Stepping into the big league

Having been tasked with exploring how Lloyd's broker Miller can attract more direct-to-client business, David Blackburn is weeks away from appointing the person who will spearhead this potentially prosperous new dawn for the company.

Mr Blackburn joined Miller in 1985 to work in its professional lines arm and was business unit head of professional risk until 2004, when he handed the baton over to Graham Collins in order to undertake his new role.

"I still run clients and am involved in new business but my other role is to create a distribution channel for our speciality lines products, offering them direct to clients," he explains. "In that capacity, I am director of UK and European development." This is the reason for his hunt for someone to lead the assault.

"Miller has created a structure and it is now seeking to recruit an individual to run that full time - the company hopes to appoint someone in the next month," he says. "It is not a straightforward job - you need a wide range of skills and now that Miller has worked out what the best mix is, it is looking for the right person."

The decision to target corporate clients directly has been triggered by a number of factors, not least the fact that a significant percentage of Miller's business is generated through third parties, whether managing general agents or other brokers. So although Miller has skills in a wide range of areas - from science and technology to political risk and trade finance - it is not selling direct to the end-buyer in the volumes it could.

Re-organisation

Mr Blackburn and his steering group identified that a change in approach would be required. "If, instead of selling insurance through brokers, you are talking direct to clients, you need to alter your offering and organisation," he explains.

"You can't deal direct in the same way as you do through a broker. There are other service factors to take into account, including co-ordination, communication and the presentation of a joined-up Miller offering, including a common IT platform.

"Having done the research, Miller is confident of the solution. It spoke with several major corporations and asked, 'if a firm like Miller came to talk to you, what would you think?' and the reception was positive. They said they liked choice, and that they were prepared to consider doing speciality lines with a firm other than their main broker, but the key thing is not to over-promise and under-deliver," he says.

This is not to suggest that Miller has no direct-to-client business - Mr Blackburn estimates that in speciality lines, such as directors' and officers', the figures stand at around 12.5% to 15% - but it was a way of reaching out to corporate sectors. A key element of the drive is the branding and recognition of the Miller name in a community that is wider than the insurance one.

"Miller is well known in the insurance industry but less known in the corporate community," says Mr Blackburn. "There are always going to be exceptions, like oil, gas and marine, where the company is known to have strengths, but as a general statement it is true.

Brand building

"The branding needs to wait until Miller is ready, because when talking to companies they need to know what it is, and what capabilities it brings - there will be a comprehensively thought-out programme of brand building and marketing, and Miller does not want to start that until it is ready."

Heightening the Miller brand in the open market will see it go head to head with the broking sector's most well-known names, of which three - Aon, Marsh and Willis - are omnipresent in corporate insurance buyers' discussions over buying cover.

Mr Blackburn accepts that there has been a tendency for corporate clients to go for full service offerings from these giants because it is 'safe'. Although it involves greater effort on a firm's part, he notes that it is not uncommon for them to use more than one broker for different lines.

Whether this is because corporate boardrooms are more aware in light of New York Attorney General Eliot Spitzer's investigation into broking practices is difficult to assess. However, the investigation has undoubtedly created an opportunity for brokers like Miller.

"Spitzer has had an impact on the market in a number of areas. The lack of placement and market service agreements means that the revenue structure of major brokers has changed. There is more visibility, and that helps because Miller never had PSAs and MSAs," Mr Blackburn says. He accepts that this may have put Miller at a disadvantage in the past when competing for business.

Price competition

"If fees and brokerages were subsidised by PSAs and MSAs, then that meant the company couldn't be competitive on price - in that one area Spitzer has an impact. It has made buyers aware of what brokers earn, and some buyers would feel they are getting a good deal, others not.

"In all these situations, you don't get a monolithic response from buyers. More transparency can only help a firm like Miller because it can play to its strengths by saying this is the value proposition; this is what the company is going to offer; and this is what buyers will be charged for it."

The push into direct-to-client business is symptomatic of Miller's drive to grow organically. This is not least because, as a limited liability partnership, it has no shareholders - any business-transforming decisions require the consent of the firm's trustees, of which there are 80.

"We don't like buying companies. It is rare that we buy something," adds Mr Blackburn. "This is mainly down to Miller's structure because on the balance sheets there is no goodwill, no borrowing, and the company is partnership-owned.

