Interview - Ben Wright: Property boom

During hard times, the insurance industry likes to talk about finding opportunities in adversity to 'reshape' and 'right size' their operations. Euphemisms aside, sometimes improving business means some straightforward counting of the paper clips.

As head of Barbon Group's commercial property underwriting agency Keelan Westall, Ben Wright is acutely aware of what must be done at a business that has felt the sharp end of the property slump.

The quiet enclave of Bordon, Hampshire, is home to Keelan Westall, alongside retail property broker Cadogan Keelan Westall and the Groupama-backed Bibalet property scheme for British Insurance Brokers' Association members, which also fall under Mr Wright's watch.

He works closely with Nick Sharp, managing director of Barbon's property and commercial business, and Barbon chief executive Martin Oliver.

Devolving power
From the customers' perspective the unit operates as a standalone business, in keeping with Mr Oliver's strategy of devolving power to each of the businesses, leaving Barbon as a holding company. "My customers don't know what Barbon is," Mr Wright says, although the parent clearly keeps a keen eye on each business and their profit and loss.

The Hampshire operation had its best year for new business last year — £6.5m gross written premium marking an increase of 40% on 2009. This year it expects to place £35m GWP into the market and Mr Wright admits to aggressive growth targets for its fledgling non-property book. Nonetheless he is concerned about the bottom line.

Recession aside, the past few years of Keelan Westall's 34-year history have been tumultuous. Mr Wright joined Keelan Westall from RSA in 2006 in the twilight years of its independence or, as he puts it, "before things went a bit weird". He joined in April and by September the business was bought by Erinaceous — the self-styled one-stop-shop for property related matters — for £19.7m.

Erinaceous slotted the retail property portfolio of its other general insurance business Cadogan Hanover Park into the Bordon operation to create Cadogan Keelan Westall. But Erinaceous collapsed less than two years later under piles of debt and has been referred to in almost hushed tones by remaining staff ever since, having taken on proportions similar to that of Harry Potter's Lord Voldemort — as that which must not be uttered.

After its unceremonious exit from the market, the profitable GI business rose from the embers to be rebranded as Barbon. With growth now heading in the right direction, product development and expanding its cross-selling capabilities are at the core of Mr Wright's strategy to build up the business.

Commission and reduction
But the steadfast refusal of the market to harden has led businesses like Keelan Westall to change the way they work with insurers, explains Mr Wright: "There are more property claims coming through and people are trying to increase rates but it has not happened. So, to get profitability, you have to consider commission and reduction."

This has included introducing profit share arrangements over straightforward commission remuneration in some cases.

"Insurers have to look at their combined operating ratios. When I joined the market, COR was talked about at corporate unit level and now it is talked about at business unit level — some insurers even have COR targets at broker level.

"Commission has to be fair and competitive. Profit share rewards those customers that understand their portfolio as opposed to just accepting very high commission levels in year one, and when the insurer doesn't make the return it is looking for it has to increase rates in year two, and so we go round the market again," he continues.

"Commission could be slightly less but if it's a well managed portfolio the profit share backs it up."

Another drive towards profitability has been looking at how processes can be made "better, slicker and cheaper". "This goes back to really understanding your book. When times are good and you are making huge margins there is less scrutiny by brokers and certainly by insurers. As soon as claims go up and commissions are high, people start to look at rates. In part this is due to new entrants in the commercial property market; companies like Fortis and Amlin as well as LV, QBE and NIG. People that sniffed round the edges for a while are now having a serious play. Rate hardening just hasn't happened."

Mr Wright adds quickly that no one wants to "throw the baby out with the bathwater" by forcing up rates in the market: "That nearly happened with Aviva last year and Axa could be in danger of making the same mistake in 2010. We work well with Axa but it has a tough challenge. Trying to do things too quickly can be a risk."

He thinks that in order to take a hard line approach to rate increases successfully, an insurer needs to make sure it has better relationships and service than anyone else: "There can be no cock-ups on claims and account handling. It has to be whiter than white to make this palatable for brokers and customers."

Looking closer
Brokers have had to look just as closely at their proposition, he says. "We have to work harder and we are focused on the return on capital like never before."

He adds: "We are focused on efficiency but we haven't done it through reducing the headcount, more through squeezing our suppliers. To use a cliché we are moving to a zero-waste culture: thinking about what we buy, looking at contracts and suppliers to see where we can get a better deal. We saved £100 000 last year by doing just that."

That has meant using less paper in the office although Mr Wright admits there are still "roomfuls of the stuff" — even after reducing the sheets of paper staff use by 65 000 per month.

Claims is often seen by insurers as an easy target for making 'savings', but Mr Wright stresses that driving profit does not come down to repudiating claims.

"We are here to protect the customers. Statistics claim repudiation levels are lower if your business is brokered. Having said that, insurers are being a lot more black and white about claims and repudiation levels have gone up because insurers are taking a tougher line."

