External Analysis for The Travelers Companies Inc.

Introduction The Travelers Companies Incorporated is an American Based insurance company that specializes in the insurance services related to the home and auto insurance.The company along with its subsidiaries is currently operates in three business segments and is engaged in the provision of wide range of services ranging from commercial, personal, property and financial services for businesses, individual clients and governmental departments (one source, 2011).It is a private listed company whose stocks are listed in the New York Stock Exchange.

According to Bloomberg, it is listed among the largest insurance companies by their market value (Holm and Frye, 2009). Among the top hundred companies in the Fortune 500 companies list,The Travelers Companies Inc. is currently ranked at number ninety eight (One Source, 2011). The current market capital of The Travelers Companies Inc. is over twenty four billion US dollars and it stood at number two in the domestic markets while Berkshire Hathaway Inc. with over one hundred and ninety one Billion US dollars market capital secures number one position in the markets (NYSE:TRV, 2011) and generated revenues over twenty billion US dollars in the year 2010 (Travelers, 2011). SWOT Analysis SWOT Matrix

Strengths y y y Market position Business operations Market capital Opportunities y y y Business expansion Expanded product lines mergers y y y y y

Weaknesses Legal issues Geographic concentration

Threats Competition Regulations Economic conditions

Strengths The Travelers Company along with its subsidiaries is currently operates in three business segments and is engaged in the provision of wide range of services ranging from commercial, personal, property and financial services for businesses, clients and governmental departments (one source, 2011). It is a public listed company whose stocks are listed in the New York Stock Exchange. Among the top hundred companies in the Fortune 500 companies list, The Travelers Companies Inc. is currently ranked at number ninety eight (One Source, 2011).. The current market capital of The Travelers Companies Inc. is over twenty four billion US dollars (NYSE:TRV, 2011).According to the financial reports of the company, it earned the revenues over twenty billion US dollars for the previous year from its insurance business (Travelers, 2011).The company is been given A+ ratings by the top notch rating agencies in the country including A.M Best, Moodys, Flitch and Standard & Poors ratings (Travelers, 2011). Weaknesses

The Travelers Companies Inc. is among the largest American Companies by their market value but it has very limited presence in the other regions of the world. The company lags behind in the geographical expansion of its business operations and functions. It has operations all over in USA, UK, Canada and Ireland respectively (USSEC, 2010). It must expand its business operations in the other regions of the world as well to maximize its profits and market share globally. Another weakness of the company is that it maintains a history of legal issues related to its insurance business which is a great setback for any company operating in the markets. The legal issues against company include the investigations against bad faith insurance practices (USSEC, 2010). Opportunities As specified in the weaknesses, The Travelers Companies Inc. has very little geographic presence in the countries where the growth ratio is much higher. Among the possible list of opportunities available to the company, the company can expand its business operations and portfolio in the emerging markets of Asia like China, India etc. these markets represents the great potential of success and profitability to the large numbers of companies. Business expansion can also be done by having strategic alliance in the form of mergers with the companies of the same industry. The mergers are very helpful in this regard and maximize the market presence of a company without physically moving across the borders. Another opportunity available to thecompany is to expand its current service offerings. The company is currently offering services related to home and auto insurance as well as financial services. It can innovate its current product lines by adding more options in it like

offering health insurance, retirement plans, and child education plans etc. in their service plans to attract large number of potential and current customers.

