SAFECO Cuts Expenses, Looks to Future Profits

In a move to trim expenses and bring accountability back to every office, SAFECO President and CEO Mike Mc-Gavick is chartinga course to return the company to the forefront of commercial insurance operations.

SAFECO announced $100 million in annual expense cuts involving a 10 percent employment reduction. In addition, the company will exit roughly half of its $270 million Select Markets business of specialty insurance products (the portions of this line that SAFECO is exiting ran at a combined ratio of 126.7 last year).

The move comes at a time when the company is looking to dry out from second-quarter operating losses of $33.4 million, or $0.26 per share, due mainly to storm damage in the Southeast and Midwest. An April hailstorm in St. Louis hit the company for $60 million in claims, while Tropical Storm Allison battered Texas and Louisiana, resulting in losses of several million dollars.

In an interview with IJ, McGavick spoke of accountability as being a priority under his leadership.

IJ: Why make these moves at this time?

McGavick: For some time now, we’ve had declining revenues and increased expenses—not a formula for success. We’re taking aggressive action to try and bring our homeowners back to profit, but we did stop short of exiting any states outright, deciding instead to give each state a chance to take these corrective actions and see if we can continue to be effective in the market.

IJ: What are some of the changes in underwriting that the company will be making?

McGavick: Among other things, we’re going to streamline our operations where accountability is clearer and more precise. So, you’ll be able to trace right from Mike LaRocco (new president and chief operating officer) right to the product managers who oversee the underwriting decisions. Before, that would have gone through all sorts of managers. You’ll have someone you can go to and say ‘You are responsible for homeowners in Washington State, what is going on?'”

IJ: The 250 or so positions you’re reducing, what do they include?

McGavick: They’re a variety of functions, it will be in the IT [information technology], marketing function, some finance functions, and others. In the IT area, we’re actually expecting over time to increase our IT staff. We expect spending on technology to increase, but we’re reducing the number of people we have in the unit because our fixed costs have gotten out of line.”

IJ: How do you think the competition views this and any concerns?

McGavick: Well, if we were the only company going through these challenges, then we’d be worried, but we’re not. The market is going through challenges and that means the winners are going to be those who are decisive, who are disciplined in the execution of the changes, and get it behind them as quickly as they can. That’s one of our motivating factors here.

IJ: For any cynics out there who view this as a company in major trouble, how would you respond to that?

McGavick: Well, major trouble would be an overstatement, but we’re not doing as well as we should. I would say to them ‘Yeah, we’re not doing as well as we should, and we’re taking decisive actions to turn it around.’ I would also say to them, that we’re investing in our company. You don’t build a new underwriting process and reshape all of your organization behind it if you’re just trying to stay afloat. We’re making a series of investments, particularly in our marketing areas, so that our agents will get more contact with SAFECO and more assistance in selling new, profitable business.

IJ: Is there one thing you can point your finger at to say ‘this is how we got here?’

McGavick: How you get into these positions is a complex series of events. My job is about the future, not the past.

Topics Trends Profit Loss