Tom Broughton looks at private equity funding
Despite the negative press that private equity investment receives at the hands of government and unions, the experience so far for insurance has been largely positive. These faceless investors usually like to save a buck or two from the outset, but we have so far seen little or no major restructuring, redundancies or heartache. In fact it has been much the opposite with the main brokers being handed pots of cash and told to get on with it and grow as quickly as they can.
Chris Giles this week finds himself at the forefront of this approach after being handed a £500m war chest from Charterhouse. This strategy will bring its own very different kind of pressure as there will remain a continual demand to deliver returns and deliver them quickly. And it won’t be easy either, the number of independent brokers left in play to snap up is diminishing by the day. There is now a last dash for the line against other consolidators, like Jelf, flush with its own private equity cash and looking to ride the same consolidation wave.
So what alternative strategy does this leave Giles? It can be argued that any cost cutting within brokers is counter-productive, as this essentially amounts to a reduction in head count which is unviable for brokers built on revenue models and leverage. So the only option is to buy big – possibly a rival consolidator or a major network. This tactic will face competition from the insurer fraternity, many of which are feeling increasingly vulnerable after being hit by the triple whammy of low rates, high commissions and the growth of managing general agent models. AXA has moved to acquire again this week, but Aviva, for example, no longer has a stake in Giles and surely cannot carry on along this defensive path forever, can it?
‘ Meanwhile, loss adjusting firms are using private capital to provide confidence to growth strategies based on differentiation (see pages 14-19). For the past few years these firms have been trying to convince the market that they are ‘claims management solution providers’ and so much more than just a traditional loss adjuster. Whether you believe it or not, you only have to see the new impetus and investment within these companies to realise that the results are now becoming very tangible. IT