Fitting in

The race is on for loss adjuster Miller Fisher. On the inside, the board is desperate to turn itself from a public to a private company, and is courting institutional investors. The reason is that its share price plummeted from 89p to just 18p at one point last year after it had issued two profit warnings to the stock market, the last in February 2000. But the question is whether a rival loss adjuster firm will now snap Miller Fisher up, given the importance of critical mass for survival. One firm has already privately stated its interest.

There are several explanations for Miller Fisher's free fall - it was undergoing a merger at a time when it needed to win new contracts, and it was trapped in that middle ground of being `fifth biggest'. In addition it was bizarrely caught up in the internet bubble with the launch of its ecommerce solution Catlink. There was the usual cry that the city overreacted to the venture, leading to overvalued shares. Whatever the reason, there is at least, one problem it shares with other loss adjusters - being under the thumb of the hard-boiled general insurance sector. "Loss adjusters have no one to blame but themselves for the current malaise. They have prostituted themselves for a place on these insurer panels," says Malcolm Harvey, of the Loss Recovery Group.

In the last five years, the industry has undergone huge consolidation. Many of the long-established firms have been swallowed up and their names lost, and a big five, consisting of Cunningham Lindsey, McLarens Toplis, GAB Robins, Crawford and Company, and Miller Fisher, has emerged. These firms are global in scale, but comparatively small in terms of their turnover in the UK - the biggest being McLarens Toplis with approx £73m turnover last year.

Lean and mean
The consolidation has not only changed the structure of the market, but has also stripped it of its fat. Ten years ago, chartered loss adjusters carried the same cachet as lawyers and accountants and were seen as highly skilled professionals who delivered impartial, expert advice. The eighties were a golden time of high rolling ease, and the firms were warmly talked of in terms the Great Gatsby would admire. But, in the 21st century, that is a foreign country. Firms have a lean and mean culture now, and have broadened out from pure loss adjusting to general claims managing or outsourcing. Big firms still carry the title of `Chartered Loss Adjuster,' and employees are as much members of the Chartered Institute of Loss Adjusters as they ever were. But they now carry out the large bulk of mundane claims as well, usually administered from call centres and handled by technicians. "Loss adjusting now contributes only 50% of the group's turnover. We are trying to build an insurance outsourcing group providing almost every insurance service except underwriting," Miller Fisher finance director Bob Horton explained after complaining that the city had overreacted to the profits warning last February.

There has been little choice for the big players. As in other service sectors, they have needed to match the growth of their suppliers. Ten years ago, the top ten general insurers accounted for 50% of the market. Today, the number is four - CGNU, Royal & Sunalliance, Zurich and Axa. But after expanding to gain the necessary size, the big loss adjusters have been left desperate to win places on these insurer's panels. Some of these contracts were only awarded last year and have yet to appear on the balance sheets. But the industry is awash with gossip that they will turn into loss leaders.

One of the most talked about was Axa's tender, where the decision was delayed for four months and awarded to just two firms in the end - GAB Robins and Cunningham Lindsey. Axa refuses to discuss the tender process it undertook, but a spokesperson did say it was radically different and vastly more professional than anything the industry had seen before. There are rumours that Axa brought in negotiators from the even more hard-boiled retail sector to settle the contract details. It also scrutinised the workings of the firms' practices for a month by dropping observers into the offices. As Harvey says it becomes less a "beauty parade, more of a gynaecological job."

Clive Nicholls, chief executive of GAB Robins, dismisses many of the horror stories, but admits that the contract was `not exciting but realistic.'

He adds: "The process is much tougher. There was an awful lot of work internally and the tender process took a long time.

"But we do not take bad contracts, and we are not in the business of losing money. When I start making 4% return, my shareholders will be looking for a new chief executive. Loss leaders lead to losses."

GAB Robins is banking on developing a long-term relationship with Axa. Insurers are obsessed with stopping slippage, over paying a claim, and are keen to help loss adjusters develop their skills. Today's contracts are based as much on key performance indicators and intellectual property as they are on price. "The last thing they want is for you to go out of business because of the contract they negotiated with you for the long term," says Nicholls.

Under the microscope
Few in the industry would dispute the wisdom of winning the big insurer panel contracts, and the long term stability they produce. But some of the medium sized loss adjusters feel that insurers wear not only the trousers but also the jacket, tie, skirt and kilt in these marriages.

"Everything is under the microscope - insurers are becoming increasingly sophisticated," says Paul Greenaway, director at the Ashworth Mairs Group. "The trouble is that a lot of insurers are producing monthly profit and loss reports for shareholders, and need to keep the claims reserves down to the bare minimum."

Ashworth Mairs, a private company, boasts an average 20% growth a year over the last four years through targeting the small to medium sized deals rather than the large corporate business. And a number of start up, two or three man companies are springing up as part of the merger fall out.

In the short-term the big five may also have a problem with their capacity. The big panel deals are demanding both in terms of the small print and in the amount of work they need. GAB Robins is set to increase its staff by 10% this year.

It remains to be seen whether or not the merger and acquisition fury has abated for a while in the loss adjusting sector. 2000 was a bad year. Despite the autumn floods, the amount of claims in the UK was low, and profits were generally poor.

Miller Fisher must feel unduly punished for its vulnerable position, because the other big firms in the UK are either listed elsewhere as part of a global operation, or are privately owned. Today, the shares have rallied to 25p but are still about half what they should be according to Bev Fitzgerald, chief executive of Miller Pycraft, Miller Fisher's loss adjusting arm. Two years ago Gerry Loughney, the UK chief executive of Cunningham Lindsey, predicted that the loss adjusting market would be dominated by just two big firms in the future. He may well be right.

A proud history
Loss adjusting can be traced back to the Great Fire of London in 1666. Soon afterwards, Londoners started to purchase fire insurance on buildings, which inevitably led to the need for independent surveyors and builders for their expertise in settling claims.

By the late eighteenth century, the major fire offices were appointing "Assessors" to act for them exclusively.

The word "Adjuster" appears to have been first used in 1941 with the founding of the Association of Fire Loss Adjusters. It was a grouping of prominent claims experts who needed a central body to help them cope with the enormity of fire damage from the Blitz.

In 1961 the Association was granted a royal charter and the association's name was changed to the Chartered Institute of Loss Adjusters. And In 1979, the Institute received a Grant of Arms encompassing the motto "Truth and Equity" - key principles that remain today at the heart of the profession's ethos.

Today, there are about 2,500 chartered and associate members. Not all members, however, are necessarily employed by loss adjusting companies; some work within an insurance company's claim service, work for an insurance broker or are engaged in the risk management department of a major private or public company.

It is an elite club both in terms of numbers and qualifications. Becoming a chartered loss adjuster can take up to seven years of study and may encompass many fields of expertise, from evaluating machine damage to pyrotechnics.

Chartered loss adjusters must operate under a Royal Charter to a code of conduct. Loss adjusters' fees are paid by the insurance company, who rely on them to check claims for quantity, description and pricing.

Following changes agreed by the members and the Privy Council in 1996, the Institute's Charter will now permit portability of the CILA Associateship and Fellowship qualifications. It allowed members of the Institute to work for - amongst others - brokers, insurance and reinsurance companies, corporations and major policyholders. The charter changes also permit the establishment of multi disciplinary firms that will still carry the title "Chartered Loss Adjusters".