Capita has been quietly remoulding itself into a powerful force in the insurance market. Elliot Lane reports

Capita's acquisition of loss adjuster McLarens Toplis in 2001 became a defining moment in its corporate history. The fall-out from the purchase left the market confused about Capita's strategic focus and through a process of redundancy, it created groups of angry and disillusioned ex-staff metaphorically throwing stones at the organisation.

One ex-McLarens Toplis director said: "The biggest problem was Capita's poor communication at the time of the takeover.

"They did not listen to the staff and underestimated the strength and power of the client relationships the McLarens staff had at the time."

It is something Capital Commercial Services (CCS) executive director Dermot Joyce freely admits. He took over the control of Capita's insurance interests last year, with CCS incorporating Capita Insurance Services.

"I have over the past year been through my Ghandi phase, as I like to call it. I have been to see all our key clients and business partners and listened to their views," says Joyce.

"The majority of the time I have walked into offices to find, quite ironically, a lot of ex-Capita staff greeting me," he says with a wry smile.

Perceptions of quality and service needed to change particularly because the Capita Group brand has been dogged for years by rough media treatment based on these communication issues.

Claims portfolio
Times are a-changing at its Victoria-based headquarters. In the past fortnight Capita has made the news by renewing its DTI contract on miners' liability claims, and then acquiring Aon Claims Management and a portfolio of 20,000 claims which includes major retailers, such as Tesco, and local authorities.

Last week, Capita Group recorded healthy results, with pre-tax profits up 19% to £177m from £148m the previous year.

In the insurance division, the group highlighted two major acquisitions last year as helping its growth.

In July 2005, it completed the acquisition of BMI Health Services for £10m which was merged with its existing health services it acquired from Aon in 2004, making Capita the largest occupational health, absence management and rehab supplier in the private and public sector.

Then in September 2005, it surprised the UK broker market by acquiring BDML Connect.

The business was acquired for an initial cash consideration of £26m, with a deferred consideration of up to £9m, dependent on future business performance.

BDML founder Sandy Dunn, now CCS non-executive chairman of insurance services, says that his first few weeks at Capita "made me feel like a kid in a sweet shop".

"What struck me was the vast amount of services and technical skills that are within the group. From claims, through to retail, public and private sector work and the London market services. There is so much scope," Dunn enthuses.

He sees the modern insurance company as being split into three layers: GWP, claims ratio and expense ratio.

"Focusing on these three areas, in different ways from different parts of the Capita operation is the strategy.

Developing relationships
"Capita buying BDML immediately introduced the GWP element. We already supply £200m premium into the insurance market, but we hope to grow that figure by developing the relationship with existing clients and seeking new partnerships.

"We can tick one box, not just at BDML but for Capita also, by continually bringing premium to the market. What Capita can then do to add value for the insurance industry is help its claims ratio, its claims frequency and claims costs," says Dunn.

He cites Capita's investment in state-of-the-art technology to fight fraud and claims leakage, with emphasis on its acquisition of Brownsword and the Digilog system two years ago.

BDML Connect's reputation in the affinity market is its excellent service and delivery for blue chip clients. It specialises in the highly competitive personal lines sector where price is king.

"I find now that the non-brand specific insurance entities such as utilities, retailers and charities are becoming much more aware of the insurance product. They are spending more time bringing in insurance buyers. Before you would have an organisation with little or no knowledge of the insurance product going to a broker.

"What I see now is that they say, ‘hey I have a very valuable customer base, brand and distribution channel, how can I leverage that?'. So they are hiring in the talent and bringing the insurance buyers in-house."

He is adamant that insurers and brand-owners can enhance margin by streamlining and managing costs across the board. This would take the pressure of chasing price, he says.

Brokers can still add value in the SME environment and Dunn will be dipping his toe into this competitive commercial lines market very soon.

"In the coming months we will have something in place," he adds. He will also be putting togther "offline and online" products for insurers and exploiting Capita's grip of local governmenmt and housing associations, developing insurance propositions for these public bodies.

"We are also working with PC World and other technology clients to try and develop new products that keep pace with the changing online environment," he says.

Joyce's target this year is Lloyd's and the London market. "There are £400m liabilities in the run-off business in this sector.

"The reinsurance-to-close (RITC) market is waiting with bated breath for the Brandywine judgment. If it goes well for the insurers, then I expect Capita and others will be moving rapidly into this market.

"The past is the past. There are too many deals out there for us to dwell on past mistakes," he adds. IT

Capita at a glance:

  • Capita Group turnover: £1,436m (2005) from £1,282m (2004) up 12%
  • Won contracts worth £1.1bn in last three months, including Birmingham City Council (£350m over 10-year contract) and Zurich
  • A recent independent survey estimates that the total potential UK BPO market is valued at £94.8bn per annum, with the public sector representing 33% and the private sector 67%. The total UK BPO market is estimated to have been worth £4.4bn in revenues in 2005
  • Capita Commercial Services employs 5,400 people, in 26 UK offices. Expects to add four to five offices in the future
  • CCS turnover between £120m - £150m; oversees £12bn liability claims for major UK insurers.
  • Dermot Joyce on...

    London market brokers
    "London market brokers are facing a major problem with fees paid on claims in the 1970s and 1980s. The backlog in the market means some of the claims are still coming through and are based on the inception date. Brokers signed off the fees from their accounts nearly 20 years ago. Broker legacy is a big issue."

    Future of Teceris:
    "Many people think that Teceris is purely a loss adjuster servicing the insurance industry. But we use its 70-80 high end adjusters across the group, in particular at Capita Symonds, the property arm of the group. It is not beholden to the traditional loss adjuster market."