Reaching out

"The outrage" screamed the headline of the nation's favourite red-top a month ago. The Sun lambasted Lloyds TSB Insurance for turning down Maureen Harvey's claim for a £315,000 medical bill after disputing her medical history.

While the travel policy was broked by Lloyds TSB, it was underwritten and the claim repudiated by Europ Assistance. For someone running a company that was unjustly slammed on the front page of Britain's biggest selling daily paper, Jon Pain is remarkably phlegmatic.

He diplomatically calls the situation a "challenge" and admits that the case put Lloyds TSB Insurance's brand on the line.

The issue is a hiccup, says Pain. The managing director says that last year was a very good year for the company, a record year in fact. Pain's been at the helm of the insurance arm of the Lloyds TSB group for three years now and his focus is startling.

"We're pushing our distribution list even further," he says, citing the AA and Hill House Hammond as examples of Lloyds TSB Insurance's burgeoning reach. "I am also a long term believer in the internet and deals with people like AOL and search engine Google," he says.

Hybrid concerns
Pain says that last year, the business put more effort into its motor book, to bring it up to speed with its household account.

Pain says his vision for the company this year is to reposition the business as a stand-alone general insurance player. "This is as opposed to being a captive insurance provider to the Lloyds TSB group," he says.

Despite applauding the company's success, competitors have voiced concern over Lloyds TSB Insurance's hybrid model of broking and underwriting, questioning whether the two elements work together or exclusively. Lloyds TSB Insurance came 15th in the Insurance Times Top 50 Insurers 2002 and and 2nd in the Insurance Times Top 50 Brokers 2002.

Pain quickly dismisses any ambiguity and says the structure means the company has the choice to broke those products it has less capability to underwrite. "And where the natural distribution advantage plays a big role, we can underwrite where we think we can have a strong competitive advantage," he says.

"We do have a fairly clear philosophy about our pricing position and that is that we're not pricing for market share, but for long term sustainable profits. That keeps the discipline quite tight within the business.

"We ask the questions: Have we an existing capability? Any particular strengths for service propositions? We then go through a process of doing a tender, internal or external and make sure both match up, score the opportunity and see where the service is better. There is no specific split between the two elements."

With very little coaxing, Pain begins to talk more widely about the industry itself and Lloyds TSB Insurance's role in this "dynamic" industry. He becomes increasingly animated and visibly mulls over the knowledge he has accrued in three years he has been managing director. "We need more realistic pricing," he says. "A lot of insurers have taken a battering with some poor investment returns and that should be a clear voice of warning," he says.

"If you get drawn into writing volume, it will come back to haunt you at some stage. It's a question of whether insurers have the steel to hold their nerve for the duration of this year and not revert back to chasing volume."

He says that selling personal lines products as a commodity is not Lloyds TSB's approach. "Customers are still driven by price at this stage, but more and more issues are coming to the fore," he says, sitting back comfortably in his dark leather chair and surveying his spartan office.

"Brand is coming into question, as is customer service. We've made a big investment in a three-year programme about investing in our technology and our people to get to the stage where our people use the technology to do all the behind the scenes work and can spend more time dealing with the customer."

Pain says the company is trying to put more efficient processes in place, like offering same day claim settlements for customers who bank with Lloyds TSB.

Future of regulation
He seems to relax even more comfortably into his seat when I bring up the issue of regulation.

As the chair of the ABI's household committee and the general management committee, he has much to say about the repercussions of regulation.

"I'm actually a fairly good supporter of the ABI. It's not just lobbied for the industry, but has put a very balanced perspective over to the FSA," he says.

"It was pretty instrumental in getting some very key pieces over to the FSA which was at that stage still learning about the marketplace, but there is definitely a huge degree of uncertainly about regulation. It is going to be an issue for quite a few years."

Pain thinks that there are some important caveats in the FSA's consultation paper CP160 and sees it as a reasonable first step, but he is concerned the FSA could get a lot tougher. "Does the FSA see this as an interim step for an industry that hasn't been regulated before?" he asks. "And bear in mind they are trying to regulate a number of different players and some have no idea of what this would do for their businesses," he continues.

"We have to realise at the end of the day, it's for the benefit of the consumer and the industry at large. If you overburden the industry, you bring in more costs and these have to be in proportion to the benefit they have for the consumer."

Pain identifies some "good broad principles" in CP160 about knowing the customer and the customer's needs, but he is "nervous" about the impact on the direct business. "The challenge will be whether the regulations will apply equally to the direct channels. It depends how the FSA has opened up on price and choice, so if those things can't be easily worked into the direct model, then potentially you could end up with the attraction and the ease of the consumer using the direct channel gone."

Floods and the ABI
Pain pauses as his mind visibly runs through the clauses of the consultation paper. He mentions the potential exemption of travel insurance and some warranties from the new rules and says the regulation should be even-handed. "My view should be that you don't create exceptions before you've started," he says.

As such a heavyweight home insurer, Pain's other big industry issue is flooding. Once again he applauds the ABI's dealings with the government over the statement of principles and the "pragmatic dialogue" between the two entities.

But he is concerned it is taking too long to get the principles into practice. "The flood maps are an integral part of the principles and I'm concerned that it's taking a long time to get them out to the industry," he says and confirms that Lloyds TSB Insurance is adhering to the principles and continuing to insure existing customers.

Throughout our conversation, I realise it's difficult to steer Pain off-message. With someone who admires Olympic gold medallist rower Steve Redgrave for his tenacity, perhaps it makes sense. But the Churchill dog comes to the rescue when I spy it sitting on a dark cabinet in the corner of his office. "Martin [Long] gave it to me, so the least I could do was put it on the shelf," he says. Churchill underwrites Lloyds TSB Insurance's motor insurance. But, like a taut spring, he's back on message. "We have a good relationship with our partners, but service proposition and regulation both put pressure on the relationship because you'll be needing them to move up to speed with where you want to be."

Pain goes on to suggest that long term trends are moving towards the direct business "as the issue of the internet will not go away", he says. But he does not believe the role of brokers will be made redundant. "Brokers will have to shift in terms of what their propositions are and will have to think about more added value services and how they can best serve the mass market. In core personal lines it will become more difficult for them unless they are adding something else to the process," he says.

Pain says affinity deals are a big growth area, because they help substantially increase distribution reach. "The challenge will be that a lot of affinity players will not want to go to a multitude of different suppliers, because that just makes the whole service potentially more complex. Players like ourselves have an advantage there. We're constantly in the marketplace," he says.

Firm grip
As a man who has been in the Lloyds TSB group for 28 years, he should know. Despite much of his background being in retail banking and running the private banking business, he has a firm grip of where Lloyds TSB Insurance should be in the insurance marketplace.

As our conversation winds down, I get Pain to talk about his family and some of his interests. His elder daughter is in GCSE mode he tells me, "which raises the angst of parenthood". His has another son and daughter and says he devotes the weekends to his family. "I spend too much time away so most of my weekends are taken up by doing taxi runs for the children," he says. Despite reading trade magazines and general management publications, Pain likes sport and devours sporting autobiographies. He particularly enjoys golf.

But his hankering to be Sevvy Ballesteros ends there. He's more than happy to remain a Lloyds TSB man and continue to reshape the insurance business for the foreseeable future. "I may not be in insurance long term in a group context, but I'm very happy here," he says.