest rates on bonds and Treasuries, the core investments of insurers, went into free fall.
By Ed Leefeldt Posted on October 11, 2012

If they were right, insurers would have to focus on improving profit margins. So Fishman and his team decided to raise rates, even though the industry was locked in a vicious price war. Travelers didn’t look around to see what other insurers were doing. Analysts say Fishman was the first to reverse course, and he didn’t justify it with industry jargon about a “turn in the cycle.”

“You won’t hear the word cycle from me,” Fishman says. “There’s no magic moment when the market turns, no divine intervention. It happens at the point of sale—one agent, one customer, one account.”

“You won’t hear the word cycle from me. There’s no magic moment when the market turns, no divine intervention. It happens at the point of sale—one agent, one customer, one account.”

Travelers began to edge rates higher, state-by-state, case-by-case, based largely on loss experience. Workers comp, which has the longest duration and had seen the biggest losses, led the effort, but other parts of business insurance weren’t far behind.

In 2011, it became increasingly clear that low investment yields weren’t the only thing putting pressure on the bottom line. Insurers suffered $107 billion in catastrophe losses from the Japanese tsunami, New Zealand earthquakes and an epidemic of twisters in the United States. Watching the almost nightly tornadoes on the news, Fishman wondered: “What if 2011 isn’t an anomaly? What if weather patterns are changing?” So during the second quarter, Travelers stepped up its efforts to raise rates.

By 2012, Fishman’s instincts had set a course for the industry. Property renewal pricing was up 10% in the first three months of 2012, according to Marsh, but Travelers had captured the lead. Some analysts predicted Travelers would lose clients. Fishman was undeterred. “So far,” he says, “we’re very comfortable with the tradeoff we’ve seen between rate and retention.”


The 59-year-old Fishman is a dichotomy. He is the second-highest-paid CEO among U.S. property-casualty insurers, according to Insurance Networking News, yet he’s a no-nonsense guy who greets visitors in his shirtsleeves. He gives few interviews, but when we did sit to talk, he opened up. “Ask me anything you want,” he said.

The big questions: How did he get to the top, and how did he take Travelers there? The answer: He has an instinct for insurance, honed by the best in the business, who in the 1990s created what was then the world’s largest financial empire, Citigroup. “The most successful CEOs have a nose for their businesses,” Fishman says. “That instinct is critical because, when a problem shows up in the numbers, it may be too late to reverse course.”

By trusting his instincts and putting together a team of people who share his commitment, Fishman led the merger of a modest, Minnesota-based insurer—St. Paul—with its larger rival, Travelers. In the process, Fishman created the largest independent property-casualty company in America—and grabbed 7% of the market.

But Fishman also has the capacity for self-reflection. He loves the Travelers commercial where the bewhiskered white mutt tries to find a safe haven for his bone while singer Ray LaMontagne laments, “Worry, worry, worry.”

“That’s one smart dog,” Fishman says.

Fishman is always switched on—despite sticking solely to decaf. Even though he doesn’t sleep much, he says, “I wake up and my mind is just on. There’s no twilight for me. It’s been that way for years.”

To Fishman, sweating out the details—continually challenging assumptions and considering all the outcomes—is a necessity. He has a passion for analytics. Under Fishman, Travelers has invested heavily in risk-management systems for both the insurance and investment sides of its house.

One of his big concerns was the potential default of the federal government last July. Fishman didn’t expect it to happen, but he kept asking himself: “What if payments are delayed?” A significant hiccup could have affected the liquidity of Travelers, along with every other domestic insurer.

So, two days prior to the budget showdown, Travelers quietly took $500 million from the company’s trove of assets, turned it into cash and deposited it into two banks in guaranteed accounts. If the unthinkable happened, Fishman and Travelers’ chief investment officer Bill Heyman reasoned, those liquid assets would see Travelers through the aftermath.

The crisis was averted, and the money went back into securities. But Fishman’s mantra, “What if I’m wrong?” has kept Travelers on a steady course when insurers around him have taken federal bailouts, something the conservative Fishman did not want and his company did not need.


