Broking supplement: Interview – David Flux: The lie of the land


Lured off of a tractor and into the family business with the promise of an extra £4-a-week, David Flux has worked his way to the top of the firm. He talks to Amy Ellis about life in the niche motor market.

David Flux did not originally want to follow in his father's footsteps into the family business - but 25 years later, based in an historic mansion six miles east of King's Lynn in Norfolk, that is exactly where he finds himself - as senior partner of his late father's insurance broker business - Adrian Flux.

Set up in Hertfordshire in the mid-1960s by Mr Flux and two colleagues as Adrian Flux & Partners, the firm had a largely commercial and high-street provincial business focus.

It was the combination of struggling to gain motor insurance in light of his disability and falling in love with Norfolk after his grandparents moved there, however, that caused Mr Flux to break away from his business partners - who wanted to maintain the original focus. As a consequence he set up shop in King's Lynn in 1973 with a business model that largely reflects what remains today - niche motor insurance.

His son David carries on from where his father left off: "We haven't really deviated from what dad first set out to do. We do provide some niche household insurance, but we are still very much a niche motor player. As the motoring tastes of the British public have changed, we have been there to accommodate it. Whether they want to buy Japanese imports, start modifying their cars or building their own kit cars, we are there and we can offer a facility to accommodate that."

But things might have turned out very differently for Mr Flux. Having decided that sixth form education was not for him, he admits that he always wanted to "get out into the big wide world and get a job". Growing up in Norfolk and loving the outdoors, going into the family business and putting his feet under a desk was not an idea that appealed to him.

Instead Mr Flux lived up to the rural stereotype and spent the first six months of his working life digging holes and riding tractors for an agricultural contractor, until the lure of an extra £4 a week from his dad to work for the brokerage in 1985 put an end to his outdoor ambitions.

Outside and in
"Dad questioned one night over dinner whether I was going to do that for the rest of my life and asked if I wanted to come and work in the office," he says. "I was unsure at first, but he said he would give me £43 a week and I was on £39 at the time, so it sounded like a good idea to me."

As one of four siblings, Mr Flux is the only family member to have been fully immersed into the family business, and he admits his brother is a "farmer through and through" has never even been in the office. Meanwhile, his youngest sister never wanted to get involved, and the eldest sister left when she started a family.

He adds: "I started in the office making coffee, I progressed to filing, writing cover notes out, checking post, and then verifying proposal forms against the quote details. I have come to understand as the years have gone by how important it was to start at the bottom and work my way up. I didn't really appreciate what was happening at the time, but the nice thing is that I can say I have truly worked in every part of the business."

With the majority of the senior board working in the business since they were 18, Mr Flux explains how it is the "culture" of Adrian Flux that separates it from its rivals and keeps staff retention high.

Driving down the grand expanse of the approach to the historic mansion of Adrian Flux, which boasts a tennis court, football pitch and enough parking spaces for all staff on site, it is easy to see why potential employees are attracted to the company.

"I am a great believer in culture and that emanates from people," says Mr Flux. "Our staff are fantastic, we do push them and work them hard, but we try and make it fun as well, which is reflected in the fact we do have quite a low turnover of staff. When we advertise for more recruits in the paper we get a lot of the existing staff's friends applying."

Mr Flux admits its main catchment area is King's Lynn, as people from neighbouring Norwich have Virgin and Aviva as options, Peterborough is an hour away, Cambridge is an hour and a half away, and "people in rural areas won't travel over half an hour for work".

Looking at the market, Mr Flux comments on the developments in the last year. When Royal Bank of Scotland Insurance-owned NIG closed its personal lines division to focus solely on commercial business, most brokers responded defiantly that there was sufficient appetite to fill the void left by the insurer. However, Mr Flux admits NIG's exit "did have an impact" and that when it decided to call it a day it did "leave a big void in the market".

"Not only was it a large player in the personal lines market, but it was quite unique," he says. "Although it was part of RBS and a mainstream insurer, its approach to business was quite ‘Lloyd's like'. It was refreshing to have a firm like NIG, which was large but still worked on the relationships in a similar manner to smaller Lloyd's syndicates. That is not to take anything away from the composites like Aviva and RSA, which have fantastic key account managers as well, but NIG will be missed."

He adds although there were - and maybe still are - quite a few brokers and intermediaries out there that could not find a suitable home for their accounts. Due to the relationships that it had already built with other insurers, Adrian Flux was able to find a home for the whole book.