Threats TheTravelers Companies Inc. faces certain level of external threats that can impose serious impact on the business operations of the company. The insurance markets in United States are highly competitive in nature with a large number of market players offering wide range of products. The company has cut throat competition in the insurance industry. The top three competitors of The Travelers Companies areLiberty Mutual Agency Corporation, The Hartford Financial Services Group, Inc. and W. R. Berkley Corporation (Hoovers. 2011). Another level of threat to the company is the economic recession in the United States. The downfall in the US economy has touched all the levels of business and lives of people. It has severely affected the companies operating in the domestic markets and the demand of the customers. The demand is dependent on the demographics of the customers and the commercial requirements that affect their needs. The consumers are required to buy auto insurance and rental insurance by the government and lenders. If these economic conditions continued to prevail, then the company will likely to suffer huge losses in the coming years (USSEC, 2010, Hoovers, 2011). Another possible threat faced by The Travelers Companies Inc.is the changing rules and regulations for auto markets. The government of United States has mandated insurance of vehicles and drivers. The recent regulations involve the auto insurance based on the safety records of driver, the mileage driven and the experience of driver in driving respectively (Car

Insurance rates, 2011). These changes can further impact the business operations and profitability of the company if changed otherwise.

PESTEL Analysis Political The Travelers Companies Inc. is involved in the political contributions via its political action committee called Travelers Companies PAC. Through its political action committee, and company individuals, the company has given over one million US dollars todate as political contributions to the wide range of national and state level parties (influence explorer, 2011). Most of the contributions were made in the favor of Republican Party with 57% spending and 74% to the state level political parties. The company has also hired various lobbying firms who are engaged in lobbying activities on behalf of the company. The Avenue Solutions, Van Scoyoc Association and Steptoe & Johnson are among the lobbyist firms hired by Travelers Cos. (Influence Explorer, 2011). Economic The economic conditions of a country play an important role on determining the success and failure of a company. Most of the functions of The Travelers Companies Inc. are in the domestic markets of America- 94.4% (USSEC, 2010). The downfall in the economy of United States has adversely affected large number of organizations operating in United States and increased the opportunity costs associated with their business segments and operations. Moreover, these declining market conditions have increased the unemployment rate in the

company. The declining economic conditions of US markets can have huge impact on the business of Travelers Companies Inc. (USSEC, 2010). Despite these economic conditions Travelers Companies Inc. is performing very well in the domestic markets. The revenues earned by the company were over twenty billion US dollars for the year 2010 in the domestic markets, with the assets over one hundred and five million US dollars (Travelers, 2011). Social The Travelers Companyis effectively engaged in the social and community related activities from over a decade in order to raise the living standards of people in the communities it operates in. In order to achieve the community involvement, it has established The Travelers Foundation of to serve the needs of people from these communities. The foundation with the help of non-profit organizations working in the country strives to improve the success factors of these people with its corporate funding, education programs, and volunteering services (Travelers, 2011). The company also initiates its employees to take part in the community improvement programs in order to excel the living standards of the poor and needy people. According to the Travelers community relations report (2010), The Travelers Companies Inc. has spent over twenty million US dollars in the community related initiatives including education (53%), community development (19%), Arts (15%), gifts (5%) and others (8%) respectively. Technological The technological advancement is vital to the success of a company in todays competitive environment where large numbers of counterparts are ready to snatch the market

share of a company. The business operations and processes are significantly dependent on the latest information technology systems. The Travelers Companies Inc. has implemented the latest information technology systems to facilitate the flow of information within the offices and all the other business divisions (Travelers, 2011). The company is using the latest online technological advancements to facilitate their clients including mobile services, customer help lines, customer relationship centers, secured websites with Cyber Risk related softwares, and various other systems in order to maximize the user experience and the trust of clients on the company (Technology News, 2011). Environmental The Travelers Companies Inc.s products and services have no direct impact on the environment and the nature but it still tries to maintain environmental stewardship by improving its business operations, recycling activities, less consumption of energy and using the available resources to conduct its business operations (USSEC, 2010). As result of its environmental stewardship, the company is effectively engaged in the recycling of wastes and costs wherever it is possible including recycling the paper, reducing the costs by maintaining control in the office supplies, updating the entire energy system to reduce the use of energy in the current office premise etc. (USSEC, 2010).

