Former Safeco CEO Mike McGavick, who engineered big changes, reflects on his years in the business

When your once-strong company has lost almost $1 billion in the last year, and respected analysts predict its demise, whom do you call?

When Safeco Insurance faced this daunting challenge five years ago this month, it dialed the number of Mike McGavick, who brought to the beleaguered insurer a fresh perspective and leadership savvy. Under his guidance, Safeco rebounded from a loss of nearly $1 billion in 2001 to profits of more than $300 million in 2002. For the third quarter of 2005 the company reported net income of $101.1 million compared with a loss of the same amount in the comparable period of 2004.

McGavick joined Safeco in January 2001 as president and chief executive officer and was named chairman of the board of directors two years later. "Safeco took a chance on a relative newcomer to the business," McGavick says, noting that he was hired at Safeco with only six years of insurance company experience (executive positions in strategic planning and financial management at CNA) and nine years of total industry experience.

He announced his resignation from the CEO post at Safeco at the end of August 2005, continuing as chairman of the board through the end of 2005. As he prepared to leave Safeco to pursue a career in politics, McGavick reflected on the challenges he faced when he came on board, explained how he addressed them, and described the results. He also presented his assessment of the changes that have swept the property/casualty industry during his career.

When he joined Safeco, "There was a broad set of challenges," McGavick says. "If you go back and read the analysts' reports from that time, most of the speculation was that Safeco would fail, or be broken up and sold. The problems were that profound, and property/casualty companies are notoriously difficult to turn around. In that first year, as our team was being assembled, we lost a billion dollars, including a write-down of a problematic transaction. That was on revenue of $7 billion," he observes. "That's a tough situation to be in."

A number of things were causing the insurer's problems, McGavick remarks, "but principally, the company, which had been known as a great underwriting company for many decades, had missed several changes in underwriting approach that had revolutionized the rest of the industry. They had watched that revolution go by and not participated," he says.

"Another problem was that Safeco had made a significant acquisition in the mid-1990s (American States Financial Corporation), and that acquisition in a sense had never been completed," McGavick continues. "They had never put together all of the offices and come up with a way of operating the merged companies that was effective. So we were completing a several-year-old transaction, and at the same time we were revolutionizing the company. In corporate life, that's about as big a challenge as you can get."

A team and a plan

In launching the effort to salvage Safeco, McGavick says, "Our first step was to build a team of people who had the energy and vision to take on a task like this." Safeco drew on its own talents-promoting people from within the organization-and also recruited executives from other leading companies. "Our second step was to develop a game plan, which we then communicated to all of the people who cared about Safeco, from our colleagues in the company to our agents and shareholders and to the regulators and Wall Street. For each of those audiences, we laid out a fairly simple plan for restoring the company," he explains.

"First, based on what we were demonstrably good at, we focused the company only on those lines in which we believed we had the distinction to compete well," McGavick continues. Those lines are personal auto and homeowners, small to mid-sized commercial accounts, and surety bonds. "Our second task was to bring the company up to date in our chosen lines of business, and be very selective about whom we would and would not insure and at what price. Third, we needed to make sure that the infrastructure of our company was affordable, given our revenue. Finally, we took actions to restore our financial strength through sound capital management.

"We announced that game plan within several weeks of my arrival at Safeco, and within 11 months we had executed on nearly every point that we had laid out," McGavick declares. "Happily, it turned out that those were the right things to do."

Key elements of the plan to restore Safeco were automating and restoring to profitability the company's auto, home, and small business insurance lines; selling noncore businesses like the life and investment operations (in 2004); strengthening the balance sheet; and reducing expenses while investing in employee training and new technologies. In 2003 the company rolled out Safeco Now(TM), a unified, Web-based sales and service platform that allows agents to quickly obtain bindable quotes for 12 commercial and personal lines products and to process other transactions. Late in 2005, the platform was expanded to permit online rating and quoting of commercial package policies in addition to businessowners and personal lines coverages.