Former Churchill managing director John O'Roarke has been charged with waking up the general insurance side of sleeping giant LV. Jonathan Swift hears the details of how he plans to do it
Despite being at the helm of the distinctly British-themed Churchill for many years, it was the prospect of buying a French-owned insurer that initially aroused John O'Roarke's interest in returning to the market.
Now firmly installed as managing director of LV's general insurance business, he recalls: "I had no firm plans when I left Royal Bank of Scotland Insurance (which bought Churchill in 2003). I always wanted to take a break because I had been working full on from September 1990 when I joined Churchill and it had been 100 miles an hour ever since then. So I thought it was a good chance to take a year off and decide what to do."
Having left RBSI as chief operating officer at the end of June 2005, Mr O'Roarke admits his original intention was to take one or two non-executive positions after recharging his batteries. But everything changed when one of his former colleagues, NIG managing director Phil Bunker, was contacted with a view to making a sizeable acquisition.
The dream team
"Phil had set up a business called Affinity B2C with a couple of other guys who had left RBSI including Paul Cassidy, Steve Castle and Peter Horton, which he hoped to turn into an innovative personal lines broker using the internet. However, a large consultancy came along and said to him 'we've got a nice little buy-in opportunity; how do you fancy getting a team together and buying Groupama?'"
The French insurer had touted its UK business around the market in 2001 and Mr O'Roarke admits Churchill had a look, but adds: "It was a dog's breakfast at that stage, and we had so many other things going on it didn't make sense to acquire it."
Since then the business has been overhauled and is now turning a nice profit, and Mr O'Roarke comments: "Phil rang me and said he needed somebody to gather together a team, so I thought 'yes, that would be quite fun, let's go and buy Groupama'. It would have been a great vehicle to build a multi-channel insurer because it has a strong broker business, and we could have built on that. We spent three months putting a business plan together so we could go and secure private equity backing. However, it turned out that the consultancy had misread the parent company's intentions because, by then, it did not want to sell the UK subsidiary."
Indeed, Mr O'Roarke now understands the consultancy had misunderstood Groupama's intentions for the UK business. In February 2002, when the French parent removed the insurer from the market, it spoke about backing the UK business for "at least five years". Consequently, the consultancy had earmarked the 2007 date in the diary as one to pursue nearer the time.
Despite the ultimately fruitless attempt to buy Groupama, Mr O'Roarke says that the exercise proved useful in that his team found "pretty high profile private equity firms were interested" in backing the team he had brought together.
"We wasted some time," he concedes, "but the interesting consequence was that one of the private equity firms said they liked the team, so that started us thinking about starting from scratch because we had no legacy systems, baggage or any of the other things that come with an acquired business.
"I don't mean to sound immodest but when you think who we had on board or in the pipeline, that must have made us attractive. There was also a lot of visibility at the time about how well Admiral had done on the stock market, particularly in the private equity world, so they were viewing us as a similar opportunity."
At this juncture, February 2006, Mr O'Roarke and his team got together with Accenture to devise a business plan that ultimately saw them whittle 20 potential investors down to one - Liverpool Victoria. The insurer then went ahead and acquired the fledgling business, now shortened to ABC, in September last year.
"Of those 20, 15 were private investors and five were trade investors, so we had a fair choice. It took us until about July to firm up which investor we were going to run with and LV (as the parent company is now known, following last week's rebrand) was in a pretty good position all the way through."
In his view, the attraction of LV was that it was "financially very solid" and it was also keen to change the existing business under new chief executive Mike Rogers. "However, if we had sat down with a blank piece of paper and considered who might have been interested in us, we would not have put them anywhere near top on the list."
LV's interest initially came as a private equity investor and he explains this only changed when Mr Rogers pointed out their two game plans complemented each other so perhaps they should consider pulling their ideas together. While Mr O'Roarke and his team were busy thinking about setting up a completely new insurance company with £150m of capital, LV had an existing business with some challenges.
Mr O'Roarke says that LV ultimately won out on a final shortlist of four, of which two were trade and two private equity firms, but that the team had reservations of siding with either of the latter pair.
"The private equity firms were always seen slightly less favourably because capital is going to be tight and they will be focused on the short-term and potential exit. The trade investors were big enough to support a much longer-term approach and we felt that, given we were targeting £500m premium income, we needed a five to six-year time frame to get there from a standing start."
Having done due diligence on LV, Mr O'Roarke says several areas were identified as needing to be addressed, on both a group and general insurance level. These included the brand and marketing - which resulted in the unveiling of a £10m television campaign last week - in addition to pricing, IT and claims.
