Q&A with Florida’s Citizens CEO Gilway: Leading in the Public Sector

Two months ago when Barry Gilway took over as president of Florida’s state-run property insurer, Citizens Property Insurance Corp., he quickly learned there would be no honeymoon period. He was thrust into debates over rates, mitigation credits, rolled-back coverage, depopulation efforts, and even the travel expenses racked up key executives before he arrived on the scene.

Gilway is unique in that he is the first head of Citizens who comes solely from the private sector. His background includes being CEO and president of Zurich North American Canada. Most recently, he served as CEO and president of Mattei Insurance Services.

Gilway is the first to admit that the attention from the media, consumers and the legislature that comes with the non-profit sector makes for a far different environment than he has previously worked in.

“My experiences in private-run operations were to the bottom line and how we got there. In the case of Citizens, not only are you scrutinized in the case of the objective, you are scrutinized over the actions you take to get to that objective,” he says in the following interview with Insurance Journal’s Michael Adams.

In the interview, Gilway comes across as a thoughtful leader who believes Citizens must do a better job in communicating its objectives and actions to all of its constituents. He takes his fiduciary responsibilities at Citizens seriously. He vows to be active participant in the legislative process. And he believes his employees do a good job but also believes that the organization can do better.

What follows is an edited version of Gilway’s interview with Insurance Journal.

You are the first head of Citizens who comes solely from the private sector. What is your initial view of the public versus private sector?

As you know my experience has all been all in the private sector. I’ve been involved in executive level positions in four different insurance companies over 42 years and I’ve held four different CEO positions in those companies. This, however, is my first real exposure operating in public environment and I have limited history working with legislatures or really reporting with a Cabinet or interfacing with officials in the state government. I have interfaced with multiple regulators in other states and I have fairly significant experience in the reinsurance area, in a similar fashion to Citizens. But as far as being in public eye, Citizens has provided me with a unique experience.

One of obvious differences and the most glaring is that clearly in the public space you’re under a microscope. Every single move you make, every single action you take, every single comment you make is scrutinized in the press. It is considered by legislators and most importantly interpreted by the public. There is a huge difference and you have to be so much more aware, so much clearer in your communication while operating in public. There is a significant opportunity for you to be misinterpreted and it is far more significant when that happens. That would be primary distinction.

The second distinction, which is a key issue, is the expense components. While as CEO of a private company it was obviously necessarily to report to international executives in the case of Zurich or a local board in the case of Zurich Canada. I had to do extensive work developing budgets and budget variances. But I certainly was not scrutinized to the extent we are at Citizens down to individual expense account level. My experiences in private-run operations were to the bottom line and how we got there. In the case of Citizens, not only are you scrutinized in the case of the objective, you are scrutinized over the actions you take to get to that objective.

Citizens is a quasi-public entity, but it essentially functions as a private insurer. How do you balance the need to operate at a minimal cost and yet recruit the kind of talent needed to operate an organization of it size?

As a new CEO I am in a very unique position. It gives me the ability to step back in an unbiased way, distance myself from history and step back and see how the organization is run.

We have already embarked on a complete review of compensation and benefits that compares where we are as a company both to the private and public market. We need to attractive talent from the private industry, but absolutely from the public market. We found in a review conducted by Towers-Perrin and Mercer that 80 percent of the organization, let’s say the non-executive part of the organization, are compensated well under the market. We are somewhere between five percent and six percent below the private market from a per salary standpoint. But on the benefit side we are more related the public sector when it comes to health care and other benefits.

But it is important to remember that at the non-executive level we are behind the public sector because there are no incentives. There are no stock options, no extra bonuses if we meet our objectives. When it comes to executive positions we are so far behind the private sector it is shocking. We are something like 25 percent below the salary ranges for executives.

For example, a chief financial officer for a $3 billion insurance company ranges from $350,000 on the bottom end to $450,000 to $500,000 at the top end. I’m not guessing at these numbers; they are based on studies by conducted by Towers-Perrin and Mercer. The huge lacking piece in the executive compensation is that there are no incentives and it his highly unlikely with our type of organization we will ever have that kind of incentive plan available to us. Hopefully over time, we can narrow that gap to a certain percent to make sure we are attracting highly qualified people. But I never expect to pay what the private sector pays. There is typically a difference between what a non-profit organization can pay versus a for- profit organization.

Recently, there has been a lot of press and outcry over the travel expenses incurred by top Citizens executives. What is your view on the issue and what steps are you taking to respond to those criticisms?

Look, there is always a focus in the private sector on expense. But I would say the standards are different and the application of standards is different. Now, what do I mean by that. At Zurich if you are an executive vice president you fly first class, you don’t fly coach. At Citizens, it doesn’t matter if you are flying to Miami, it doesn’t matter if you are flying to London, you are flying coach. Is that right? Yes it is; you are spending taxpayer money and you need to practice solid fiduciary responsibility. So, when compared to the private sector and you’re traveling, you spend the least amount possible, because that is how you spend taxpayer money.

