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Dennis H. Chookaszian is one CEO who manages to keep his insurance company on a profitable course, while always watching the horizon for new challenges and opportunities.

Mr. Chookaszian, chairman and chief executive officer of CNA Insurance Cos. in Chicago, is often sought as a speaker on forward-looking topics, from securitization of insurance, to the Internet, to financial services integration. But he has done much more than just talk: CNA is at the forefront of taking such ideas and turning them into a reality.

Mr. Chookaszian, 54, has served in his current executive position since 1992. Since that time, he has led CNA to become the largest commercial insurer in the United States. In addition to the 1994 acquisition of Continental Corp., which boosted its stature significantly, CNA has since made smaller acquisitions in targeted specialty areas.

From 1990 to 1992, Mr. Chookaszian was president and chief operating officer, and from 1976 to 1990, he served as chief financial officer. Before he joined CNA, Mr. Chookaszian was a management consultant with Touche Ross & Co. in Chicago for eight years.

He holds a bachelor's degree in chemical engineering from Northwestern University in Evanston, Ill., a master of business administration degree from the University of Chicago and a master of science degree in economics from the London School of Economics.

Mr. Chookaszian recently spoke with Editor Paul Winston about CNA's current course and his views on future trends in the commercial insurance industry.

You are often seen as a futurist for the insurance industry. Why is that?

I think that the role of the CEO is to be a futurist. I think the CEO of any company has to be able to envision the future and get his company there. Andy Grove, the Intel CEO, said it real well in his book, when he talks about transformational change, and why he's effective in his company by being able to identify transformational change before it occurs.

In the insurance industry today, look at all the change that's going on, all of the consolidation, distribution ideas coming up, and technology is playing such an important role.

Not all companies in the insurance industry, however, appear to be following that philosophy.

I see a number of people who are futurists and leaders in our industry. People like Ron Ferguson of Gen Re is clearly a thought leader who has driven the industry. Somebody like Norm Blake of USF&G, who follows a different approach than we are, but is someone who's got his eyes focused on the future and understands where he's got to take that organization. Even in a smaller company, Cary Blair over at Westfield is a person who has a company rooted in tradition, something that's very well established, but he knows where he wants that company to be five and 10 years in the future.

I would agree there are some who may not be as focused as they should be, but there are some really good people out there. Their companies I think will be leaders, winners of the future.

You are following a multiline strategy at CNA, while many others are deciding specializing is the way to go. Why did you choose this strategy?

We're certainly following the road less traveled. When we started on this road, back about 20 years ago, it was the road most traveled. Along the way, people have reversed direction or got on a different road. We're about the only company left with a real broad-based strategy.

What has driven the strategy of these other companies has largely been the shareholder value movement. What you've seen is companies attempting to try to boost their short-term stock price by selling off at a high multiple part of the business, which is what Aetna did. It can have very significant short-term gains.

I believe that long-term, a company that can manage multiple businesses is going be better off remaining a multiline franchise. The challenge to us is how to do that. If we're going to be successful at what we do, we've got to manage these businesses as well as a specialty company. And we've got to compete with them. Nobody competes with us as a multiline; they compete with us in commercial, in workers comp, in directors and officers.

We've got to do each of the pieces as well as they do. And that's not easy to do, which is one of the reasons other companies have stopped doing it.

Do you face the same shareholder pressures as other companies, or does the ownership of a large portion of CNA by Loews Corp. give it some relief from that?

We don't face the same shareholder pressures, no question about it. Our shareholder is interested in building long-term value. They've made that very clear. So our dominant shareholder has said, "Build the greatest value of the company five to 10 years out." And you don't build the greatest value by selling off pieces that are your best pieces.

That's not a good way to do that because when you get the cash, what do you do with the cash? If you go out and try to buy something else with it, you can buy something that costs you as much as what you sold or more. There's no advantage to doing that if you're trying to buy long-term value.

One of the areas you've expanded into is securitization of insurance, via Hedge Financial. How is that working?

As we've done some strategic thinking about the future, we've identified five transformational ideas. They are: banks in the insurance business, the Internet, securitization, business process outsourcing and employee leasing or PEOs. In all five instances, we have initiatives under way to try to expand them; Hedge Financial is one of them.

Because they are transformational ideas, they won't happen this year. It's not like we'll wake up and say, "Omigosh, look how big this is." But over the next five to 10 years, we think those ideas potentially are very powerful.

In Hedge Financial's case, we laid out a two-year plan to have Hedge basically go and visit our 30 different business units and see if they can put together a few transactions, with the idea that it's not going to be very big. It's a small organization, with only 20 people. We'll see where we are in two, three, four, five years. It's a long-term building process.

So you're using the CNA units as a sort of lab for testing securitized products?

Exactly. I've said what we're doing is making CNA a product laboratory for securitization products and will see what work. Because there isn't anyone that has a broader range of products than we do, so there isn't a better product laboratory than CNA.

We also have scale, and in at least two-thirds of our businesses we're the dominant player or close to the dominant player. As a result, much like mortgage-backed securities, you are able to group together the products in ways so that if securitization can work, it will work for us easier than it would work for someone who's got 10 policies.

You also mentioned professional employer organizations, or employee leasing, as one of the five areas you have identified. How does that fit with an insurance company?

It's an idea that's not new -- it's been around about 10 years -- but it's a business that has grown out of relatively small operations. Some of them previously were doing things that maybe were not even appropriate in terms of the benefits they tried to eke out or the advantages they tried to gain by often trying to skirt regulations, hoping they'd get bigger.