Key problems with the existing brand, in his opinion, were that it looked out of date and "nobody knew what it was". Indeed, Mr O'Roarke himself admits that until earlier this month he didn't realise what the Victoria bit stood for. "I had been labouring under the misapprehension that it was a Liverpool friendly society that merged with another one that had Victoria in its name. In fact it was to do with Queen Victoria, who came to the throne in 1837, and LV was formed in 1843. In effect, it was a tribute to her."
He adds: "As for marketing, LV spent quite a lot but it was all in direct mail - you didn't see it on the television or the back of buses."
With regard to pricing, he says the insurer was "very uncompetitive" because it was "unsophisticated". "But we have got some great guys now, including Selwyn Fernandes from Direct Line, and Hugh Kenyon has just joined. So the pricing is back on track and we are now in the first quartile in terms of competitiveness."
This lack of competitiveness has been evidenced by the general insurance book declining year-on-year, as Mr O'Roarke explains. "It has been very strong in the over-50s market and with affinity groups like trade unions, which is all great quality business. But in terms of new customers, the portfolio was shrinking quite rapidly when we joined. Having said that, February brought our first month of net growth, and March should see the trend continue upwards."
Growth will be assisted by the launch of LV's broker arm, to be known as ABC, which is currently testing products and systems ahead of a second quarter roll out under the stewardship of Mr Bunker. This will mark a major diversification for LV, having previously only sold direct. "There were more questions from the non-executives on that aspect than any other," Mr O'Roarke reveals, "because it was not the kind of thing LV had done before. But when you look at the credentials of the people on board and the dynamics of the broker market, coupled with the fact that some of the existing players are, perhaps, showing a reducing interest in the market, then the strategy stacks up pretty well.
"Brokers value relationships, and big corporates find that difficult to deal with because everything has to be metricated and quantified and you can't necessarily do that with relationships. We have had masses of interest from brokers; unfortunately, so far, we have had to turn them away. But the roll out will start in the second half of the year and we will be at Cowes Week, which is a great event in the market calendar."
Although LV has yet to roll out its broker brand, it is looking at distribution opportunities including aggregators and affinity groups. "We do work with some aggregators, principally Money Supermarket, but this forms a much smaller part of our business than other insurers," Mr O'Roarke remarks. "What you want to avoid is an over-dependence on aggregators; we would see them as part of a balanced approach to distribution. Our plan is to have an increasingly strong presence in the direct market, which will only get better when we start advertising on television, plus the affinity market and then the broker market.
"We also need to figure out if there is more that can be done with the Frizzell brand, because in the over 50s and public sector markets it is highly regarded."
Despite only getting his feet under the desk in September last year, Mr O'Roarke has already overseen one acquisition - that of Britannia Rescue in January, due to be completed imminently.
"We weren't looking for it, but what a fantastic opportunity," he remarks. "There had been an unofficial sounding out of the market and a couple of others had expressed interest. But what mattered to the Civil Service Motoring Association, the current owners, was what the impact would be on the existing relationship with insurer LV, because it was so integrated. So there was only one logical company who could buy it."
Although reluctant to go into too much detail, he evidently has big plans for this business and it looks likely LV will offer Britannia's services to the wider market. He points to the "very limited choice" in the roadside rescue market, adding that CSMA's ownership is what has held Britannia back from being a mainstream competitor because its motivation was servicing members. "Major commercial expansion would have been at odds with that."
This acquisition is part of Mr O'Roarke and his team's wider plans for LV's claims operation, which will see RBSI's Gordon Farr join as head of claims in April, adding to the other high profile recruits of ex-colleagues Martin Milliner, Ruth Archer and Colin Walliner.
So with the deal for Britannia close to being finalised, has Mr O'Roarke set his sights on any other targets? "First we need to demonstrate to the LV board that everything we have promised so far can be achieved," he responds. "Once they have seen some of that organic growth and improvement in the capabilities, LV may start to invest more capital. The board has already said that it plans to invest up to £150m in our strategy, and right now we see a lot of opportunity for organic growth in direct, affinity and starting in the broker market.
"We have also got Britannia to integrate, plus the rebranding and new marketing campaign, while working with the affinity team to build up the partnership business. So an acquisition for us at this stage would be a distraction. In 12 months' time it could be much more credible."
Indeed, with the insurer recruiting 200 staff for its new Croydon office, combined with its 900 existing staff in Bournemouth, Mr O'Roarke says the highest priority this year is being placed on the people it employs. "One of the reasons I believe people are flocking to us in droves is because there is a freedom to do things that can influence the company going forward. They can see their efforts resulting in something. Our management style is to let people get on with things and achieve."
He concludes: "The mood is very buoyant, and we are doing lots of things on the GI side in terms of how we communicate with the staff, such as face-to-face meetings with large groups that they have not been used to. But it is not just us - Mike Rogers is doing the same thing at a group level. There is a feeling of change and momentum - that LV is starting to go places after being pretty sleepy for a number of years."
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