Legal Many insurance companies are in a practice to save their money by delaying the settlement funds asked by the customers as long as they can. This strategy allows them to make and save money. They make the investigations extremely very costly for the individual clients that it makes difficult for them to afford the investigations. In order to maintain its market

position and its license to operate in the markets of United States, The Travelers Companies Inc. has to comply with the local, regional, state and federal level rules, regulations and laws. Their business operations are highly regulated by the government which limits the profits and the growth rates of the company (USSEC, 2010).

Some of the legal proceeding against the company includes: common law claims against the company (2004), broker anti-trust litigation (2005), class action lawsuits (bad faith insurance activities), and various other general level law suits arise during the course of general business (USSEC, 2010). Recently the company has paid over seventy million US dollars as a settlement for the class action law suit for the investigations held to measure the insurance practices of the company. The company was charged of paying the broker Marsh & McLennan Companies to win the bidding competition without even the knowledge of the actual clients. The legal investigations reported that the company was creating illusion among the clients in the form of fake bidding competition to make them believe they were getting very competitive premiums (Bloomberg News, 2008; Reuters, 2007). These legal proceedings have greatly affected the public image and goodwill of the company in the domestic markets.

Porters Five Forces Analysis

Porters Five Forces Analysis helps the managers to understand the market position and the effectiveness of business strategies of a firm with reference to five micro and macro level environments (Porter, 2008). These five forces include Competition, New Entrants, and Buyers Power, Suppliers Power and Substitute Products and/or services respectively. The Five Forces Analysis for The Travelers Companies Inc. is as follows:

Rivalry among established competitions The level of competition among the existing competitors in the industry is very stiff. The top three competitors of The Travelers Companies Inc. are Liberty Mutual Agency Corporation, The Hartford Financial Services Group, Inc. andW. R. Berkley Corporation (Hoovers. 2011).The demand of auto insurance services is highly dependent on the demographics of the customers as well as the commercial and legal requirements to affect the business transactions of these clients. The customers have to buy car insurance mandated by the state, thus the profitability of these market players is dependent on their marketing activities and their product offerings (Hoovers, 2011). Bargaining power of suppliers The bargaining power of suppliers is derived by their power to demand the prices of their own choice. The suppliers power in the insurance industry is not a big threat to the companies operating in it. But the threat suppliers taking away human capital does exist in the industry. This industry is entirely based on the human capital. If a talented person is working in the small company or in a company that maintains its niche in the market, then there likely to be the case of snatching that human capital by the large companies from those small companies (Investopedia, 2011).

The bargaining power of buyers The individual buyers do not have much power to influence the insurance industry at large. The large corporate clients and other related businesses pay large sums of money as health insurance premium to these companies. These market players in the insurance industry long to get high margin corporate clients.

The threat of substitute products or services The threat of substitutes is very high in the insurance industry as there are plenty of substitutes available in the market. Many of the firms offer the services that are similar to that of large companies. There exists high level of competition on all the grounds whether it is auto insurance or health insurance. There are companies operating in the markets that offers unique products and services to their customers and have competitive advantage over their counterparts which depends on the size of their business segments.

The threat of the entry of new competitors

The industry imposes certain barriers to the entry of the new companies in the markets. This means that the level of threat of new entrants is relatively low in the industry. There are varying reasons to the low rate of entry. Among them is the entry barriers imposed by the industry. The new entrants will have to comply with the governmental regulations in order to make their entry in the markets. Then the existing players are protected by the number of barriers which makes it difficult for the new entrants to give hard time to them. Among them are: entry restrictions, tariff rates, high capital requirement, distribution channels etc. These barriers limit them to compete against the existing market players.

Recommendations This study provided brief overview on the external environment analysis of The Travelers Companies Inc. The findings of the study suggested that The Travelers Cos. should focus on the following factors in order to excel its business and social image in the world:

1. The Travelers Companies can expand its business operations in the emerging markets of Asia to maximize its market presence and profits. 2. It can expand its current product lines by offering wide range of services to the existing and the potential clients 3. The company can improve its social image by taking effective part in the community related initiatives and environmental stewardship programs.