"If Miller wanted to buy something large, it might have to borrow the money or pay cash and that, at the moment, is not something we feel we want to do. Instead, we prefer to grow at a faster organic rate by investing in teams, staff and technology."

This leads him to deliberate Miller's future as a potential target rather than acquisitor, amid talk of continuing consolidation in the London market broking sector. "If you want to know what Miller's exit plan is, it is to keep going," Mr Blackburn quips, adding: "Like any structure, Miller's has advantages and disadvantages. A big advantage is that it is master of its own destiny and can give continuity to clients and, providing revenues exceed costs, it can trade as long as it likes.

"Clients appreciate this because they are getting consistent service, and virtually all our senior people are still involved with clients."

Miller has two bases in the UK - its head office in the City is staffed by 420, with the opportunity to grow by another 70; and the second office is located in Beckenham, Kent. The latter operation is known as Miller UK, employs 60 people and forms a key part of the direct-to-client push.

Contract certainty

With the majority of its staff in and around the English capital - the broker also employs 20 people abroad - the company has a vested interest in the health of the London market.

For instance, Mr Blackburn is confident that there is a desire and will for it to meet the Financial Services Authority's deadline of achieving contract certainty by the end of the year.

After all, figures released by the Market Reform Group at the beginning of this month found that 65% of contracts agreed during December were certain, and the FSA has now postponed statutory regulation in this area (PM, 23 March, p4). However, he stresses that there is no room for complacency and the final stage target will be the hardest to achieve.

"There is a sense of urgency, and progress is being made. The requirements of 60% by the second quarter and 85% by the end of the year are attainable but it is going to be harder to go from 60% to 85% than to attain 60%. However, the market will get there."

He adds: "I am involved with a lot of insurance brokers' errors and omissions placements, so I see first hand the consequences of a lack of contract certainty. Some of the worst disputes are those where a policy has been issued and no one can agree what it means. The fact that they have it in place does not necessarily mean they are not going to have a dispute but it is clearly desirable to have documentation."

Nevertheless, Mr Blackburn believes there is work to be done to guarantee the long-term health of the market. "The issues over accounting and settlement are going to take longer to resolve. There is the question of market structures, and whether there should be a central hub or go peer-to-peer, which doesn't seem to have been resolved.

"Kinnect, unfortunately, didn't go ahead but I can't answer the question of whether the market will end up communicating because it uses common standards, or whether you get a proliferation of peer-to-peer systems. I'm not an IT expert - all I know is that we have got to solve this."

On the issue of the cost of doing business in London, which has had publicity in light of Aon's decision to move out of EC3 to Canary Wharf in 2009, Mr Blackburn is blunt as to the single factor that will determine whether one-to-one business is maintained in the market.

"To an extent, the market segments are driven through force of economics - if it is not profitable to negotiate face-to-face with a subscription slip, then it doesn't happen. In this world of technology, never underestimate the value of that contact when doing business."

Another aspect central to ensuring the market sustains its place at the forefront of the global insurance market is discipline - something it has been accused of failing to abide by in the past, with some players chasing volume.

Capacity and rates

So have the weather-related losses in the market during the past 12 months seen a withdrawal of capacity and prices maintained or an increase?

"The general view is that the market has held-up surprisingly well given the problems last year with the hurricanes. There don't appear to be shortages on the whole," says Mr Blackburn.

"There are issues in areas such as windstorms that impact on Miller's oil and gas and MGA business because a lot of its clients write business in the southern states of the US. Other than that, there are no problems. In fact, one of the company's concerns is that insurers, in certain sectors, appear to be giving away too much, which is not good news because it leads to an unstable market."

Having established that Mr Blackburn believes face-to-face business will continue to play a key role, he is keen to stress the virtue of the London market's expertise and the fact that it plays a "critical part" in attracting business.

This brings him onto the recent appointment of Richard Ward as chief executive of Lloyd's. "I don't know the individual but if someone is a good candidate, and has a great track record, it doesn't matter where they come from - the quality is what's important."

Miller's own quest for quality staff has resulted in the introduction of a graduate programme, which, last year, saw two candidates accepted from 70 applications.

Mr Blackburn says: "If you get someone who is exceptional, rather than someone who is good or average, the gap is much wider. We are trying to attract a cadre of quality, younger people who will hopefully stay and move through the business, because the competition faced by intermediaries is going to get more intense.

"You have to be on pace, have the best people and be organised - we want to keep trading, so we have to keep getting better."