Regional Market Spotlight – The South West. Danny Walkinshaw reports.
If the weather warms up this year, tourists will flock to the South West, surfing off the coast of Cornwall, relaxing on a beach in Bournemouth and lunching al fresco on Bristol’s picturesque harbour-side. Brokers and insurers will not be far behind: in terms of the region’s economy, tourism may be streets ahead right now, but insurance is set to catch up.
As the region booms, new entrants are rushing to open offices, particularly in the unofficial capital, Bristol. But a well-established market already exists and, with the national craze for consolidation creating some major players in the area, late-comers may find it difficult to get a foothold.
The number of independent brokers in the South West has fallen in recent years with consolidators and broker networks controlling a large chunk of the market. “The broking market here in the city has changed beyond recognition, we have seen that modernisation I suppose,” says Paul Asplin, chief executive of Bristol-based legal expenses insurer DAS.
The Jelf Group, which is headquartered here, has snapped up broker after broker in the region, with particular dominance in Devon and Bristol. In August 2007, it acquired a key rival in the shape of Bristol-based commercial broker John Lampier & Son, which added £35m to its premium income. Jelf said the acquisition left it with up to one fifth of the market in Bristol and the South West.
The Oval group is also a force to be reckoned with in the South West. It too has been on the acquisition trail, snapping up John Eke & Partners, another large broker in the region, in 2005.
Gina Dixon, managing director of Jelf Insurance Brokers, says those two acquisitions – John Lampier & Son and John Eke & Partners – changed the whole landscape of the South West market, bringing consolidators into competition at close quarters. But there are rivals from outside the region, too.
“Our competition now in the South West can be from anywhere and everywhere, as our book of business has moved from small SME to large SME,” she says.
“We have consolidated that [small SME] book of business and, because we have moved up a notch or two, our competition has moved up a notch as well. So now we are competing against the nationals on the one hand and are likely to compete against a small independent broker that has a fantastic relationship with their client on the other.”
The networks are active in the region, too. The Westinsure alliance and the Purple Partnership network both operate from Plymouth, and are openly competing for dominance in the South West.
The established Westinsure alliance has a considerable membership base in the region, particularly in Plymouth and Exeter, and has a national membership of 128 members, 150 offices and controls £234m in gross written premiums.
The Purple Partnership was launched at the beginning of the year in collaboration with Jelf, and has already picked up members in the region.
Bob Hearne, managing director of the Jelf-acquired John Lampier & Son, said the group will use the Purple Partnership to assist remaining small independent brokers as Jelf looks to make large scale acquisitions.
“There are still some targets out there,” he says. “There are a relatively large number of smaller independents and we are building our network on what is left of the smaller independents that are looking for some scale.”
“It is quite a close knit market and a very old established way of working.
Nick Hatch, Towergate
There is no end in sight to the consolidation, even though many brokers in the South West have already been acquired or are members of networks. Unsurprisingly, Towergate is one of the would-be acquisitors. Nick Hatch, managing director at the Bristol branch of Towergate Risk Solutions, says the company is always on the look out, but admits ruefully: “Towergate has not been able to so far find an acquisition in the South West that Jelf has not already got. Organic growth is now important to Towergate in Bristol.” He is keen to expand the current operation which employs eight staff, but says a lot of smaller brokers are either part of the two networks or have an affiliation with another company. “A lot of brokers have hedged their bets and gone down the network route rather than selling or being acquired,” he adds.
One of the attractions of the region is its staff: the South West is a desirable place to live and it rarely takes too much to convince people to pack up and head west. Perhaps for this reason, the national bane of poaching is not a big problem. “There is not much switching of staff,” says Jelf’s Dixon. “Our staff tend to have come from the Bristol market or the nationals.”
Little wonder then that new players are keen to get in on the act. The most recent is ABC Insurance, part of the LV= Group, which opened a new office in Bristol in December. Hot on its heels came AXA, which is looking to buy SBJ, a major independent broker that would give it a strong foothold in the local market. Underwriting agencies are on the move too, with start-up Arista opening a Bristol office late in 2006.
