Hello everyone, and welcome to our eighth episode of Risk Playbook. I'm Mike Mitchell, Vice Chairman of Graham Company, and today I'm joined by Evan Greenberg, Chairman and CEO of Chubb.
Evan has spent more than 45 years in the insurance industry, spearheading the strategic decisions and global acquisitions that have grown Chubb into an $81 billion company, with 34,000 employees in 54 countries and territories. Today, Chubb is the world's largest publicly traded property and casualty insurance company, and the leading commercial lines insurer in the United States.
With a keen understanding of the global economy, Evan is an outspoken advocate for a productive business relationship with China, and our country's role in leading a rules-based vision for global trade. He even serves by presidential appointment, advising the United States on trade policy and negotiations.
Evan’s business successes and advisory roles say a lot about who he is as a leader – dedicated to understanding the forces that shaped the world and unafraid to take well-timed risks.
Evan, I can't wait to jump into our discussion. It's an honor to have you here. Thank you for your time.
Thank you for having me. I look forward to the discussion.
Good. So, we'll get into some things in terms of your insights on taking risks, the insurance industry, the global economy, and so on and so forth. But I'd really like to start off by asking you – you grew up in a family that was deep rooted in the insurance industry. Your father, Hank, led AIG and now Starr. Your brother at one time led Marsh McLennan & Companies. I'm curious what it was like to grow up in a family within the insurance industry. How did that influence you?
Well, first of all, my granddad was in the insurance industry, so goes back even further.
That's even better.
He was with Prudential, in Florida, he was a regional manager. We grew up in a reasonably normal household, and insurance was hardly on my mind. Sure, I gained a certain amount of knowledge and perspective simply through osmosis, of hearing it from my dad, and those I was surrounded with. I grew up with different aspirations of what I was going to do. I entered the business when I was 20 years old. I didn't go to college – that's a whole different story we won't get into today. My brother Jeff entered the business after me, because he went to law school after college, and then he joined AIG later.
So, my formative years about insurance fundamentally didn't come from family. I grew up in the normal family life and then I entered AIG to start rating automobile insurance policies. I think I've done every job you could possibly do in an insurance company. So, even if I'm not the brightest guy in the world, I learned the business from the ground up.
Evan, I love hearing stories about how people get started. You started from the ground up – and look where you are now. For my audience’s benefit, you might be the smartest guy in the room. I've been in the business for 35 years and I have not come across a leader like you.
Let's move to the insurance industry. You're in the risk business. When I got into the business in 1985, I was always told insurance companies don't make money selling insurance, they make money on the float. Interest rates were 12 or 13 percent, and they could have money and expenses and claim payments that exceeded premiums but it was the investment income that allowed for a bottom line.
Today, it's a whole different ball game for sure. You have global warming – and Hurricane Andrew comes to mind. What we're faced with today, with destruction of property because of weather patterns. We have medical inflation, we have runaway and unpredictable jury verdicts, we have cyber exposures that didn't exist back in 1985. How do you maneuver through all these varying influences and changes in a way that allows you to take risk and still turn a profit?
So, when you entered the business in 1985, you had a notion of how an insurance company works, a successful insurance company, that is diametrically opposed to how I see it. An insurance company that tries to operate by making money on the float, the graveyard is full of companies that tried to do that. Because fundamentally, it belies and it's going to answer your question…
What is the real business of insurance? A company that doesn't focus on whether it's insurance or any other industry, on the real purpose they exist and be the best at that, and deliver a service to society, of benefit to society, while they're making a decent return on capital and reward to their shareholder, will not exist long.
Chubb is an underwriting company. We are in the business of risk taking. That is, our whole culture is built around that. All of what we do in our norms of behavior is what culture is about, it reinforces the basic principle of who we are, which is a risk-taking business. Underwriting is about your ability to conceptualize risk, whatever kind of risk it is around the world…conceptualize the risk in the environment it's in. If you can conceptualize it, then you have a decent chance at being able to structure it, price it and assume it. That's exactly what we do for a living in 55 countries across hundreds of different kinds of risk exposure in different environments. That's what juices us. That's what our passion is about. That's what our reward system is all built around.
And by the way, the so-called float, or investment income, is the second way we make money. But if we can't make money in our basic business of underwriting, we have failed. Chubb is a company that in terms of underwriting margin, the amount of money we earn on underwriting, outperforms the industry every year, over any period of time, by a large margin.
