In his first few months as the chief information officer at Fireman's Fund Insurance Co., Frederick Matteson has had a chance to compare and contrast the dynamics of the insurance and brokerage segments.First, risk management binds both, he says. "When you look at the property/casualty business, we're obviously in the underwriting business, and we make decisions based on a risk pool that we feel will maximize our margins and position in the marketplace," he explains.
"In brokerage, the trading side also involves making decisions within a risk pool, much like underwriting, except on a shorter duration. You must examine the buy-sell picture, you have to determine how much risk to bear and how much you should put off."
The brokerage industry differs from insurance in that it's highly transactional. Revenues come from handling transactions and managing portfolios on the back end. "We can take a fund at Schwab and we have to understand what the weighted average duration of that fund needs to be from an investment standpoint," he says. "It's really the brokerage version of the actuarial part of insurance. It's about taking a dollar in versus when you have to pay it out."
Matteson says it's important to remain fluid in the brokerage world, and possess a vision that can see warning signs ahead.
He provides an analogy: "At Schwab I learned that the strategies that worked in the past are the same ones that will cause you to fail in the future, because they're only competitive for a little while," he says.
"It would be as if I made a lot of money investing in dot-com stocks in 1999 and then decided that was going to be my investment course for 2000. If I had done that, I would have lost my shirt. On Wall Street, you get feedback very quickly when you're losing money. So we want early warnings that can alert us of this. And that's where (information) technology's role can help."
One dramatic difference he's noticed between brokerage and insurance has to do with customers. "I've said almost half jokingly, when we got a new customer at Schwab, we couldn't wait for them to start transacting with us. But when you get a new customer in the insurance industry, from a claims standpoint, the customer hopes they never have to deal with the company and the company hopes it never has to deal with the insured."