Although Fishman trusts his instincts, he constantly tests his perceptions against those around him. “I try to get out and touch people myself,” he says. And the first place he goes is to the 13,000 independent agents and brokers who sell Travelers products. “At agency events, I’m there from start to finish,” he says. “I really enjoy them, and it helps me get their honest views.”

But he also pushes these brokers to do their own due diligence and meet with clients. “We tell them that the ability to grow business is in their hands,” he says. “This is a service business, not a product business.”

At a recent conference, Fishman quizzed his agents and brokers: “How many of you have spent half an hour talking to each of your customers?” The response is sometimes enthusiastic and sometimes sheepish. “It’s not OK just to send a renewal notice once a year and the bill later,” he says. “People sometimes forget about the personal touch. The way claims are handled is worth a lot.”

The Travelers CEO is well aware that Marsh & McLennan, Aon and other big players in the brokerage industry are expanding, trying to gain a bigger share of the wholesale market.

“But many principals have left to form their own businesses,” he points out. “Entrepreneurs will always go out on their own, and producers will keep going until they are satisfied. When it doesn’t resonate for them, they will move. Distribution may be shrinking, but accounts aren’t.”

Fishman also reaches out to people who generally don’t like insurers, such as the battered residents of the Gulf Coast. Fishman visited Washington, D.C., the week after Hurricane Katrina in 2005 and met, he says, “with every congressman who would see us,” including Mississippi Sen. Trent Lott, whose own beachfront property had been battered down to the slab.

“I won’t promise you we’ll agree on your claim, but I will promise we’ll be responsive,” Fishman told them. “We don’t get it right every time on the first try, but give us a chance to make it right.”

“This is a service business, not a product business. People sometimes forget about the personal touch.”

Fishman later collaborated with many of the same Gulf State legislators on a coastal hurricane insurance plan. Will it get anywhere in this contentious election year? “Absent a crisis, probably not,” Fishman admits, “but we have a responsibility to be accountable and offer solutions. We don’t run and hide.”


Fishman’s instincts were forged in a Super Bowl for future CEOs. In the late 1980s, he came under the wing of empire-builder Sandy Weill, who ran Primerica, a predecessor of what is now Citigroup. Together with Jamie Dimon, now boss of J. P. Morgan Chase & Co., Bob Lipp, who led Travelers after its spin-off from Citigroup, and Joseph Plumeri, who heads Willis Group Holdings, they knocked down the barriers that kept banks from owning other financial institutions—and turned Primerica into the colossus called Citigroup.

The price was high. Sixty to 70-hour workweeks were common, and Weill, who reportedly had a voice that could blow doors off their hinges, was known for setting deadlines and then moving them up. But Weill could also be compassionate. Fishman recalls a dinner where Weill was called to the podium to speak. “The spotlight was on him, and as he walked by my table he bent over and kissed me on the cheek,” Fishman recalls. “One of the great things is to be kissed by Sandy.”

But those who were kissed could also be cursed. Weill fired his heir-apparent, Dimon, in 1998. Then, in 2001, Fishman struck out on his own. With 12 years in insurance, first as a top executive at Primerica, then rising to president and CEO of Travelers’ insurance business, which had been acquired by Primerica, Fishman felt ready to run an insurer.

Some considered Fishman the likely successor for the top job at Citi once the 69-year-old Weill retired.

“But I knew I wasn’t the right guy to run Citigroup at that time,” Fishman says, “not because of a lack of intellect or work ethic. It was instinct. Sandy had those instincts. I was prepared to run a company but not that company.”

Fishman’s instincts led him away from banking and Citigroup to what he calls “a reasonably small insurer,” The St. Paul Companies in Minnesota.


St. Paul may have been small, but it had big problems. Fishman had to eliminate more than 1,000 positions, dump its money-losing medical malpractice unit and cut back on expenses to the point where people joked that he picked up paper clips off the floor. Analysts described him as “extremely disciplined” and “cold and objective.”

But Fishman also appealed to the Midwesterners. He got his own coffee. He focused on Main Street businesses. He held frequent staff meetings at which, in his plainspoken way, he politely asked employees for their opinions then listened to what they said.

“We are not an insurer of the Fords and General Motors of the world,” he told the New York Times.