I never thought of it that way back in 1985, you learn something every day and you're right. That's probably why many of the companies that I knew back in 1985 don't exist today.
How do you deal with some of these changing situations? Cyber, for instance, comes to mind Evan because it didn't exist 10 years ago. Today, it's rampant, it keeps coming. Insurance is about predicting the future, right? How do you get your hands around something like that?
No one can predict the future with any certainty, obviously. If you think you can, I don't think you've conceptualized risk properly. You can create frameworks for how you think about risk in an organized fashion that maybe helps to ensure you think about it in a reasonably thorough way. That's what modeling is about. It doesn't speak truth, it speaks about an organized way of thinking. You have to know that there's always basis risk around any of that.
Cyber, look for the insurance industry to remain relevant, Chubb included, the way we think about risk, it's dynamic. Risk is changing, because of all the things about society, internal and external, are constantly changing. The legal environment is constantly evolving. Social norms are evolving. Society's affluence is evolving, legal theory around responsibility, constantly evolving. Science is producing so many new and wonderful ways to live and at the same time risk. It's constantly evolving. Climate change in the environment.
Cyber is a consequence. It's a risk that is a consequence of science, which has produced the internet in a digital world and the whole world is converting from analog to digital and how we do everything in our life. That is creating new exposures. As risk gets created, the insurance industry has to find ways and evolve along with it, to be able to transfer some of that risk to ourselves. Cyber presents both a frequency of loss scenario of risk that is lots of attacks on individuals, and then it creates systemic risk, that is the interconnectedness of everything and how one event can affect so many all at once. Our job is to try to model and imagine that, so that because, we have finite balance sheets, we can only take risk to the extent of the wherewithal of our balance sheet. To be able to imagine what portions of that risk can we insure, and structure it – then through thoughtful modeling, which evolves over time, you get better and better at it, and you assume that risk at a proper price. It's evolving. So as it evolves, your knowledge evolves. The more your knowledge evolves, the more risk you're able to take. So in managing it, you think about all of that at once. That's how we do it – we're one of the largest writers of cyber in the world, but we're doing it in a conservative and thoughtful way. Because we try to have a sense of knowing what we don't know.
Your ability and your company's ability to spread that knowledge and standardize it across 54 countries and 34,000 employees is impressive. In this business, it doesn't take too many bad mistakes to really get hurt.
Let me switch gears for a second. I've heard you talk so many times about China and our relationships with China as it relates to our economy, their economy. Some people will say it's unpatriotic to do business with China, yet they're the second largest economy in the world. I kind of believe that we need them and they need us from an economy standpoint. Tell me about how you look at the world as it relates to China, and how can we coexist?
We're on a collision course with China right now that if we keep going the way we're going – Chinese policy and actions, US policy and actions, we're headed towards conflict. I think the first priority is conflict avoidance. We don't want to have a war with China – that won't be good for America, it won't be good for the rest of the world, it won't be good for China.
China is a Leninist authoritarian, party directed system of government, they are doubling down on command and control economically, and socially. They have geopolitical aspirations. Frankly, my own judgment, China's ideological bent, and the way they're implementing in command and control in the economy is going to play against their own interests over time. We already see it with slowing economic growth.
On the other hand, I believe the US ought to practice a sense of greater strategic patience. We ought to have more confidence in ourselves, while at the same time we should rigorously defend our interests against predatory economic practices, and in the security realm as China projects more military power, we absolutely should defend our interests. But we should also recognize that if we run our race better, economically, there is no model that has created more wealth for more people, and done greater good, than market-oriented rules-based economics underpinned by the rule of law. We should double down on that. We should double down on our vision of trade, which is good for America, and good for our allies, and good for spreading our soft power. We shouldn't react to every move by the Chinese who I believe are moving in the wrong direction. That practicing of strategic patience should at the same time, we should create space in the diplomatic channel, to have more frank dialogue with the Chinese on how we can draw a line under the direction we're headed in and have more stability that way, so we don't spin out of control. At the same time, we should find areas of mutual cooperation. It's not easy, but that's what the art of diplomacy is about.
On the economic front, we have a trading relationship, over $650 billion between the US and China. The notion that we're going to simply decouple is a chimera. At the same time, Europe has a trading relationship that's double and triple that. The Chinese are not going to become self-sufficient, and we are not going to do without China completely. It's not in our interest, or in their interest. I think American companies doing business in China, in areas that are not sensitive economically or in areas that are about technology that impacts security, I think that's important, because I kind of think interdependence creates a certain kind of stability between us that helps us to find a way towards coexistence, that is in our interest.