"It is difficult for brokers to find an insurer that is willing to take on a fairly substantial account especially within their own business plans as they would have already put those together for 2011," he says. "We had huge support from a large composite insurer that agreed to accept the account and transfer it across."

This may have only happened last year, but as Mr Flux highlights there have been other ongoing problems in the motor market, which he considers has "underperformed for the last five years".

He explains: "Obviously the cheapest way to deal with a commoditised product is to drop your rates to get market share. There has been an element of that against a backdrop of very low investment returns because of bank interest rates and the current situation with reserves and personal injury claims on top of that."

Mr Flux believes rates are still hardening, but that the industry has probably seen the last of the major increases.

"For the second half of 2010 there was a tremendous frequency of rate increases and in quite large percentages, which rolled over to 2011," he says. "Everybody is happier knowing where their rates are sitting and everyone is pulling in the same direction and continuing to try and seek further rises. But what we are seeing in most sectors is that it is a little-and-often approach, and most insurers say they would like or expect to get 15 points this year. Hopefully, it will be more than that - as a broker it would be fantastic if it was 20%."

Looking further back to 2005, there were other rumblings in the market that caused Adrian Flux to look at its business model and carry out what some might have considered quite a controversial move. "About six years ago there were very strong rumours within the industry that our two largest markets - Highway and Equity - were going to be merging," he says. "I felt this would leave us overexposed."

Mr Flux explains following a meeting with a close friend - who is a retired Lloyd's underwriter - the suggestion of setting up an insurance company was raised. A couple of years later in 2008 Trinity Lane Insurance was established in Malta. "People might ask why did you go to Malta as solvency requirements there aren't as relaxed as other territories? But, it had quite an interesting tax regime and obviously under the European Union freedom of services there was no problem doing business in the UK," he explains. "It was done just to safeguard some capacity for ourselves. So Trinity Lane deals with two brokers - Adrian Flux and Herts Insurance Consultants."

A "hot cake"
Mr Flux adds that politically it was a bit of a "hot cake" initially, as some insurers the firm already worked with raised concerns. "If you were an insurer that had dealt with Flux historically you would have had a strong relationship and quite a large account, and I suppose they thought that was going to disappear," he says. "But what we have always maintained is that Trinity Lane writes no more than 10% of Flux's overall income. It is one of those vehicles that obviously if we were prepared to capitalise or reinvest profits into then we could increase the capacity, but the plan has always been 10%."

Reflecting on Trinity Lane - which he admits he did not "have a clue" about how to set up initially - Mr Flux believes it has made him "fully realise and appreciate what insurers have to contend with".

"For the past three years insurers have had to deal with claims inflation, personal injury claims, lack of investment returns and the general global market - it has really been an eye opener," he says.

Getting to soak up the sun of Malta must be an advantage, though? "We have to go out to Malta for meetings and so forth and people say it must be fantastic," he says.

"But when we get there we go straight into a board meeting, we go out for dinner with the directors, wake up the next day, jump straight on a plane and come home. I have never sat round the swimming pool yet."

With the dawn of Solvency II and the other regulatory changes insurers and brokers have to adhere to, Mr Flux claims it would be a brave broker that follows suit now. "If I was looking to do it I would probably hold fire," he says. "However, with the rates hardening it would probably be the time to do it. But going into a situation where you may not know what your solvency requirements will be very shortly would definitely make me think twice."

Despite describing himself as a bit "prehistoric" when it comes to technology, thanks to the recruitment of more technically-minded staff, Adrian Flux currently conducts some business via aggregators at both its East Winch and Bishops Stortford offices.

"We were deliberately late coming to the aggregator party," he explains. "We had reservations and we held back, but we recognise aggregators represent an important stream of income as that is what the public wants."

However, Mr Flux admits the more old-fashioned approach of the call centre is "typical Flux". "You get a person on the phone who can get to know and understand a risk," he says. "The problem with the aggregator business model is that it has to generalise, as it can only quote using whatever resources it has, and that is where old style broking does really come into its own. We recognise aggregators are an important income stream, but it is very much a smaller part of our income stream and we are working desperately to increase telephone calls because that is the way that we like to do things."

He adds: "Obviously it makes it an expensive business to run because you have people on the phones and you have to train them, but we like to think we, as a business, are only as good as the resources we have and you have to safeguard those assets for your underwriters. There were some players a few years ago that were putting all their eggs in the aggregator basket, but they have now recognised that it wasn't strategically the best of moves so they are looking to complement that with more telephone sales now."