While the increased competition is welcome, there are warnings from established players about the difficulty of making an impact in the South West. Towergate’s Hatch thinks the market may not be suited to anyone who doesn’t already have a firm placing. “As a new entrant I think you would struggle coming in to somewhere like Bristol unless you have an aggressive pricing strategy,” he explains. “It is quite a close knit market with a very old established way of working. A lot of big insurers have a presence. The people that have been around have been around for a long time.”
Jelf’s Dixon agrees. “The new firms are finding it difficult because the consolidation of brokers will have had an effect, and the large brokers like ourselves tend to have good relationships with the big insurers so we don’t need the new players,” she says.
The traditional nature of the market was immediately apparent to Matthew Hartigan, Bristol branch manager for Zurich, who moved to the region in December from Leeds. “There is a lot of tradition and plenty of well established brokers down here with a good client base which is proved by retention ratios,” he says. “There is a big emphasis on service from local business to local people.”
Allianz has an office located beside the River Avon employing around 60 staff. It deals with brokers as far down as Devon and Cornwall. David Myers, regional manager for the South West agrees that the market has a community presence.
“It is vibrant,” he says. “Bristol, Devon and Cornwall are distinct areas, and the whole South West is a distinct area. It likes to be serviced within that area so it is good to have a local presence and provide a local service. From Bristol we provide a local service for our brokers with the local autonomy to make local underwriting decisions.”
And, though new entrants may have to work hard to break into the market, it will be worth their while to do so. Bristol is generally described as the largest financial services centre outside of London, and areas of the city are dominated by large financial services offices. A huge property development close to Bristol Temple Meads will see major regeneration of the area and is expected to result in an influx of new businesses.
DAS’s Asplin says the company currently employs around 300 people at its Bristol operation, but that figure is set to grow. “We own the building next door which is currently leased to tenants and expires in 2011,” he says.
“Our intentions at that point would be to start to occupy that building ourselves – we could potentially add another 200 in there. I can see us growing to over 500 people in the next three to four years.”
Brokers and insurers in the region can look to their local football teams for inspiration. Bristol City, currently riding high at the top of the Championship, looks set on promotion to the Premier League, and is being closely followed by Plymouth Argyle. Bristol Rovers, giant killers in the FA Cup, reached the quarter finals of the competition. And Exeter is pushing for promotion back to the football league.
The South West is performing well, and whether on the pitch or in the board room, it is a region geared for growth.
With its rambling coastline, rolling hills and picturesque towns, the South West is a beautiful place to be. But its economy is not to be sniffed at either. This massive region, the largest in England, is productive and wealthy, with a strong track record. According to the South West Development Agency, it has the sixth strongest economy of the English regions Ã¢â‚¬â€œ coming in at Ã‚Â£84.6bn in 2005. Swindon, Bristol and Gloucestershire were the three best performing sub-regions. The industry in the region is set to grow, too, with its economic output projected to increase at an average annual rate of 6% over the period 2005-2011, the fourth highest growth rate among the English regions. This strong economic outlook, coupled with the current drive to move major government agencies and private businesses out of London to cut costs, means that the business centres are booming. And while it cannot currently offer the amenities of London or the South East, regeneration is happening apace Ã¢â‚¬â€œ new offices and homes are springing up in the once-green fields. Just this month it was announced that the region will receive an 80m pounds fund to pump-prime major infrastructure projects, launched by the South West of England Regional Development Agency (RDA). The Regional Infrastructure Fund (RIF) is the first of its kind in the country and is aimed at unlocking the region's business potential. Traditionally, it has been a rural area the South West has a population well over 5 million but despite its scale, the population density of the region is around 212 people per square kilometre, lower than any other region in England. But that is set to change. In recent years, figures have shown that the South Wests population has grown at a faster rate than any other English region and still has one of the lowest rates of unemployment. The banking, finance and insurance industries came in narrowly behind construction, agriculture and fishing as drivers of the employment growth of the region.