How the old guard grew its niche

Not many professional musicians make their way into insurance, at least not to run their own company based on their passion for, and knowledge of, musical instruments.

But that is what happened to Pavilion Insurance founder and now chief executive, Andrew Selby. How he came to create and grow this most niche of niche insurance companies is pretty unique.

The story dates back to 1991, when he was happily developing a musical instrument manufacturing business. It made quality guitars, but increasingly customers were complaining that they could not insure their instruments as an extension to their household policy, especially when using them for a performance.

So Selby set out to develop such an insurance policy. And when the business was sold in late 1996, he used this guitar insurance policy as a platform to launch a new business.

Subsequently, Pavilion was born in January 1997 along with its first product, Musicguard.

Niche vision
Ever since, Selby's vision has been to develop similar niche market opportunities. He followed up in late 1998 with cycle insurance under the Cycleguard brand, and in late 1999 into photographic equipment with Photoguard.

"One in eight bikes get stolen," says Selby. This is of course serious for the cyclist, but is hardly in the radar of the ABI's campaigning strata, in the same way it has been with motor insurance.

But Selby's niche vision has proved highly productive. The company has grown 70% year on year, in the last two years, so is obviously plugging into a real need, no matter how niche.

Pavilion's product range now includes Orchestral-guard4schools, aimed at children within independent schools who either own or hire instruments; Djguard, for the DJ and disco community; Gizmoguard, targeted at owners of iPods, Blackberries and other digital gadgets; Tackle-guard, for anglers; Indemnityguard, which covers the professional indemnity needs of photographers and Dental-X, for dental treatment.

Products are underwritten by AXA via UKU, part of Primary. Being neither insurer nor broker Selby describes Pavilion as a virtual insurer.

Selby is keen to push that behind all this novel product development is his central philosophical approach that insurance is about problem solving - that insurance used intelligently can solve problems. Other industries line up the dots and help them connect benefits. Something Selby obviously thinks the insurance industry lacks.

"There is sometimes a lacking of joined-up thinking within insurance," he says, adding: "Thinking laterally is what we are about."

But a business cannot grow on philosophy alone. It needs real and practical approaches and solutions. One successful development that has driven the Pavilion business forward has been on the technology front. The company now generates 82% of all its new business online.

Huge development
Selby attributes this success to the implementation of the company's ISIS (Integrated Specialist Insurance Software) system which has been instrumental in achieving over 50% growth for the company in the last year alone. "ISIS is a huge development, and is a result of six developers who work just on developing projects," says Selby.

But Selby's niche approach has also created how the products are portrayed, presented and promoted online. "We don't hassle people or hound them to death, we have customers who want to commit to us," he says. "We don't sell something customers don't want - that's treating customers fairly," he adds.

Selby is aware however, that punters need to be grabbed quickly within an online environment. "Some companies ask a whole range of questions to grab their details and keep their details, but we are niche and specialist and our aim is to offer customers exactly what they want and need."

Conversion rates
He says that this has been proven with Pavilion's online conversion rates (those visiting the site and actually buying online) have risen from 2% in 2005 to 10% last year.

As an added incentive to customers, Pavilion's products are subject to a "double the difference" price guarantee that gives customers the option to cancel their policy within 28 days should they find the same policy cheaper elsewhere.

Given the focus on online business, brokers are not part of Selby's business equation. "Brokers help us out if they have a client that would benefit from being put our way, but the commissions are too low for brokers for it to become a stream of business," he says.

But while the business is growing Selby's long-term future at the company is in doubt. And at 59 is he getting ready for retirement? "Not quite yet," he says.

Despite selling a 13.45% stake to Hiscox, Selby still holds 23% of the company and there are 400 shareholders in total. "The fact that a heavyweight company like Hiscox gets involved with us shows the strength of our proposition," he says.

And he adds that though he has not been in discussions with anyone about selling up, he does want to exit within the next few years. "By 62 I want to go," he says openly.

So he has set in train an operation structure that can survive after he goes. In December last year, Pavilion appointed joint managing directors Sarah Gow and David Lloyd, to take responsibility for commercial matters, and technology and operations respectively.

Selby says Lloyd has been crucial in overseeing the development and implementation of ISIS and Gow has been responsible for driving forward sales and product development.

"Together with a strong management team they provide a vibrant opportunity to develop the company further with vision, energy and capability," says Selby enthusiastically.

But one thing holding him back from any potential sale or exit is that he wants to build the company further before then. He states the company's current market capitalisation of £4m is "too low ".

While the online business is doing well, other aspects of Selby's ambition are not going ideally.

In April last year, Selby revealed to Insurance Times that he was looking to buy brokers' books of niche business which has proved to be a dead end. "In the past year I have had detailed conversations about the acquisition of the businesses of six companies, which I considered a good fit. They all foundered on valuations," he says.

The plan to expand into events insurance has also not occurred.

So Selby recently went back to face the music, by forming a new group, Kamikaze Fish, to raise money for Barnado's children and the Warwick-shire Wildlife Trust. "It will be their first and last performance," he says.

But the performance of Pavilion still has some way to play out. IT