Regional Market Spotlight: The North East and Yorkshire, Lauren MacGillivray reports.

The draw to the North East city of Newcastle certainly cannot be the weather, which tends to drop a few degrees – even when coming from Leeds – and feels rather like Scotland. The Toon Army is obviously an attraction, but that might not be the main lure either. No, it is most definitely the people.

In the insurance market, everyone seems to know who is who. The financial services industry there has a good mix of large and small players. And while it might not quite be part of the Big Five regional centres of London, Manchester, Birmingham, Leeds and Glasgow, it is certainly nipping at the larger players’ heels and is unquestionably the king of insurance in the North East.

It has taken some insurers a while to figure out how difficult it is to try to cultivate business there from outside the area. Some years ago several major insurers, among them Zurich and AIG, pulled out of the market there, but many have since been trickling back, attracted to the area’s parochial nature.

Parochial is used a lot, but hesitantly by many local financial services staff as they consider it to have a negative meaning. But it is meant more to portray a community that is tightly knit and fiercely loyal – valued traits in any industry, but particularly in insurance.

Ace, which insures the coveted Baltic Flour Mill in Gateshead and underwrites for around 25 brokers in Newcastle, is one of the longest serving insurers there. Peter Locker, business development manager in the two-person office, is originally from Newcastle and has also spent time working for Ace in Leeds.

He says: “We’ve been successful here in terms of growth. When servicing Newcastle from Leeds, the premium income was around £650,000. Now it’s around £7m. If you deal with people face to face you can build relationships a lot better.”

He recalls: “When we set up office here there was AXA, Norwich Union and NIG. Now we’ve got Ecclesiastical, Zurich, AIG, Excel and Allianz. Quite a few now have a presence here.”

Meanwhile, Aon has recently restructured its presence in the North East in an attempt to unlock the mid-to-large corporate sector. Following the appointment of Robert Brown as chief executive of Aon Corporate, Norman Andrews was appointed regional director for the North region, which includes offices in Leeds, Newcastle, Glasgow, Edinburgh and Aberdeen.

In July the company promoted two new members to the Northern Leadership Team – Chris Dale, branch director for Sheffield, and Graeme Cant, branch director of Aberdeen and Newcastle.

They joined existing branch directors Ewan McDyer (Edinburgh), Richard Taylor (Leeds) and Alastair Hunter (Glasgow).

Cant is tasked with management of the Aberdeen and Newcastle offices, with an emphasis on growing revenue through the development of existing client accounts, as well as winning new business.

After spending the majority of his career in and around Aberdeen, Cant says he is looking forward to exploring another market.

“I find there are a lot of similarities, like dealing with local people,” he says. “It’s very parochial in that people feel comfortable dealing with people in the local environment.”

More opportunity

But he adds that he believes there is more opportunity in Newcastle than in Aberdeen.

“In London, a lot of business moves around but you don’t see that here to the same extent. It’s one of the threats, ultimately.

Kyle Lomas, AXA

“In Scotland, the market is drifting but I haven’t seen that here. Edinburgh is so close to Glasgow and I don’t think Aberdeen’s actually big enough. Population-wise, Scotland’s not that big. But it’s different here because if you look at this area, it has a huge population centre and you can see the potential.”

Meanwhile, AXA has had a presence in Newcastle for some time but its office there used to be managed from Glasgow. It formed a base in Newcastle in April 2007, when Kyle Lomas, who was account manager in Birmingham, became area manager.

“AXA decided there was huge potential in the Newcastle market,” Lomas says. “We have a really strong team here with good retention.”

Most of the insurer’s 15 staff in Newcastle are underwriters.

Lomas says: “The relationship we have with Newcastle brokers is very close. It’s a unique market and is noticeably different than Birmingham. The culture of the people, whether it’s in insurance or any other service, is more close-knit and parochial. People will support their own local market.”

Of course, while static business is welcomed from insurers or brokers that have a solid client base, it can be a tricky thing for newcomers.

That is why AXA, which is trying to grow in size, has been ramping up its broker roadshows in the area over the past year.

Lomas says: “Everyone seems to know everyone. In London, a lot of business moves around but you don’t see that here to the same extent. It’s one of the threats, ultimately. Other companies are looking at the same business we write, and putting pressure on us.”

The closest big competitor to Newcastle in terms of attracting business is Leeds, where all the usual suspects can be found.