Eventually they got to the point where they were doing a very legitimate thing, which was bundling together services that are necessary to provide the administrative side of employment for an employer.

The goal is to give an employer two things: one is a set of services that reduces costs and, second, take away all the hassle of administration.

Now, every time a PEO would win an account, we were losing the work comp, the health insurance, the life insurance. We were losing premiums, because the PEO got them. So we said this is a real problem, especially for our agents who were losing the account. So what we did to try and combat that is decide to form a PEO and try to do it on our scale. So we'll try to do it a whole lot bigger and a whole lot more professionally than it's been done. Whether that will work or not remains to be seen.

When you say you were losing business to PEOs, how did that happen? Because they self-insured their clients' exposures or were aligned with other insurers?

Some of it was self-insured, some was aligned. We write PEOs, as well, so we would take insurance from a PEO back in which would undoubtedly include some of our customers on the front end, but a lot who were not our customers. So we continue to write PEOs. We like that business and are happy to write it. But we don't like losing customers up front.

Are there areas where advances of information technology will be used more widely in commercial lines?

I think it will help from the processing point of view, and in information gathering and providing better information to your insured. It happens today and will happen more effectively in the future. What it won't do is eliminate the distribution mechanism. It won't get rid of the agent. On the personal side, it will be different and the agent may be the person setting up the web site.

How will agents and brokers adapt to the greater efficiencies posed by Internet marketing?

I think what will happen is that the independent agent will adapt fine to the commercial lines side of it, the greater efficiency, but there won't be dramatic changes.

On the personal insurance side, some will become Internet marketers -- they will actually build linkages -- but others will fail, and will be unable to do it.

What we'll do eventually, is that if you come in to our web site, for example, and get a quote, then we'd like to set it up so that if you want information it will steer you directly to an agent in your community, one of our agents. So the agency gets a referral out of it.

Do you think that state-based regulation of commercial lines eventually will become a thing of the past, with states focusing more on personal lines?

One of the fears is of a form of dual regulation, meaning solvency regulation at the federal level and rate regulation by the states. That's the worst possible thing that could happen.

There's been a lot of discussion of dual systems of commercial and personal, with the idea that the sophisticated commercial buyer doesn't need solvency regulation and the protection of the guaranty fund. I would generally favor that, if it were to happen, but the problem is that it's more likely what you'll get is some kind of federal regulation with state interference, which you really don't want to see happen. So I think that that's an idea that is not politically popular yet, but over time it should happen, but in the short term it will not.

Is there anything in particular you'd like to see to make state insurance regulation more efficient?

There's a major problem in that you've got insurance commissioners who, by and large, don't stay there very long.

If you had a person in my job for two, three, four years, something like that, they're barely getting started, barely getting a culture established and finding a way to bring about change in their organization, and you don't want to take them out of that. But in the electoral process, that's what happens.

Do you see consolidation shifting back to the insurance side, from the brokerage and reinsurance side of recent years?

The one impediment is that among the top 20 companies over the next five years maybe there will be a couple mergers but not much more than that because the management doesn't want it to happen.

When you come right down to it, in our merger with Continental we had 15 people in our senior management and they had 15 people in their senior management and when we merged what happened is senior management lost their jobs. That will prevent most mergers.

So will mergers among insurers take the shape of buying a company to obtain expertise in an area, such as buying a specialty company?

American States is a good example of that. As long as you're willing to pay the price, which SAFECO was. They paid $2.8 billion to obtain $1.8 billion of premium. It's a big number. As long as somebody is willing to do that, that's the way it will take place. It's also what we did to boost our surety operation.

In your view, will the hard-soft market cycles return?

"This is the market that will be" is a statement you hear some people make. The same people made that statement back in 1990 and they were dead wrong and they'll be dead wrong this time, too. It's a cyclical market and it always will be. There's nothing that will change the cycle. The insurance cycle is shorter, longer, but there's a cycle.

So there will be a hard market at some point. Maybe not for a long time, maybe not a real long time, who knows? But it is not going to remain unchanged.

What's likely to be the result of a long soft market?

If you look at the top 20 firms, they write half the insurance premiums. There will be one to three consolidations. If you look at the little, tiny firms, they're going to try to make it as niche players, in a very specialized way. The medium-sized players have a problem. These are third-quartile companies with $600 million to $800 million in premium.

If you're not real profitable, you're going to get swallowed up by somebody who can use the volume. If you're doing it as part of another company, they will sell it off, which is what Allstate did.

Allstate had $600 million of commercial insurance, of which, maybe after runoff, they had $400 million left. It wasn't big enough for us to get real excited about, but they sold it to St. Paul.

What recommendations do you have for risk managers in terms of the skills they'll require in the future?

I'd say special training is very important, such as the Chartered Property & Casualty Underwriter, and technical skills are very important.

Probably most important will be the ability to sell your ideas to management. There is so much changing that it requires them to come to management with a new set of ideas.

Do you agree with the view that risk managers should look beyond their traditional insurance roles to help manage other aspects of risk within their organizations?

I think it makes sense for them to expand into other balance sheet issues. I think you have to look at your risks on a broad basis. Whenever I meet with risk managers I encourage them to try and do that and try to manage a much broader spectrum of risk.

How has your role as a CEO of a major insurer changed?

It requires more leadership, no question about it. There's an awful lot of change going on.

The role has actually changed in several ways: one is more vision is required. Second, cultural leadership is more important. By that I mean developing a culture by design, not by default. And making sure your culture fits your business objective, and making it a more collaborative organization, more a partnership. . . . I also have to rely on less sleep!