St. Paul did not stay small. Fishman, who was part of the team that brought Travelers to Citigroup and then served as Travelers’ CEO under Weill, arranged the merger of St. Paul with Travelers, his former company, in early 2004.

In combining the companies, he and his team faced headwinds—somewhat unexpected for a management team experienced in mergers. Reserves had to be increased to align the two companies. New underwriting standards, reconciling the different approaches by the two companies, had to be accepted by the company’s independent agency force. The combined insurer, now called St. Paul Travelers, took a $1.6 billion charge against earnings, twice what analysts expected, and retentions declined.

Looking back on the challenges posed in combining the two companies, Fishman says, “I could have done a better job managing expectations, including my own.”

It’s a mistake he hasn’t repeated. As time went on, Fishman dropped the “St. Paul” from his company’s name and kept “Travelers.” He also bought back the iconic red umbrella trademark from Citigroup.

Fishman has earned a reputation as an industry guru, known for providing granular information to analysts, even down to the price of sheet metal and used cars. There’s a reason Forbes called him “Wall Street’s honest man.”

“We are very transparent,” Fishman says. “You don’t have to guess what we’re doing.”

Analysts generally agree. “All the color and disclosure,” Josh Sterling of Sanford Bernstein & Co. told Fishman on a recent earnings call, “are a lot better than your peers.”

Fishman is willing to admit when a new project still needs some fine-tuning. Travelers is testing a “direct channel,” using TV ads and other media to reach customers in the same way that most prominent direct-to-consumer insurers do. But Geico, the largest direct marketer, reportedly spends more than $800 million a year on ads—far beyond Travelers’ current investment.

“Media advertising is very expensive, and you’ve got to be good at converting inquiries into policies,” Fishman cautions. “Over the years, other companies have earned a reputation for being less expensive, while we build our reputation on the value that we offer. We’re never going to be great at selling a half-a-coverage sandwich.”

Fishman says opening a direct channel to customers won’t hurt its backbone agency business.

“Our independent agents are in very good shape,” he claims. “They’re handling complex situations that don’t involve calling an 800 number.”

But Travelers’ direct channel “puts us on the offensive” with buyers such as renters and young people who don’t need Travelers’ “umbrella coverage,” he argues. And when these customers need advice—and more coverage—Travelers will already know who they are.

Today, complaints about Fishman’s leadership are few. While Travelers’ stock continues to hover around book value, a condition common to property-casualty insurers, his average operating return on equity during the tough years from 2005 to 2011 was among the best at 13%. Travelers’ market capitalization (share price times the number of shares in public hands) of about $25 billion makes it one of the largest U.S. property-casualty insurers and the only insurance company in the Dow Jones Industrial Average, an indication that, while it may not be the fastest car on the track, it’s the least likely to crash.


Much of this success is due to Fishman and his continual worry about what lies ahead. With the Congressional Budget Office predicting that the federal government will run out of money by 2020, Fishman warns that the United States is “in for a murky future. The Federal Reserve only controls short rates. The long rate is controlled by the market. If those who control it want it to be 10%, it will be.”

As a result, Fishman says, Travelers’ investment portfolio “has never had a shorter duration,” and he hopes that this will mitigate the effect of a possible spike in interest rates. Under Fishman, Travelers also watches its investments closely, well aware that some bond ratings have been notoriously inaccurate.

“We don’t buy ratings,” he emphasizes. “We buy bonds. Our investments team does ground-up research. We look for sales tax bonds that give us the first call. We look for first liens on water and sewer revenue because, no matter what happens, people have to flush toilets.” Travelers’ holds about $40 billion in municipal bonds, “and we could sell virtually all of them tomorrow.”

After 23 years in the hot seat at Primerica, Travelers, St. Paul and then Travelers again, Fishman shows no sign of slowing down. “I never dreamed I’d be in this position, working with this team,” he says with an unexpected smile. “I know it sounds corny, but it’s a privilege and an honor.”

Fishman gives himself a rare compliment. “I think I have a really good instinct for insurance,” he muses. “And I have an organization that tests those instincts so we can make the best possible decisions.”

But he quickly adds, “The most dangerous words in the world are: ‘We’ve got it figured out.’”

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