When the AA and Saga joined forces under Acromas last year, a Goliath was born. Simon Douglas, the AA’s director of insurance, tells Ellen Bennett how the two companies work together while keeping their identities distinct.

The AA and Saga are a force to be reckoned with. Traditionally associated with safe drivers and silver-haired holidaymakers, respectively, the two brands – which merged last year – are a formidable and aggressive presence in the broking scene. Knocking super-broker Willis off the number three spot, as they did this year, was no mean feat.

Backed by private equity investors, the two companies were bought by holding group Acromas Holdings last September. Acromas released its first annual report at the end of January showing impressive profits, with a gross turnover of £588.2m and an operating profit of £141m. But other than that little has been said and how these two massive, and very different, companies operate together remains something of a mystery.

“I know, it’s dreadful, isn’t it?” says the AA’s director of insurance Simon Douglas, with a wry grin. “There’s so much to say.” Douglas joined the AA from Munich Re last year, after a tap on the shoulder from Acromas chief executive Andrew Goodsell. Despite the rather obscure title of product and actuarial director, he is in fact responsible for all of the AA’s insurance products as well as its relationships with its panel of 25 underwriters. He told Insurance Times how the AA and Saga work together, how they work independently, and their plans for the future.

Douglas is tanned, relaxed and smiling after a holiday in Florida. Clearly enthused by his role, he appears ready to take the AA to the next level.

Asked to explain the rather confusing structure of Acromas Holdings, the AA and Saga, he responds with admirable frankness. “The businesses are being run separately but with strong synergies and learning being applied,” he says. So far, so management-speak.?However, he adds: “Acromas Group was formed to be the holding company and the two biggest companies in that are Saga and the AA. There’s a group with its own board. ‘

"Andrew Goodsell is chief executive, then the AA has its own board, which Andrew Goodsell chairs. Andrew Strong is the chief executive.”

It sounds a little complicated but the trick is to think of the AA and Saga as two separate businesses linked only by their parent. This is certainly how Douglas sees it. Quick to laugh, he is keen to point out, in his lively Scottish tones, that while the AA has learned from Saga, it has retained its operational independence. The company recently installed new computer systems that were modelled on Saga’s but has so far been careful about cross-selling opportunities.

“We don’t as a rule cross-sell with Saga,”?says Douglas,?“though we have introduced the other company to our customers – for example in the private medical insurance arena, we had an exercise where the AA introduced Saga to its members and offered them a Saga product. We saw it as a way of testing whether that was an area we could move into ourselves.”

While the AA is cautious about cross-selling to its sister company’s clients, it is bullish about cross-selling to its own. Indeed, this is the major plank of its growth plans. The business has just been restructured to operate as a single entity – across insurance products and roadside assistance – rather than as two divisions. This, says Douglas, puts it in a fantastic position where it can mine its 15 million-strong database of roadside customers, and cross-sell in lines that are outside the motor sector.

Douglas admits that while the AA has 15 million roadside customers, it has only 1 million motor insurance customers. Anyone can see that this amounts to missing a trick. “We simply should have a much higher proportion of our [roadside] members with cover,” he says. And there are plans afoot to do just that. Douglas coyly cites a “number of initiatives”, including a shift from television advertising to direct mail, and he is emphatic about the knowledge the AA has of its drivers, information that could be passed on to make underwriters better informed.

“We don’t, as a rule, cross-sell with Saga though we have introduced it to our customers, for example in the PMI arena

Simon Douglas, the AA

“The other aim is to capitalise on the number of customers we have as a group and the number of touchpoints we have with them,” he says. “We can talk to them about other products such as home insurance. Really, it’s all about sales through service. If you had just saved someone a packet on their motor insurance, why wouldn’t they want to find out if you could do the same on their home insurance?”

As its growth plans show, the AA is in a healthy state. Would it consider cost-cutting in response to the current downturn?

“This is a business about growth and with that, I would hope, comes a growth rather than a reduction in numbers,” says Douglas.

An important part of his job is to build relationships with the 25 insurers on the AA’s panel, companies Douglas is keen to get round to visiting soon. He will be helped in this by the fact that the AA and Saga have no plans to leverage their joint scale in a bid to squeeze better deals out of insurers. Indeed, given the AA’s panel structure, this would not be possible.

“It’s a very different nature [of relationship] when you have a panel,” says Douglas. “It’s the mechanism of the panel that requires companies to compete, so if one panel member puts its rates up then it loses business to other panel members. You don’t really need to micro-manage the panel to get good value. The AA operates very much like a direct insurer.” Essentially, the AA develops and owns the products that it offers to its customers and its panel insurers compete to offer the best price.

Despite its size and massive brand power, the AA faces the same tough market as any other motor player. The company has stated that motor rates need to rise by 20% if underwriters are to move back into profitability – but how would such a trusted brand explain to its loyal customers that such large price hikes were necessary? Douglas looks slightly awkward for the first and only time in the interview. “Good question,” his PR mutters.

“I’d like to think there was a way you could communicate it to people – we have to just make sure our products are good quality and we offer our customers good value,” says Douglas. “Every insurer that changes its rate will take a slightly different approach, that’s the advantage of the panel approach we have.” He adds that while the market needs to move, it is showing little sign of doing so.

With his busy day job and ambitious plans for growing the AA’s insurance presence across more lines of business, Douglas’s Florida break must seem like a long time ago. He recalls taking his son on a huge roller-coaster, plunging three times down a 200ft vertical drop.

“A bit like a day at work,” he jokes.

Vital statistics

• AA and Saga were bought in September
• Profit after tax for Saga in the year ended 31 January was £91.5m pre-acquisition and £34.9m post-acquisition.
• Profit after tax for the AA in the year ended 31 January was £605.8m pre-acquisition and £305.6m post-acquisition.
• Acromas group turnover was £569.7m including the AA’s and Saga’s underwriting and broking commissions.
• Group turnover relating to underwriting activities was £569.7m.
• Gross profit relating to underwriting activities was £280.3m.
• Number of policies from the group’s financial services businesses: 4.8 million.
• In the 2007 Mori Corporate Image Survey, Saga came joint first for favourability with a score of 86%.
• The AA came third in the same survey for value for money.
• Saga and the AA were acquired for a total cost of £6.3bn, funded from £4.8bn of private borrowing.
• Acromas delivered EBITDA of £484.5m.