While, in the past, insurers would consider "the size of the relationship" with the broker when considering a claim, now they are more likely to say "you're not covered".

The trend for insurers to outsource their claims operations has been a cost-saving measure too far for Mr Wright, who says the practice has compromised service and its relationships with insurers.

"Loss adjusters have a big role to play in our industry and we have great understanding with certain ones but our relationship is with the insurer — it knows the background to a case and we want to be able to talk about a claim reasonably. Claims are a key part of what insurers are there to do. I do think the benefits of outsourcing claim are equalled or exceeded by the downsides."

He adds: "There's been a shift towards some brokers outsourcing claims too but we have no plans to do that."

As an alternative, Keelan Westall has encouraged two of its insurer partners to give it delegated authority on certain schemes' claims: it has only recently made use of a DA facility for claims up to £500 that has been in place with Aviva for several years and also negotiated DA with Zurich for claims up to £2000, excluding subsidence and liability.

By taking the claims in-house on a limited level it has reduced the average settlement time for those claims from more than 20 weeks to nine. "You could argue nine weeks is still too long and generally it gets settled quicker but we get big subsidence claims that throw it out," he explains.

"Doing the Zurich claims ourselves has been a great success. It's a much quicker process and the team here is much more knowledgeable and involved."

He adds: "We should do this one step at a time — we don't want to over-extend ourselves as it has to be done properly. Having worked at an insurer, I know how important that is and I would feel personally responsible if we mucked it up."

While Aviva was "amenable" to the idea of DA on claims, other insurers take a different view: "RSA will not give it up, it is adamant it can do it better."

The fact that his staff are gaining more knowledge by handling claims in-house, rather than 'post boxing' them back to the insurer clearly pleases Mr Wright, who sometimes has the air of a well-meaning teacher.

"We are basically spending insurers' money so they audit us closely. We had a lot of due diligence to go through to get DA from Zurich. It wanted to know we had the right technical skills and everyone here has to sit their insurance exams.

"Sally on the front desk has sat her foundation in insurance test and passed, and all our claims team has Chartered Insurance Institute qualifications to some degree."

Reciprocal behaviour
By taking on more responsibility, Keelan Westall expects reciprocal behaviour from the insurers: "We're making the insurers work harder — we say 'We'll place £10m with you on property, so can you give us your best high net worth product?' even although we don't have a massive HNW book."

As an example, he says Brit offers Keelan Westall its competitively priced online office product Britbord on the back of a sizeable property book placed with them.

A Lloyd's facility was set up last year, which has enabled Keelan Westall to pick up bits of 'awkward' business that would not fit with its usual binder business. And this year, so far, Keelan Westall has expanded the insurers it uses by two; Amlin and Fortis have joined its existing panel of Allianz, Aviva, Axa, Brit, Groupama, RSA and Zurich.

The number of insurers it works with on a non-binder basis such as Hiscox and Chubb, which provide HNW products, is also set to grow.

"In the past, property insurers have made pots of money without thinking about it but property is very broad and insurers are getting pickier," says Mr Wright. "They tend to like nice commercial property blocks and are less keen on residential, so we need to look at all the segments within the niche."

Whereas Amlin will be focused on picking up new business on the panel, the arrangement with Fortis will be on a scheme basis and it is a strong arrangement for both sides: "We know the team at Fortis well and they understand the property market and want to be a bigger commercial lines player. Some of what we do is not a million miles from the residential stuff they were doing before."

Cracking service
Mr Wright sees Ecclesiastical as another company that he would like to place more business with, commenting: "It's never going to pretend to compete on commission levels but you know you will get cracking service." While Ecclesiastical is "pretty unique" he applauds other insurers with a clear risk appetite, such as QBE for larger risks, LV for small to medium-sized enterprise business, Fortis for its big volume schemes and Amlin for commercial lines "at a competitive level".

Expanding the non-property products is not about a sea change — he is talking about a shift from 90:10 ratio of property to non-property, to one of 80:20 over the next couple of years.

Another recent move was to relaunch its broker club, Prestige, which offers enhanced turnaround levels, dedicated contacts for underwriting, claims and technical training, and marketing and IT support to brokers that have generated a minimum of £150 000 gross written premium within three years.

"We have had a club for VIP brokers for years — broker clubs are nothing new — but we didn't want to shout about it because we thought the brokers might get upset. But no broker will get less if they don't buy into it. Brokers do need to commit to growing their accounts with us."

Mr Wright adds the company is doing a "data cleansing exercise" to enable the firm to "shake hands and leave it at that" with brokers that no longer use Keelan Westall and bring in some new ones at the same time.

"In totality we will work with the same number of brokers. There are still a lot of high street brokers out there that haven't been snapped up by a Towergate, and we know that a lot of insurers cannot provide a service that is as good as we can provide."

Having got over the "embarrassment" of promoting its broker club, and being given a long but firm leash by a new parent company that he feels proud to mention in public, Mr Wright is hopeful his business can emerge as one of the success stories of the property market slump.