Michael Faulkner talks to Legal & General’s Jane Dale, managing director of general insurance, on the company’s focus on household busine ss and how it has been affected by the summer of floods
Jane Dale has kept a low profile since taking over the helm of the general insurance division of Legal & General (L&G) nearly two and half years ago.
Parachuted in from the insurance giant’s group risk operation, her brief was to overhaul the general insurance business and get it back into shape.
Having refocused the division’s distribution strategy, she says the business is now ready for growth.
When Dale arrived in June 2005 the division was reeling from the loss, earlier in the year, of a £130m tie-up with Barclays – a book of business that accounted for a third of L&G’s insurance book.
She replaced Ian Viney, who returned to Egypt to run L&G’s joint venture in the region.
Dale shrugs off the loss of the Barclays business to Norwich Union (NU). “It had a better deal from NU. That’s the inherent challenge in business. It’s the only account we have lost in recent years.”
The loss, nonetheless, prompted a wide-ranging review of L&G’s insurance business.
Prior to her arrival, L&G had been diversifying beyond its core household insurance book, building up the division’s travel, motor and healthcare books.
It was swiftly decided that L&G had to move back to its core business.
“It was obvious what the conclusion would be; we just wanted to prove it. The business was a little bit of everything, but the core business was household,” says Dale.
“Without Barclays we had 3% share of household market. It made sense that it should be our focus. A home insurer is what we want to be, clear and simple. Once that was decided, it didn’t fit to have other product lines”
Clearing the decks
In the months that followed, L&G withdrew from the motor market, selling the renewal rights to Equity, and exited the healthcare sector.
“Over the last two years we cleared the decks. We reshaped the business, closed branches and moved the head office
from London to Birmingham. We are now focused on growth opportunities,” says Dale
The changes saw L&G’s headcount drop by about 10% to around 900 staff.
What is left is a core business worth approximately £300m in premium. Broker distributed business is the largest share of this, amounting to 40%, with corporate partners and IFAs each providing 25%.
L&G also has a small, but fast growing, direct channel which makes up the remaining 10%.
In term of growing its broker channel, Dale says L&G is looking to add new agencies and is keen to support smaller brokers as well as the larger ones.
The company has a telephone-based service for smaller brokers.
“A home insurer is what we want to be, clear and simple. Once that was decided, it didn't fit to have other product lines
Dale emphasises service as being key to winning brokers’ business.
“Service matters to brokers. We have grown our Ipswich office, our broker service centre. We are also responding to technology with more effort on full-cycle EDI.”
The company is also exploring new product opportunities, with the mid net worth sector an area that it is looking to target. “We are doing research at the moment. There are potential opportunities,” says Dale.
With the summer flooding costing the insurance industry over £3bn, it has not been a good year for home insurers.
Legal & General reported an operating loss of £38m for its general insurance business in the first half of 2007, compared to a profit of £2m in 2006.
The sharp fall in profit was attributed to £40m in claims, net of reinsurance, from the June floods.
In the wake of the floods there has been much debate about whether the insurance industry should continue to provide cover for flood risk areas and, if so, at what price.
Some have suggested that the risk of flooding is changing – that extreme events that were once predicted only once every 200 years might begin to occur every fifty years – and that pricing and appetite must change to reflect this.
While no major insurer has yet withdrawn flood cover, some senior executives are warning that homeowners in high risk areas may see renewal premiums increase sharply.
This comes amid mounting pressure on the government from the insurance sector over its spending on flood defences.
Where does Dale sit on these issues?
She does not align herself with the hawks of the insurance sector who are talking about withdrawing cover, arguing that flood risk can be priced.
“The floods will not dramatically change things. I am an optimist; I have a flat on the Thames. It has not reached a stage where things will change dramatically. We are not seeing anything that indicates a fundamental change in risk.
“It isn’t that there has been a cataclysmic shift – it isn’t that bad, don’t panic. We [the industry] have had a good run (in terms of claims).”
She says the question for L&G is investing in more flood data and pricing for the risk.
“Most risks can be priced. I am not a hawk discussing how not to cover these risks – we want to offer cover.
“It is about how you price it appropriately with appropriate excess.”
On the question of whether the government is keeping its side of the bargain that underpins the statement of principles, Dale is diplomatic.
“I support the ABI; the government needs to be reminded [of its commitments]. We are pragmatic; we want to be able to cover people at a reasonable price.”