A question of size

"We had the consultants and they quoted £1m. We said thanks very much but we'll do it ourselves." Ian Chippendale, executive chairman of Direct Line, is talking enthusiastically about the refurbishment of the executive floor of the company's Croydon headquarters that will see open plan replace cellular offices.

Chippendale's tale, told with a broad grin and a few disbelieving shakes of the head, encapsulates his "life is a lot simpler than it seems" attitude. And that is reflected in the company's strategy. Unlike its closest rival, Churchill, Direct Line is sticking to what it knows best - selling personal lines products direct and through partnerships with big brands like Tesco.

"We stick rigidly to our proposition, which is that we deal direct with the customer, either through our own brand or through a third party brand - if it's well trusted," he says emphatically.

But critics ask why shouldn't Direct Line follow the Churchill path and deal through telebrokers or high street brokers?

Growing sales
"Well we have the biggest brand in this business. Why do you want to lend somebody else credibility by giving them our brand?" Chippendale replies. "We do pretty well sticking to what we do and we're happy with it."

The problem is size. Churchill is busy growing sales through brokers and acquisitions because it needs to be bigger. The company reckons that it needs more than £3bn to maximise efficiency through economies of scale. Direct Line's proposition also relies heavily on large sales volumes bringing economies of scale. So it is no surprise to find that Direct Line was one of the 15 companies that showed an interest in bidding for Prudential's general insurance business.

It is rumoured that the company missed out on the bid by less than £2m. Of course, Chippendale can't comment on market rumours, but he adds mischievously:

"We're always interested in good books of business."

One of Chippendale's key plans for growth is by lobbying for big changes in the way domestic property insurance is sold. "We'd like to be bigger of course and we are growing a handful of percent each year. But if we could break the connection between mortgage's and buildings insurance then things can take off.

"Even though it is illegal to sell mortgage and buildings insurance as one item, mortgage lenders get the first and often most fruitful bite of the cherry," Chippendale says.

"They're quite clever," he adds frankly.

Domestic insurance is a thorn in Chippendale's side. "We're number six in the market. Churchill's acquisition of the Pru meant that it swapped into the Pru's position above us. We have only 4% of the market," he says.

However, Chippendale is not obsessed with being the market leader. "The danger is that you might have to sacrifice profitability through the desire to be number one. What we need is a strong position in any market we're in, because if we don't we just get knocked all over the place."

Chippendale recently demonstrated the philosophy with a lightning raid on the Italian motor market. Two acquisitions including that of Royal & SunAlliance's motor book has left Direct Line a close second in Italy behind Generali. And in the UK market, there is no room for complaint.

Profits here rose by 36% to £260m for 2001 and earned premiums grew by 34%. That compares favourably with the £26m profit posted by Direct Line in 1996 when Chippendale joined the company from Provident Insurance.

One of the most-talked about Direct Line achievements has been its deal to sell insurance through Tesco. If broker fury is a measure of success, then the deal has been a soaraway winner.

Outraged brokers complain that Tesco prices often come in up to 50% cheaper than the policies they're trying to sell. They argue that the Tesco deal is just another way of undercutting brokers until they leave the market - then Direct Line will bump prices up to realistic levels and cream off the profits.

Chippendale says the price stands up to scrutiny. "It is good value because acquisition costs for each customer are very, very low and there is an efficient platform underneath it all," he says.

Curriculum Vitae
Age: 53
Born: Blackburn, Lancashire
Lives: West Yorkshire
Married with two children
Education: Graduated in Chemical Engineering, Leeds University
Career: Joined Provident Insurance's IT department
Worked for Halifax Insurance
Joined main board of Provident
In 1994 joined Peter Wood to start Privilege Insurance with the Royal Bank of Scotland
Favourite TV programme: Have I got news for you
Curently reading: A Claire Francis novel
Leisure acivity: Golf (18 handicap)