How have brokers reacted to being jilted by NIG and given just a month to find new personal lines providers?

There is no doubt about it: break-up conversations are tough. But opting for a dear John letter to escape an uncomfortable conversation can make matters even worse. At least that is what many brokers felt when they opened their inbox on 11 August.

There, they found a short PDF letter from NIG’s head of personal lines, Ben Thornton, informing them that the insurer would no longer be operating in the personal lines market. What’s more, they had little more than a month to find a new provider. Shockwaves reverberated across the market as brokers realised the beloved broker only insurer had jilted them for the rosier world of commercial lines.

“This is a company that has been going for over 130 years and its integrity is in tatters. Morally, it is a complete disaster. It has no regard for its clients or its customers,” fumes Topaz Insurance Services director Richard Mikula, voicing the reaction of many when they received news of the exit.


Like many break-up letters, the insurer’s decision left more questions than answers. The big one is whether insurer can retain its reputation in the commercial market.

Second, there are questions over why RBS put its personal lines book into run-off instead of trying to sell it. This has sparked increasing speculation that despite the bank-owned insurer’s repeated denials, it is preparing to sell a cleaned-up commercial-only NIG to the highest bidder before the entire RBSI family sells or floats by 2013. Last week, RBS began the process of appointing advisers for a sale or flotation, prompting experts to suggest this is likely to happen sooner rather than later.

But one thing is certain: many brokers feel let down that the insurer failed to communicate the news in a more sensitive fashion. “For a major insurer to pull out of the market without even speaking to any of the brokers – there is a real sense of betrayal,” Mikula says.

One large motor broker, who did not wish to be named, is also up in arms over the short notice period, arguing that brokers should have been warned at least three months in advance. “It is not just a case of getting your products and your pricing agreed by another insurer, it’s a case of implementing the IT infrastructure with your new partner insurers. That is near impossible to do in a month,” he says.

He added he would not be dealing with the insurer in the future. “I wouldn’t place any commercial business with it because quite clearly if RBS want to put a book into run-off , it will do it without regard for its one-time partners; people it embraced, people it entertained, people it wined and dined.”

The brokers’ sweetheart

So why, in the fickle world of insurance, do feelings run so deep? Long regarded as a champion of the middle man, NIG once commanded unrivalled broker loyalty in the marketplace. “It always had such a strong reputation. It was broker-only and you really got the feeling when you dealt with NIG, it was really behind the broker,” Ashbourne managing director Peter Smits says.

Atraxia chief executive Stuart Randall agrees its accessibility was a major attraction when compared to the corporatised culture of rival insurers. “It was a relatively small company with a short command chain and you could get close to the people who mattered,” he says.

These sentiments are echoed by Mikula. “It was a brokers’ market, it had a very proactive management team, it was passionate about what it was doing; it was passionate about the clients and brokers’ needs and they were all hands-on people, which is what they are not today.”

He adds he has received no verbal communication from the insurer since he received the letter.

Not working out

NIG managing director Jon Greenwood stands by the insurer’s approach, however. He says the insurer wished to inform brokers of the decision as quickly as possible following the end of the consultation with the 280 staff affected by the run-off.

“On the same day we concluded that consultation, we gave the fastest possible indication to the brokers of our decision and within 48 hours had given them specific details about how it affected them,” he said. “In addition, we had all of our field sales forces talking to their individual contacts on a personal basis to the extent that is practically possible to do with 2,000 brokers – that is an awfully big community to get around.”

So what went wrong with NIG? The financial crisis, the marked rise in bodily injury claims over the past two years and the aggregator model have hit the RBSI family hard. RBS Insurance, comprising Churchill, Directline and NIG, saw its operating profit collapse by 90% to £58m for 2009, compared with £584m in 2008. Net claims in 2009 were 20% higher than in 2008, driven by a £448m increase in bodily injury claims as well as by adverse weather experienced in the fourth quarter.

Meanwhile, exclusive data from actuarial consultants EMB reveals that NIG’s personal lines motor book posted a loss ratio of 92.9% for claims made in 2009, compared to a loss ratio of just 25.7% for previous years.