Unfortunately, Leeds broker Henderson was not available to be interviewed. But Insurance Times has revealed that Henderson might be considering selling a stake in the business to a private equity firm.

The other firms visited in Leeds either did ‘ ‘ not know about the development or simply did not feel like gossiping.

But Sean Hicks of Leeds-based Oxygen might have had a premonition of other breaking news as he talked about his fee-based approach.

Hicks believes that the current model of brokers controlling larger volumes of premium through consolidation in order to negotiate better commission deals is unsustainable.

“I had the crazy idea 10 years ago that there would be an opportunity for brokers to work on a professional financial services firm basis,” Hicks says. “I don’t think anyone else is as transparent as we are.”

Following the interview, it was reported by Insurance Times that Norwich Union had begun to refuse new terms from Giles that would see the broker’s commission rise to over 40%.

“The EC is very keen on full disclosure. If we have nothing to hide then why don’t we tell everybody? Clients can’t make a judgment if they don’t know there’s one to make.

Sean Hicks, Oxygen

Hicks admits he has felt the pinch from rejecting commissions. But he believes that commission disclosure is unlikely to be solved by a market-led solution, and therefore believes Oxygen will be better placed than its competitors in future.

He says: “We tried to avoid regulation years ago, but the government eventually brought us into the FSA’s clutches. If you look at what’s happening in Europe, countries are going for hard disclosure. Everyone else seems to be going that route. The European Commission is very keen on full disclosure. If we have nothing to hide then why don’t we tell everybody? Clients can’t make a judgment if they don’t know there’s one to make.”

Oxygen has around 40 staff in Leeds and is expected to double in size within two years. Hicks says: “We have a national focus. To us, London is a region.”

Meanwhile, ABC Insurance is one of the newest players in Leeds having opened its doors in May. Kim Chambers, branch manager of ABC Insurance and former operations manager at NIG’s Leeds branch, says: “All the insurance companies are in the same street. For example, we’re next to Allianz.”

She adds with a laugh, “Keep your friends close and your enemies closer.”

ABC Insurance, the broker distribution arm of LV=, has been expanding its branch network and opened its Leeds office in June. The branch underwrites commercial combined insurance for brokers in west Yorkshire and the North East regions.

Chambers previously worked for NIG for about 15 years and was operations manager when RBS took over. She is eager to once again help grow a small firm.

She says: “When NIG opened there were four of us. So there will be an opportunity to re-create that with a smaller branch and then help the company grow. We’re still very up-and-coming at the minute, so we have to recruit experienced underwriters.”

ABC’s Leeds team has grown from three staff to five, with the latest additions being Richard Mumford from RSA and Daniel Earnshaw from NIG.

Chambers says: “I said to my ex (NIG) manager that I wouldn’t poach, but Daniel’s CV turned up so I said, ‘fair game’. I had recruited him to NIG, so it’s only fair.”

According to Chambers, ABC plans to differentiate itself by its customer service – something she says many of the larger insurers are not doing well.

But Paul Robinson of Smith Robinson Chartered Insurance Brokers is not convinced there is room for any more entrants.

“I’ll keep my eyes open and see what develops, but there are a huge number of insurers here to do business with. As for service, everybody says that’s their primary focus because what they don’t want to say is, ‘we’re going to slash prices’. We don’t want to drive the market down but it’s extremely competitive.”

He adds: “There are not enough clients and the soft market is indicative of the capacity in the marketplace.”

Vital statistics

The North East, which is three hours by train from London and 80 minutes from Edinburgh, is one of the smallest of Englands regions in both area (8,573 sq km) and population (2.6 million). A large part of the region is rural and much of its rural area is designated as a national park.
But while the economy used to be based on primary and manufacturing industries, there has been a major increase in service sector and knowledge-driven business over the past 30 years.
While thriving in Newcastle, finance intermediation is one of the smallest
sectors in the North East. According to the Government Office for the North East, only 11.9% of people there work in banking, finance and insurance, compared to 16.6% in Great Britain as based on 2006 figures.
The top two areas for finance include Newcastle, where there are 41,100 people employed in this industry from a population of 270,500, and 23,100 working in finance in Sunderland, which has a population of 280,600. In 2006, there were only 270 VAT-registered financial intermediation businesses in the region compared to 20,240 in Great Britain.
But while finance might be a small sector there, the region is also noted for its loyal customer base. Most insurers recognise the areas value, particularly in Newcastle.