The other issue frankly, is the type of expenses that are considered appropriate. There is a lack of understanding or at least a lack of admission to the fact that when you travel internationally, the cost go up astronomically. Finding a room in Bermuda for $300 is a deal. Staying in a room in Tallahassee for $300 is absurd. If you go to London and get a room for less than $400 you got it for a deal.

People must understand that if we are going to operate in the international marketplace, if we are going to take the position we have established to come up with the best deal that we possible can for the taxpayers of Florida, we have to reach out beyond Florida, and go out to the financial centers of this world and meet with the top reinsurers and the top capital markets to get the best job done. But there is a high cost associated with that. But the payback is absolutely enormous.

For example, the two examples that jump out at me is that Sharon Binnun’s trip to New York, London, Zurich, and Bermuda, that saved us 2.41 percent or $18 million in a time when standard risk transfer costs were going up. We were able to get those costs low, which was very unusual in the risk transfer arena. Even more compelling was the trip to London and Bermuda that produced like 3.85 percent savings at like $28.9 million on the standard $750 million risk transfer. The benefits associated with operating in that arena, and as you know as a private insurer you have to go out as a matter of course. I will, along with Sharon Binnun, will be participating in PCI [Property Casualty Insurers of America] conference in California and we have an agenda that will require us to meet with 10 reinsurers in a day. Now, I will be traveling out there coach, but I will be paying $305 for a room. And folks can look at my expense account and I will be staying in a $305 room and Sharon Binnun will be staying in a $305 room and the reason for that is it is the cheapest room within a reasonable distance of the convention. I am not staying at the convention center because the rooms were $385 a night. So, it is expensive, but absolutely essential because we need to interface with these reinsurers.

One thing, I’d love to make a point. Sharon Binnun has been under fire for these trips. This is unbelievable. She traveled to seven countries in nine days. If anyone thinks that is a vacation, then they are confused because it is not a vacation. It is time away from family; it is an enormous staggering commitment that is made. I cannot emphasize that enough. I will use every adjective in the world to describe it. That is a staggering effort of time, effort, dedication to the organization to get the job done. And there is criticism of staying in a hotel in Bermuda at above average costs. We have to balance the need to apply stringent financial standards and practice solid fiduciary responsibility with what is necessary to get the job done and make the impact that we are making upon the behalf of taxpayers. So, it is a balancing act. When you are in London you are meeting with reinsurers, you’re meeting with Lloyd’s brokers, you’re meeting with financial institutions and it is a high cost but the payback is enormous.

I get emotional about it because I see the effort and I see the dedication that is made by the Sharron Binnuns of this world and the key team and they are making this unbelievable effort on the part of Citizens and taxpayers to reduce assessments, transfer risks, and now they are subject to criticism for doing so. I’m not sure at my age if I could visit seven countries in nine days. My hat’s off to her for what she has done. We should be throwing a party for her and sending her on vacation so she can rest up after this trip.

I have to offset that with that something. I’m coming into Citizens as a CEO; I’m doing what I should do. I’m standing back and doing a complete and comprehensive expensive review of the operation. I’m proposing to the board that we hire a key compensation design firm to help me look at every key expense in the organization. We are looking at all the expenses, there are two books over there with every expense every executive has had in the last four months. And I’ve gone through those personally and individually. We’re going through a complete organization review and we’re looking at a complete organization alignment. We’re looking at organization costs, looking at outsourcing services, looking at the use of contingency employees. We’re going through everything. I think that is my obligation. I need to make a commitment that we are operating the most efficient organization possible.

We have review standards and expense standards. We don’t have a control issue at Citizens. There are so many levels of control in the organization. So it is not control in my opinion, but it could be standards. So we’re looking at all the travel standards in place and are we applying the right controls to the standards while recognizing we are a public company and under this level of scrutiny.

The public has an unfavorable view of Citizens given the controversies over rates, coverage and expenses. How do you turn the public’s view when it comes to Citizens?

The broader issue is trust. It doesn’t matter if it is the mitigation issue or whether its international travel, it doesn’t matter if it is about sinkholes or sinkhole claims. We need to communicate far more effectively with consumers, with our policyholders, with our potential policyholders, with legislators, and with the cabinet. We just need to do a better job. Because we recognize that many of the actions we take are misunderstood or they are simply not known. The logic behind some of our decisions has simply not been communicated, which is why we are implementing a comprehensive communication plan. But we have to do a much better job than we have done in the past because we are under a microscope.

Right now Citizens is placing an emphasis on depopulation. Historically, the depopulation process has been controversial, especially among the public, who have seen a number of large companies that assumed policies later collapse due to hurricane losses. How do you win the public’s trust?