Let's hope China understands that they can't be self-sufficient, and let's just hope we can figure out a way to play nice in the sandbox.
So, Evan in 2001, when you joined ACE, it was 7,000 employees. Subsequent to that, there was the transaction between ACE and Chubb, and now you're a 34,000-employee business. What are some of the risks-rewards of taking on a transaction like that? How do you put two companies together and integrate them in a way that makes sense for your shareholders?
Well, the transaction was done seven years ago now, so 2015. For me, it's completely in the rearview mirror. We had done 15 transactions, M&A transactions before Chubb. ACE is a company of builders. Chubb is a company where our culture is about building. Up until the Chubb transaction, we had grown two thirds organically, and only one third through acquisition. I say that because that is our fundamental ethos and what we're about is building. We have always done M&A only when it furthers what we're trying to do strategically in an organic way, when we’re already pursuing a strategy, and the transaction helped to further that, and at a price that generated a good return to shareholders, because we're stewards of shareholder capital.
Over the years, we developed a pretty good playbook. We documented it, of how to integrate an acquisition to bring the two companies together operationally, as well as culturally. That's so important to pay attention to in all facets. We run it like a giant operations management exercise.
So, when Chubb and ACE came together, we already had a playbook of how to do this. You don't start planning and executing when the deal closes. We begin the day that we announce it. By the time we closed, we knew virtually and had pre-announced, all the management was going to be across the organization. What our expectations we're on day one of close, to day 360 of close, and all dates on the calendar in between, what should happen operationally, culturally, from IT and finance, to underwriting marketing and sales. We knew who had to do what and have accomplished what, in the first year, and then the first two years. It was a big project management exercise that we managed in a very granular way.
The thing that two companies had going for themselves to begin with is, they both prided themselves on being great underwriting companies. And again, I already went through that. That's the wellhead of the culture of our company, of both companies. That gave so much ballast culturally and socially within the organization. It gave so much commonality of purpose and dialogue and language that we would each use. Quickly, it was discovered, among my colleagues what we knew when we had imagined and conceived the transaction, it was so complementary. The skills of each, the businesses each were in, the overlap was not that great. The one plus one would equal three was so damn obvious. It was just about great execution, and about people behaving normally with each other, and not in abnormal ways that people tend to do.
I’m very proud of what my colleagues have accomplished. When I look at it now, seven years on, Chubb is just Chubb. There is none of that Chubb versus ACE. My God that's in the history books. It's one Chubb, through and through, wherever I go in the world, and it's so gratifying to see. I'm so gratified by what my colleagues, what human beings could do if you just gave them some direction and leadership, and then you get out of the way and let them do it.
Tell me about that leadership style, Evan. You talked about management being really important. You need lieutenants, you need to put people on the right seat in the bus. Tell me about your leadership style. What is it?
Well, first of all, I think micromanagement is underrated. I’ve listened to people talk about micromanaging – how that's so yesterday, I couldn't disagree more. I think micromanagement, hands-on management, is exactly part of what you want in a culture. People emulate their leaders. That means the pace, the style, the behaviors you exhibit or what your direct leadership team is going to pick up on and execute. Those below them are going to do the same thing. Because people in an organization look for cues of what it means to be successful. So, emulating behaviors is about success. That's a burden and a responsibility that all leaders should always keep in mind, in my mind.
I think the higher you go in our organization, the higher you're expected to work. It's a privilege to me to have my job. I am deeply privileged. It's an honor, and the burden that goes with that of workload, that's just part of the job. But wherever I travel around the world, I'm in touch with my businesses. That means you're talking the detail of the businesses, not at a macro level. If I'm able to engage it in the detail, then obviously, there's no manager in any of my businesses who I'm going to expect that they should be capable and in touch with all the detail, and then their people are.
Strategy is nine, is 10% of the action, and execution is 90%. We trade on execution excellence in the company. We trade on a leadership style of being very frank with each other, not passive aggressive in any way. We don't tolerate that. Frank but decent, and loyal to each other. But yet, accountability and transparency, energy level and passion and optimism. At the same time, you don't kid yourself, you face reality, no matter how difficult the problem is, you face it, it's not going to go away on its own and you deal with it. You realize that at the same time, you may be impatient, you have to give people time to do their jobs and space to do it. So maybe impatience in, in execution, but patience in strategy is so very important.
