An elite group of industry heads came together to debate flotations, technology and skewed public perceptions
AXA commercial lines chief executive Amanda Blanc has warned brokers looking to sell their business that the flotation route can be fraught with difficulties.
At the recent Insurance Times Broker Leaders Forum in York, Blanc said the market had not responded well to initial public offerings (IPOs) over the past year, and that didn’t bode well for firms looking to list.
A number of companies, including Blanc’s former employer Towergate, as well as Giles, Hyperion, Hastings, Esure and Royal Bank of Scotland Insurance, have chosen the IPO route as the preferred option for divestment by or near 2013.
Blanc said: “Most IPOs do not get off the ground and, if you look at businesses that have successfully done IPOs, it is where they have a really different proposition.
“If you are thinking about your sale strategies, then ask what is different about your business?”
Don’t get left behind
Blanc also urged brokers against ignoring the technology revolution. She pointed to LinkedIn making huge inroads into the recruitment market, unsettling the established players. She also said brokers must be right at the forefront of e-commerce.
The plan for AXA, she said, is to have branches in towns and cities across the UK to get close to the broker and find out their needs, while letting local managers make decisions.
Willis UK chief executive Brendan McManus also spoke at the forum. He believes the insurance industry has been badly damaged by the PPI scandal, as clients see all parts of the industry as “lumped together”.
McManus issued a battle cry to raise the profile of broking as a positive contributor to the economy. “It is a real challenge for us, and something that we have got to change. Our industry does not have a great brand reputation,” he said.
“Our reputation is not good. I would urge everybody today to make sure we get right behind our industry bodies. We need to raise the profile of what we do as a broker.”
McManus said he passionately believed in the future of the broker, although the role in insurance distribution seemed to be decreasing. He pointed to Datamonitor, which predicts that brokers’ market share of insurance distribution would decline by 2% by 2018.
However, McManus said brokers could combat this distribution erosion through a clear and thorough understanding of their clients’ needs.
“My sense is that those who get it right are the ones who have got a fantastic understanding of clients and their industry,” he said.
Brendan McManus, Willis:
Willis chief executive Brendan McManus’s presentation focused on the broker’s role as a professional adviser to its clients. He cited figures demonstrating how brokers worry about internal industry issues, such as regulation and compliance, and suggested that clients should always be their number one concern.
McManus also talked about how brokers could do more for their clients – for example, by helping them with claims.
When asked who would pay for this, McManus said that the industry was moving quickly towards a fee-, rather than commission, based model of remuneration.
He also had a clear message for brokers hoping to develop their businesses: specialise. “The days of the generalist insurance broker are gone,” he said emphatically, pointing to Willis’s success in areas of specialism as an example.
Grant Ellis, Broker Network:
At a time when many brokers are planning to float their business, the delegates at Insurance Times’s Broker Leaders Forum heard from someone who has seen it all before.
Broker Network’s founder and chairman Grant Ellis outlined how he had successfully floated the business on the AIM market, multiplying its value 10 times before selling to Towergate for £100m at the very top of the market in 2007.
Ellis conceded that he had done extremely well out of the listing, but warned that it was not for the faint-hearted. He told of the sea of bureaucracy he had had to navigate, and the huge distraction it was for the management team.
Nevertheless, Ellis had encouraging words for would-be imitators. “We’re coming out of the recession, and I think it’s a great time to get into the markets – providing you can show a potential for growth.”
Eric Galbraith, Biba:
With regulation at the front of everyone’s minds, Biba chief executive Eric Galbraith joined the forum to tell delegates what the association is doing on their behalf.
He outlined the lobbying effort over the Financial Services Compensation Scheme: Biba wants the structure of the FSCS to be reviewed immediately (also one of the aims of Insurance Times’s Fair Fees campaign). The association is also challenging the FSCS over a number of claims already on its books that brokers could end up paying for.
On a European level, Biba is working on the review of the Insurance Mediation Directive, and in the UK it is representing brokers to the new regulatory bodies that will replace the FSA.
Galbraith warned that the cost and burden of regulation is set to keep on growing. “It is going to be a real challenge for us in the future,” he said.
Amanda Blanc, AXA:
In her first public appearance since leaving Towergate for AXA at the end of last year, commercial lines chief executive Amanda Blanc gave a lively presentation that outlined her challenging views on the insurance industry.
She likened the industry to the Lloyd’s building. “It’s complicated, clever, and looks good from the inside,” she quipped.
But Blanc warned that brokers and insurers alike must think more about how they are seen from the outside, and what their customers actually want.
“If you’re not careful, there will be someone else who will come in and eat your breakfast,” she said.
Blanc outlined the social media phenomenon and urged delegates to think about how they could make the best use of it. She also highlighted companies that have responded effectively to change, such as Apple.
Chris Guillaume, Open GI:
Open GI managing director Chris Guillaume used a theory called the ‘hype cycle’ to outline his thoughts on the state of e-trading in the insurance industry.
The hype cycle theory suggests that when something new and exciting is first launched, people are over-excited and expect too much from it. This is called the “peak of inflated expectations”.
When these expectations are not met, people over-react, and enter the “trough of disillusionment”.
Over a period of time, they progress up the “slope of enlightenment” as they learn, realistically, about what the new product or process can do for them, before landing on the “plateau of productivity”.
Guillaume suggested that the insurance industry was just coming out of the trough of disillusionment when it comes to e-trading.
Stuart Reid, Bluefin and Alex Alway, Jelf:
Brokers can expect a rise in levies and a much more intrusive regulator, Bluefin chief executive Stuart Reid said during a joint interview with Jelf chief executive Alex Alway.
Reid warned brokers that they face “continuous hikes” and the FSA would be “much more intrusive”, watching carefully what products brokers are selling. Bluefin is combating the increasing burden of regulation by introducing an administration charge.
Alway said: “The whole world has changed. Regulation will affect all of us.” He said firms would have to battle a tough economic climate that could drag on for the rest of the decade.
The economic downturn has depressed sale prices of brokerages. Reid said that broker bosses still expected high sales prices for their companies, sometimes higher than buyers were willing to pay. But he added: “Good prices will be high for quality businesses.”