Hill House Hammond is going but so is AXA Direct. The message, according to Swinton chief executive Patrick Smith, is not that the high street broker is dead, but that two businesses that couldn't cut it have died, a truism rather than a trend.
On publication of his 2003 results, Patrick Smith talks exclusively to Jonathan Russell on why it isn't high noon for the high street broker.
What is the headline figure for this year's results?The results are nearly triple year on year - £15.1m gross operating profits. Last year we had to restate profits because of changes in accounting standards but we still declared £6.6m.
What do you put the success down to?It is a major increase. Last year's results were depressed because of costs associated with Colonnade. This year we have grown organically and the full benefits from the Colonnade purchase have come through. We are growing, our productivity continues to improve and through acquisitions, particularly Colonnade, we have increased the size of the business.
What areas of business have been most successful? Motor is always the biggest part of our business but we grew our home account quite a lot last year. We had a major campaign to offer more home insurance to our policyholders. We stepped up our new business levels from 2,500 to 5,000 per month.
Can you still grow motor and home business through high street outlets?If you have a shop with four people in it who have been with you, in our case, between five and six years on average, your customers know who they are. It brings a sense of comfort, a sense of affinity. We know for a fact that people who live nearer the shops have a greater propensity to buy than those who live further away. The shops act as a magnet.
Are the costs not prohibitive?A lot of what we have been doing over the last two or three years is addressing, or mitigating, the on-cost due to inefficiency of the small unit. Most recently we are piloting a scheme that links shops together so that a neighbouring shop can handle the overflow business from another shop. We are not creating a call centre. What we are saying is this shop manages those clients around it, but, the next-door shop or another shop can handle excess calls, access the shop's database and do renewals.
Is this not a call-centre in disguise?No. To my mind there is a fundamental difference between ownership of clients and anyone talking to anybody. I think anyone talking to anybody, which is the call centre concept, is the end of meaningful customer service. So while we could squeeze a bit more efficiency out of the business by turning it into a call centre, we would lose a whole stack of benefits that make the business what it is. Nobody, but nobody, likes call centres, yet here is this industry saying it's the future, and then they say we can squeeze another tuppence ha'penny if the calls go to India. I just can't believe that people think that these savings are really going to make them into a bigger, better, more loved company.
But does being better loved get reflected on the bottom line?Our retention rates are around 80%. Motor is slightly lower, perhaps two points, and home is slightly above. I heard recently of a significant telephone-based broker that felt it was doing well at 70%. Conservatively I would say our model gives us 5% improved retention and when you work 5% through a projection and look at the value of it, that alone pays for any on-cost from the shops.
But the high street broker is still more expensive than the direct operators.It is true that many of the big direct players, Tesco, esure and the like, are 5% to 7% cheaper than us on average. But what this means is that over 100 risks they might be cheaper in 60 and we will be cheaper on 40. But we are still cheaper in 40, and where the difference is minimal our presence gives us an edge.
So why is the market still moving towards the direct writers?I think the share of business going to brokers is shrinking. That is because most brokers are small players. They don't have the capital and they don't have the brand. These factors mean they have little chance of thriving in a highly competitive world. I'm not saying all will lose out, as some are good and they have a niche. But an awful lot of them have nothing going for them.
Are insurers to blame for what has happened to the high street market?No, brokers are being treated well by insurers. It is just the market. The direct operators are just competitors, some of them are good ones. Brokers will obviously resent the direct players, and to some extent brokers might resent us because we have the brand and the muscle and so on, but I see no point in resenting anyone at all.
If you were a Norwich Union shareholder would you be happy about the decision to close Hill House Hammond? If I was a Norwich Union shareholder I would be asking questions as to whether that was the most attractive option. Obviously it would be wrong to make a decision without all the facts but I would certainly be asking questions as to whether or not HHH had a future when the decision taken implied it didn't. I would also ask why NU management do not seem to believe that HHH or high street broking has a future.
So is there a future for the high street?I honestly believe that a lot of models could work. Those who do whatever they do well will survive and those who don't won't survive. It is a simple rule of commercial life. And we must remember that within a month of HHH announcing its closure, AXA Direct was put on the market. This is not a marker saying this is the end of broking. It is a marker saying this is the end of businesses that don't make it.