The last thing I would say is communication. Your ability to be communicative and authentic, as a leader, not speak, people are smart. They know if you're authentic, if you're real or not. That's what you want to breed within your organization, in your culture, you got to be a little brave. Frankly, I'm lucky, I don't have any choice but to just be myself. I've never been good at being anything else other than that. And by the way, is I think Oscar Wilde said you might as well be yourself because everybody else is taken.
Well, congratulations. It's an impressive organization, and it starts at the top. You obviously are a great leader.
Let me just ask you about technology. Any business today needs to embrace technology. I kind of believe that the insurance industry is finally starting to catch up. How do you see technology in our industry? And do you think we're a little bit behind compared to others trying to catch up?
I think it varies by industry, where others are in technology versus the insurance industry. I think within insurance, there are a number of incumbent companies in leadership positions that have embraced and are becoming more effective, and have a vision for what technology can do for insurance.
What do we do? We trade on information. Information is everything for us. As we said, the world is digitizing. The fact is, it's so exciting. What technology holds is a promise for our industry to become that much more vital and important and relevant as we go forward. It's about data and management of data and turning it into insightful information. What technology allows us to do that way in terms of analytic and external data with internal data, and the ability to measure everything we do, and how we do it, in a transparent way so that we can be more insightful and efficient at every process, from underwriting to customer experience to claims, is just so exciting. The notion of what we can do with technology to allow us to efficiently manage and process on speed and the customer experience – and yet, do it in a less people intensive way with straight through processing across product line areas. Our ability to enable distribution to be more effective brokers and agents.
At the same time, technology to allow people to buy the way they want to buy, whether it's with advice of a broker or agent, or on a direct basis, is evolving so rapidly, it gives us so much more capability to imagine and to create with. I think about what we do is a big canvas. You have so many mediums of expression to express ourselves in the risk taking and marketing areas of our business on that canvas. Technology is, just enables our ability to do that, it’s very, very uplifting. Its ability to allow underwriters to do the higher-level work of pure underwriting and portfolio management, because we have all these tools, including bots that can do and mimic what humans do, particularly in some of the less thoughtful, deeply thoughtful areas of our business, is very exciting.
Ultimately, years from now, what AI will be able to do in a deep way. That's just on the horizon. It's axiomatic. Insurance is completely digitizing as the rest of the world is in everything. If you remain analog, well, you're like the buggy wagon when the automobile was invented. I don't know another way of thinking about your business, whoever you are, whatever you are.
You're 100%, right. You better get on board, otherwise, you're going to be a dinosaur – and it's moving fast and changing fast. All good opportunities for those that get it.
Let me close, Evan – our audience is made up of business leaders. Business leaders, business owners, they'd like to hear from other people as to how they see the future of our economy. A lot of headwinds, I don't have to go down the list of all of them, whether it's Ukraine, or inflation, social unrest, all sorts of things. We talked about China. What's your view and outlook on the economy over the next couple of years?
I have a lot of confidence. I'm very optimistic about our country. Because unlike China, we don't have a single point of failure. Their leader, particularly now in the consolidation of powers become the single point of failure and that is so brittle. Our public sector, thank God, is vastly smaller than our private sector. When I think about our private sector and our ability to innovate and create, whether it's in the sciences or in other areas, I'm very optimistic about America's ability to constantly renew itself.
We need our government to get out of the way. The polarization within our political system, and our inability to make smart rational, even if it's compromised, more centric related decisions is stunning to me. It belies common sense. Politics is the art of compromise – and yet, we think it's a strength not to compromise. That's just getting in our way. I look at how government can support the private sector right now. We need smart immigration in this country. And at the same time, we need more people coming into our country who want to be here and work hard. I also think the notion within society today of what's in it for me, versus what can I do to contribute? I worry about an entitled society, as we become more affluent. Those are the things that are in our way to me, those three things. Beyond that, we can deal with that, the sky's the limit as to what this country is capable of doing.
Then I think the notion, finally, to be more confident in ourselves and more open, in that we have allies who want to do business, they want to accept more of an American vision, but what's in it for them? And what's in it for them? They want a more open opportunity to trade with the United States. My God, we should embrace that and not shy away from it. I think that's just misguided – and I'll stop on that note, Mike.
Evan, we need more leaders like you. That's a good way to end our conversation. Thank you so much, again, for joining me.
As always, thank you to our listeners for tuning in. And to our listeners who want to learn more about Chubb, please visit Chubb.com.
Until next time, I'm Mike Mitchell, and this is Risk Playbook.