Folgate has far exceeded its original growth target and in two years plans to crash through the £1bn premium income barrier. But as acquisitions look set to dry up chief executive Peter Cullum reveals a new strategy to Andy Cook

Towergate Underwriting Group chief executive Peter Cullum shocked the insurance industry when in October 2001 he bought Folgate Insurance. The industry was further shocked when Cullum rebranded Folgate as a broker and declared that it would control premium of £300m in three years.

Many in the market said it could not be done. Cullum had worked hard to develop Towergate, his schemes business, achieving a premium income of £200m in five years. But with last week's acquisition of Hill House Hammond Business, Cullum is closing in on £500m of premium income and it is only 27 months since Folgate started.

Cullum talks of a float in about three years time - at the outer limit of when venture capital providers usually want to exit their investments. And by that time he sees a premium income of up to £1.1bn. So just how is he and his playmate, chief executive Andy Homer, going to double size again in the next couple of years?

The purchase of a network of independent financial advisers has been touted.

However, says Cullum: "The opportunity costs at the moment are too high."

Another suggested route is buying a large London market broker. This again doesn't look likely. Homer this time picks up the question. "We've had a look at a couple of medium sized Lloyd's brokers. They're all very nice chaps with big, fat salaries, but they're not very efficient," he says playfully. "We don't want to take that on. We have our own Lloyd's broker and we will build around that."

Homer reckons there is enough potential in the UK retail broking market to keep up the pace of growth. "UK retail consolidation opportunities are still fantastic," says Homer. It is this market that has seen Folgate acquire more than 30 regional brokers in the past two years. However, warns Homer, the pace of acquisition will almost halt from June. He explains that because applications for FSA authorisation need to be in by mid-July so that the FSA can process them by 14 January 2005 - regulation day - then it is a risk buying brokers in the period before they know whether they will be trading legally in 2005.

Collecting portfolios
But the opportunity in this phase of regulation, according to Cullum, is picking up portfolios rather than businesses. Cullum reckons there will be some brokers who fail to become authorised or will just find it all too much near the deadline. As the broker admits defeat there will be so-called orphan clients looking for someone to insure them. "That is the opportunity to strike and pick up portfolios from these brokers or from insurers who currently hold the risk," he says. "We have already talked to two or three carriers about taking orphan clients off their hands. While some insurers might see orphan clients as a way of taking business direct, many others will be wary of the infrastructure needed to service them."

While Homer enthuses about continuing opportunities in the retail market, Cullum beams excitement as he explains his vision of Folgate's e-commerce plans. By the beginning of 2006, Cullum is expecting Folgate to have an e-commerce platform where small business risks will be transacted.

The Hill House Hammond Business acquisition is core to this because, as part of the sale, Folgate will inherit HHHB's Bournemouth commercial call centre. "It has new IT and telephony. It currently helps place commercial vehicle and tradesman business but this can be developed," he says.

Revenue potential
Cullum, his eyes wide open with excitement, reckons that the e-commerce potential could be big enough to send shivers down the spines of the big risk carriers. "Look at how Amazon blew Barnes & Noble [the world's biggest bookseller] away." But Folgate is Britain's biggest UK retail broker, so who is there left to blow away?
"Our Barnes & Nobles are several. They are the risk carriers: AXA, Aviva and R&SA," he adds mischievously.

Another area of revenue potential that the duo are looking at is loss adjusting. Homer says: "There is an opportunity in claims because loss adjusters are inefficient. They have had the ground taken from under their feet by the insurers. Insurers are the ones who are in charge of procurement and supply chains. Adjusters are failing to add any value.

"We think that we add something for our clients in loss recovery. It doesn't have to be thrown into the price of a contract. It can be paid on deposit and then pay-as-you-go. There are a few clients, even though we are not really in the big end of the market, who are prepared to take quite a big excess and they need help in managing that, so if there is a loss they can get up and running quickly. We are thinking: can we outsource that or is there another way?"

Rivals snipe at the legendary prices paid by Folgate for their brokers, warning that it is a "house of cards" ready to be blown over by the merest gust. It is difficult to judge as Folgate jealously guards the prices it pays and details of the unique three-year profit share deals it has with NU and AXA.

There is one key investment that indicates Cullum and Homer are considering Folgate's long-term future, and that is the Folgate MBA programme.

The future leaders of Folgate are joining the Folgate Academy where the company will sponsor them through MBAs. "When we wake up one morning and say that's enough, we want people who can carry this on," says Cullum. "After all, when we float, the stockmarket is not going to invest unless they know there are some smart guys who can take over," he adds.

How Folgate grew to market dominance

February 2004: Folgate confirms acquisition of Hill House Hammond Business (£65m premium income) from Aviva for an estimated £15m. Folgate nears £500m premium income.

January 2004: Folgate's 33rd buy is Trinity Insurance Advisers with a premium income of £10m.

January 2004: Markfield - a broking subsidiary of contractor Carillion - is acquired. It is Folgate's centre of excellence for fleet risks.

December 2003: Folgate snatches a team of eight Charrington property underwriters from under the noses of Brit. The team has a capacity of £40m from Wellington.
December 2003: Dorset broker Broadstone snapped up.

November 2003: Warren Hill of Haywards Heath is bought. It comes with the prestigious Federation of Small Businesses affinity account.

October 2003: Folgate buys Hampshire's Dommerson & Hearn.

September 2003: Kent broker Vulcan Insurance is acquired.

September 2003: Heath Lambert transfers SME portfolio to Folgate.

September 2003: Folgate launches a broker alliance network based on buying minority stakes from brokers.

August 2003: Health Lambert in talks with Folgate about selling some portfolios.
August 2003: Crossways Insurance Brokers acquired.

July 2003: Folgate buys Peter Hill Insurance in Buckinghamshire.

June 2003: Peel Thompson Fletcher of Stockton-on-Tees controlling £9.5m of premium acquired by Folgate.

June 2003: Folgate buys Faversham-based Rickard Lazenby.

April 2003: Hull-based glasshouse expert Devonshire Wilson acquired.

April 2003: Folgate's SMG hub (created from Smithson Mason Group) boosted by acquisition of Cowburn.

March 2003: Towergate Stafford Knight travel and PA acquired.

March 2003: Fareham-based Byas Mosley acquired.

March 2003: Towergate Sharp acquired.

February 2003: RBR and Hainsworth Watts acquired.

February 2003: Harpenden-based Seymour Pope acquired.

January 2003: Pallett and Collins Insurance Brokers acquired.

January 2003: Kent-based Clark Copper acquired and merged with Canterbury Insurance.

October 2002: Fourth hub, Willett and Ross, acquired.

October 2002: Timber specialist Bervale Mead acquired.

August 2002: AXA signs three-year group deal with Folgate.

July 2002: Duncan Pocock acquired as hub for South East.

March 2002: Andy Homer joins as Folgate chief executive.

October 2001: Peter Cullum buys Folgate Insurance from under the nose of NIG.