My overall commitment to the board when I was hired two months ago is that I am going to look at every opportunity we should consider to move depopulation in the right direction. One of the concerns I have looking at history is that we shouldn’t be depopulating if we are not moving this business to financially secure companies. So companies that are participating in the larger plans we have an obligation to make sure that in addition to Office of Insurance Regulation review that they are companies that can sustain this business and are financially secure enough to underwrite the number of accounts that are being proposed to be depopulated. So the plan will have financial criteria that have to be met that are likely more stringent than the OIR criteria for company operation.

I think what we will be presenting has two important aspects. One, it is an opportunity for agents to participate with solid, financially secure companies. I don’t see any negativism with regards to this depopulation plan among the agents we’ve been working with. The other aspect really goes back to my comment on communication. We are looking closely at the current take-out process and how to refine the communication of that process. That means going out to the public in advance of the take-out and really outlining what a take-out is, what the take-outs are, and focus on the financial security of the companies that are stepping up to the take-out process. We have a job to do communicating to the general public and especially Citizens policyholders regarding the advantages of a take-out.

In the private sector the emphasis is on growth and maximizing profits. With Citizens, however, the goal is in some ways the exact opposite. Instead of growing a company you are trying to make it smaller. And while you have investors like reinsurers, you also have policyholders who could become investors by virtue of assessments. How do you navigate the two worlds?

I think actually being pretty consistent in how you manage those relationships and I have to manage those relationships with investors if I am going to do the best job for customers and taxpayers. But it is different as CEO of private company; the buck stops here. I could make all the decisions. Did I report to board? Yes, but typically I was given broad direction and I managed toward those objectives. But here by statute we have a board of governors and lot of entities we have to work with. We have far more controls in place, not only do we have internal controls, but then on top of that we have oversight from our board of governors and they in turn force us to look very closely at the organization and are very closely involved with every aspect of the organization. So it is a very different environment.

But when it comes to the relationships we have to have with reinsurers, the financial institutions that are backing our bonds, those are relationships we have to establish face-to-face. We have to have direct, close contact with them, because they are the ones we have to convince and that is very similar to the relationship that stockholders have with a private organization. However, at Citizens, I’ve got to attract capital that is not coming from stockholders, but outside parties. We’re going to JP Morgan, Lloyd’s, and other institutions saying we need your capital. We have to convince them we are going to be good stewards of the capital and we have the financial security to payback the capital. I think it is the same kind of challenge.

In the private sector a huge part of my job is how to take my capital and apply it. By my charge here is that I have a fiduciary duty to my policyholders and that extends to all Florida policyholders. If I don’t eliminate a substantial amount of probably maximum loss and risk, our customers will pay for that in the amount of assessments. So I have a fiduciary responsibility to come up with ways to reduce that risk to Floridians and our policyholders.

Your predecessors took different views when it came to the legislative process with some being very involved and others leaving it to staff. How do you view your role?

As an active one. I said when I joined Citizens, there are some buttons I can push, some levers I can pull, which I think you will see with the depopulation plans. So there are a significant number of things that are under my control. We can improve the depopulation process and the communication of the plan. We can also work more effectively with the independent agent system and implementing an agent management plan that we will be announcing soon. So there are an enormous number of things under my control. However, there are an equal amount of things that are totally outside my control. I’m not the decision maker. The decision makers are in every county in Florida; they are the legislators and then there is the Cabinet.

So, there are a lot of impediments standing in the way of Citizens, not just in the depopulation area, but really in complying with our statutory obligation to have actuarial rates. So there are impediments and I believe it is a huge part of my job to position Citizens in a leadership role by having a legislative agenda that focuses on any and all impediments that stand in the way of us doing the right job for our policyholders and the taxpayers of Florida.

In order to do that I have to move out beyond the level of control I have at Citizens with my staff and really lay out what needs to be done to improve Citizens as an overall organizations and reduce the potential impact of assessments on Floridians.

So I plan to take an active role. I’ve already met personally with 20 legislators face-to-face and they tend to be the more vocal. I’ve met with all the Cabinet members. I’ve also reached out to every consumer group to understand from their eyes and our policyholders their perspectives.

If there any message you would like to get to the public that gets lost given the other issues?

I think the one area that is important to me is that I’ve been in many companies and I have worked with some extraordinary people, and I would tell you that within Citizens we have some of the best talent I have ever had the opportunity to work with. They are not doing it because they are highly compensated employees, because they are not. They are doing it because they are extraordinary dedicated and despite the onslaught of criticism from the press and consumer groups and outside parties they remain motivated, they remain committed, they remain dedicated and they continue to do a fantastic job for our customers. People need to understand they are working their tails of for the people of Florida and most definitely for our customers.