So last month, the insurer went down the now well-trodden path of motor books that have been put into run-off or sold off in the last two years, including HSBC Insurance, Zenith Insurance and QBE.

Greenwood explains: “The fact is, if we were to look at the performance of that motor book, we had a combined operating ratio of 162%. Clearly, that generated very substantial losses and, although last year was a particularly bad year, the performance of the motor book had been unsatisfactory for a number of years. From a core of 162%, it was just felt that it was unsustainable to carry on.”

Committed to commercial?

So what’s next? The market is divided over whether NIG can sustain itself as a viable force in the commercial market. The commercial business remains profitable and Greenwood believes the insurer is now well placed to build on its 4% share of the commercial market.

“The purpose of the run-off was for us to create the right business model to grow this business and therefore the commercial arm of one of the UK’s largest general insurers. We have got a business that has fantastic potential and one in which RBS is investing heavily.”

Deloitte partner Ian Clarke believes the insurer has reason to feel confident. “NIG is a company that the broker market likes and all that it has really done is withdraw from personal lines, where it is losing a fortune. It is still a commercial insurer; that is what it is known for, so it will have limited effect on its business,” he says.

Not all are convinced the insurer can retain its broker stronghold, however. Prior to the run off of the personal lines business, RBS premium finance provider Finsure was run off in April. Hence, there is some speculation that commercial could be next.

“Unless it can give a cast-iron guarantee a written guarantee – in a form of an open letter in Insurance Times that it will not be shutting down its commercial departments within five years – then brokers are not going to support it,” Mikula says.

Bruised feelings

Macbeth Scott & Co director Duncan Macbeth also expressed concern about NIG’s commitment to commercial lines, pointing to the loss of its Newcastle office, along with seven other regional offices over the past year.

Randall adds: “It just leaves brokers pondering about the future. The difficulty faced by all brokers is that they want to deal with stable companies and when it comes to commercial clients, they want a reasonable knowledge that the company is going to be around in the future.”

He also points out that in addition to the bruised feelings caused by the nature of the personal lines run-off, NIG has suffered from the loss of key personnel to rivals such as Arista and LV=, many of whom have taken the brokers’ goodwill with them.

In addition, many feel that NIG is at odds with the rest of personal lines-dominated RBSI family, adding fuel to rumours of a potential sale. LV= chief executive John O’Roarke says: “I think it is going to find it very difficult to grow that business because it is not a major broker-facing insurer; it is going to remain a niche for it. Another challenge is that it is completely inconsistent with the rest of the strategy, which is all about direct interaction with its clients. It is going to be in a position where 90% of its business is direct.”

Back on the market?

Consequently, despite repeated denials from the RBS camp, the rumour that a ‘for sale’ sign will be hoisted over NIG just won’t go away.

While Greenwood declines to be drawn on why a run-off was chosen over a sale, citing reasons of “commercial sensitivity”, Arista chief executive Charles Earle believes that culling the personal lines business is part of a strategy to get a better deal for a commercial-only business.

“Once the run-off is completed, I would not be surprised if NIG commercial was sold quite rapidly,” he says. If he is proven right, LV= and Fortis are likely bidders, while Earle has confirmed Arista would be also be interested.

Amid the speculation about the next twist in the NIG saga, Greenwood is eager to quash the rumours of a sale. “Yes, RBSI is dominated by personal lines but that is because of the success of the business has had in growing its personal lines book. What we’d now like to do with the commercial business is starting to emulate that success,” he says.

“That this is a precursor to selling the commercial business could not be further from the truth. We are quite categorical that we are not looking to sell the NIG business. Any buyer that has approached us would receive the same answer – which is that the business is not for sale.”

It seems that when it comes to the future of NIG all bets are off. But there is one certainty: it is the end of an era. While the insurer may prove the doubters wrong and hold firm in the commercial market through canny pricing strategies, it is unlikely to win back the same affection it once held with brokers.