Spurring the black horse to a gallop

Lloyds TSB insurance's managing director, Phil Loney, admits he was not overly keen on accepting the post when he was approached last year. Having originally left Lloyds Bank, before the merger with TSB, to pursue a wider career that took in Commercial Union, CGU and most recently Axa Sun Life - where he worked under Royal and Sun Alliance group chief executive Andy Haste - he had reservations.

"Well, when I was there (the first time) it was a darling of the City, producing some pretty sensational growth, and it had a clear strategy," explains Mr Loney. "And as banks go, it was reasonably close to its customers. But over the years it has grown further away from them, and the top-line and bottom-line growth haven't been what people would have wanted them to have been over the past few years."

However, despite these initial misgivings, a meeting with group chief executive Eric Daniels made him reconsider, and he took up the role on 1 September 2003. "I met Eric, who was just about to become chief executive officer, and I identified with a lot of the values he had and things he wanted to do, so I took the job."

Mr Loney continues: "Eric has bought in a new team at board level and people like myself to run some of the businesses. There has also been a big change in the operating model too. From having a reasonably centralised business - and all financial businesses are going that way - the onus is now back on the business units to develop their strategy and drive their returns."

Power to decide

Since taking over the post, Mr Loney claims to have revelled in this "autonomy" and, having spent nine months looking at Lloyds TSB Insurance's strategy, he has earmarked four areas of strength. "These are the flexibility of our business model, in that we operate as both a broker and underwriter; the information we have as a bank on our customers, which we are starting to to use for underwriting purposes; the amount of time across the group we touch our customers; and our customer service." On the single issue of speaking to customers, Mr Loney notes that the average insurer talks to its customers once or twice a year but that, as a group, Lloyds TSB's phone banking operation alone makes 60 million calls in a 12-month period.

As a stand-alone operation, Lloyds TSB Insurance has a total gross written premium of £1.7bn, which, if it were purely an underwriter, would make it a top 10 UK insurer and among the five largest personal lines players in the UK, according to Mr Loney. The business is split, however, between broking and insurance, of which £600m is written in-house.

The company's largest business areas are property, creditor and health.

It also offers motor cover - a book that is outsourced in its entirety.

"We have not gone into motor underwriting simply because the track record of the market is not profitable," says Mr Loney. "There are one or two players that look like they've cracked it and are making profits, and we constantly revisit this. But in the past couple of bumps in the cycle, it was motor that was the first to go down. Our view at present is to continue to take distribution profits, and build volume - always with the option to underwrite at some point in the future."

This is unlikely to be for the next few years as things stand, because Lloyds TSB Insurance has only just signed a three-year deal with Royal Bank of Scotland Insurance subsidiary UKI Partnerships to underwrite its motor book.

Mr Loney insists that the tender was "very comprehensive" - so much so that, he laughs, "one or two people whinged quite strongly about it".

Once the 13 companies invited to tender had been whittled down to three, he explains how Lloyds TSB reached a final decision. "What UKI brought was a new set of rates for its corporate partners based on experience.

So we got a much better footprint out of it - there are very few customers we cannot quote for now, which was not the case with (previous incumbent) Churchill."

Having seen that tender through, the bancassurer is poised to carry out another one - this time in commercial insurance. Like motor, this is another market where it has not competed as strongly as in its core sectors in the recent past. The business is currently written through Axa, and Mr Loney admits: "It is going to be an interesting debate, because the commercial market is softening at the moment and there are a lot of people out there offering significant extra commission. On the other hand, our prime goal is to drive our volumes up, so whether we want to disrupt the relationship or not will decide whether we go to tender."

One of the plans Lloyds TSB has to increase its commercial business is an online quote-and-buy service: "We've been very successful as a group at selling personal business over the internet. So we are creating these web links in commercial and are due to go live at the beginning of next year." Mr Loney also admits that he is looking to tap into the data held by its small-to-medium-sized-enterprise arm Business Banking, which has 800,000 customers. But when pressed on how big he wants the business, which currently generates £12m to £13m, all he will say is "a lot bigger".

Claims changes

Another change Mr Loney is currently overseeing is within claims. He explains that the business is currently midway through a two-year claims re-engineering programme that will see the company move away from a "production line" methodology, where "different people would do different stages", to one that is case-manager-based. "We are in the midst of tendering for new software, which will allow us at the back end of next year, or the year after, to do this case management," says Mr Loney.

In total, the claims re-engineering operation is set to cost the bank between £15m and £20m, and Mr Loney remarks: "You will notice the difference by how quickly we pay the claim. We are aiming to get to a point where 40% of our claims are settled in the first 48 hours."

As a group, Lloyds TSB joined the India offshoring ranks this year, although Mr Loney stresses that, as an autonomous business unit, the insurer was under no pressure to do so. However, having been involved in offshoring with Axa Sun Life, he was very receptive to the idea. "So far, we've moved 130 roles offshore to get us started. The main processes we have transferred are customer services - not claims, but post-sale things like changes of address. We have also taken some direct sales jobs offshore, and what we've done there is bring teams from India over to Bournemouth, which we thought would be the best way to handle the skills transfer. We've also taken retention work offshore."

As for how this move will help Lloyds TSB Insurance, he is honest in remarking: "I don't see India as something that gives us a great competitive advantage but I see it as something that we need to do so that our cost base does not get out of line with the competition. India is about making sure the benefits we generate don't get eroded by not taking care of the costs."