References Bloomberg News (2008) Travelers to Pay $6 Million, Ending Inquiry on Brokers Fees, retrieved on July 22, 2011 from http://www.nytimes.com/2008/01/01/business/01insure.html?ref=business Car Insurance Rates (2011) Mandatory Car Insurance Laws - Fines and Penalties for Not Insuring Your Auto?, retrieved on July 22, 2011 from http://www.carinsurancerates.com/news/62-mandatory-insurance-laws-are-they-fair.html Holm, E and Frye, A. (2009) Travelers Rises as Quarterly Profit Beats Estimates (Update1), retrieved on July 22, 2011 from http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a_4O5UJWXN3Y&refer=us Hoovers (2011) The Travelers Companies Inc. Competitive Landscape, retrieved on July 22, 2011 from http://www.hoovers.com/company/The_Travelers_Companies_Inc/rckxif-11njea3.html Huff Post (2010) US Supreme Court Ruling, retrieved on July 22, 2011 from http://www.huffingtonpost.com/2010/07/27/disclose-act-faces-gop-fi_n_660461.html

Influence Explorer (2011) Travelers Companies, retrieved on July 22, 2011 from http://influenceexplorer.com/organization/travelerscompanies/6f655124c9f040b09ffdfd58cf24f313 Investopedia (2011) The industry handbook: insurance industry, retrieved on July 22, 2011 from http://www.investopedia.com/features/industryhandbook/insurance.asp#axzz1QdjvCkhR NYSE:TRV (2011) The Travelers Companies Inc., retrieved on July 22, 2011 from http://www.google.com/finance?q=NYSE:TRV One source (2011) Fortune 1000 Companies, retrieved on July 22, 2011 from http://www.onesource.com/free/Company/FortuneList/Fortune/0 (2011) The Travelers Companies Inc., Company Profile, retrieved on July 22, 2011 from http://www.onesource.com/free/The-Travelers-Companies-Inc/Company/Profile/25158 Porter, M. E., (2008) The Five Competitive Forces that Shape Strategy, Harvard Business Review, p.86-104, retrieved on July 22, 2011 from http://hbr.org/2008/01/the-five-competitiveforces-that-shape-strategy/ar/1 Reuters (2007) UPDATE 1-Travelers to settle compensation case with states, retrieved on July 22, 2011 from http://www.reuters.com/article/2007/12/31/travelers-settlementidUSN3155618220071231

Technology News (2011) The Travelers Companies Inc. Technology News, retrieved on July 22, 2011 from http://www.technology-news-reports.com/topic/10152-the-travelers-companies-inc.html Travelers (2011) Travelers Community Relations Report 2010, retrieved on July 22, 2011 from http://www.travelers.com/about-us/community/docs/ca_annual_report.pdf (2011) Community Support, retrieved on July 22, 2011 from http://www.travelers.com/about-us/community/index.aspx (2011) Corporate Profile, retrieved on July 22, 2011 from http://investor.travelers.com/phoenix.zhtml?c=177842&p=irol-irhome (2011) Financial Report 2010, retrieved on July 22, 2011 from http://media.corporateir.net/media_files/irol/17/177842/trv_10AR.pdf (2011) Financial Strength Ratings, retrieved on July 22, 2011 from http://www.travelers.com/about-us/financial-strength.aspx USSEC (2010) The Travelers Companies Inc., Form 10-k, retrieved on July 22, 2011 from http://phx.corporateir.net/External.File?item=UGFyZW50SUQ9ODE4OTF8Q2hpbGRJRD0tMXxUeXBlPTM=&t= 1 (2010) Geographic distribution, Form 10-k, retrieved on July 22, 2011 from http://media.corporate-ir.net/media_files/irol/17/177842/trv_10AR.pdf (2010) Risk Factors, Form 10-k, retrieved on July 22, 2011 from http://phx.corporateir.net/External.File?item=UGFyZW50SUQ9ODE4OTF8Q2hpbGRJRD0tMXxUeXBlPT M=&t=1