Five years ago Adrian Flux bought cult car competitor Herts Insurance Consultants in Bishops Stortford, Hertfordshire, which covers vehicles such as Volkswagen Beetles, Mini and VW Camper Vans. "HIC was owned by a husband and wife who I knew quite well and they wanted to sell the business to spend more time with their family," he says.

Logical progression
Mr Flux explains the purchase was viewed as a "progression", but also brought practical benefits, as at the time it was looking to migrate onto a new software system with Transactor Global Solutions and HIC was one of its largest customers.

He adds: "So it was a competitor of ours, it was looking to sell, had lots of business that we were attracted to, and an office with quite a lot of space, which was handy as we were looking to expand. We were having a lot of trouble with the local borough council over the development plans, and this gave us a chance to acquire additional premises with room for another 50 staff and effectively two chances of converting the same risk."

However, aside from this purchase five years ago, Flux has been quiet on the merger front - as Mr Flux admits, it is "not a broker that is acquisitive".

"It is not really the way we do things," he says. "Our business model is very much around organic growth, we never set targets, we just basically cut our cloth according to where we are in the market with regards to the cycle. Some years we get very good growth and other years we just have to batten down the hatches and say that we are going to need to consolidate and tread water."

Despite this admission, Adrian Flux made two acquisitions last year - a specialist book of business from Colchester Insurance Centre and another from Chartwell Insurance - which provides disabled drivers insurance and was coincidentally the rebranded name of the business his father originally set up.

"After dad sold in 1973 and moved up to Norfolk, the two remaining partners renamed Adrian Flux & Partners to Chartwell," he says. "I had to detach from the sentimentality of it and look at it as a business opportunity. Flux historically used to do a lot of disabled driver business but that had declined over the years, so it was an ideal opportunity to bolster our disabled driver book. Chartwell is now part of Flux, and has become the brand name for our disabled driver facility, to run alongside the motorcycle facility, Bikesure."

As a family-run business that has expanded over the years and currently has 647 staff, it is no surprise there have been several takeover rumours circulating in the past - something that clearly frustrates Mr Flux.

"Unfortunately, when dad died in 1999 there were a few rumours about the business doing the rounds," he says. "He was only 54, but two years before that he decided he wanted to take more of a back seat in the business. Over the preceding 10 years I had got more involved in the general management of the broker - effectively as dad's right-hand man - the succession was already in place, so selling was never a consideration. Maybe it is because we are quite unique that people are interested, we have over 300 000 policyholders, so it is fairly big for a family business."

Offers are frequent, though, and Mr Flux says if he had a pound for every person that wanted to take him out for a coffee and have a chat about selling up, then he would be "a very rich man".

With no plans to sell on the horizon, perhaps he will have to look to other means for the succession plans for the business - and with pictures of his children adorning every spare inch of surface space in his office, perhaps the answer is clear.

"I have four children, three girls and a boy," he says. "Our eldest is 13 and he sometimes comes into the office and helps out with faxing and filing, which he really loves."

Could he follow in his father's footsteps then? "Who knows," he concludes. "He might be like me and go off when he is 16, but he seems quite keen and I would like to think that one of the family members would like to get involved in the business. But similar to my father with me, I am not going to push them."

David Flux on...
The Aldermanbury Declaration: "It is fantastic and I do subscribe to the concept of what is attempting to be achieved by it - but a lot of it is good business practice anyway. If you are looking after your customers, treating them fairly, offering a competitive product with good service, then they are going to recommend you to their friends and your renewal retention will improve. I don't know whether it is because we are stuck up here in Norfolk, but we have tended to do our own thing. We have kept our head down and we don't tend to follow the crowd."

The Financial Services Compensation Scheme levies: "The figures that have been bandied around are a massive increase and that is a massive increase on the year before. It is a huge amount being called upon to go into the scheme from people that haven't caused an offence. It is frustrating - I know that the British Insurers Brokers' Association has been talking to the FSCS - but it is essentially banging its head against a brick wall. The sad reality is that not a lot of brokers can cope with this, we are fortunate that the business we have built and maintained can weather such a battering."

The recent European Court of Justice gender ruling: "Underwriting is all about discriminating - it has to be unless we are all going to pay the same price. The one thing personal lines brokers are very good at is adapting. Because of the hardening of rates there are more people receptive to getting lowering their premiums and telematics might be one way to achieve that. Young driver insurance for both males and females is escalating at such a rate that it could become a social issue, and I believe young people should be given the opportunity to get on the roads, which is something that the industry has to address collectively."

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