A raft of recent high profile appointments testifies to both Brit's ambitious plans for its UK business and its efforts to build an attractive working culture. Group chief executive Dane Douetil explains to Jonathan Swift how the insurer intends to stand out from the crowd in an increasingly competitive market
Brit group chief executive Dane Douetil believes his staff should 'get a life'.
This is not a slight on the employees who have helped Brit grow profitably in recent years, but one of the many initiatives the insurer has introduced to make the company a better place to work and both attract and retain staff.
Under the Brit 'get a life' initiative, staff are paid £500 to do something that in Mr Douetil's words will "stretch their minds" and give them a "different experience". He suggests this could be anything from jumping out of an aeroplane to learning a musical instrument to taking a wine-tasting course.
Leading from the front Mr Douetil learnt to play bridge and will take up tennis for his next challenge - having not picked up a racket (in anger or otherwise) for a number of years.
And with the company listed for the first time in the 2007 Sunday Times best companies to work for list, coupled with a raft of recent high profile recruits to its UK business, it appears that Mr Douetil's efforts to instill a culture based on a perfect work/life balance are working.
Former Norwich Union motor underwriting manager Andy Keane, who will become motor portfolio manager, is the most recent significant appointee to join the company. He will team up with other recent recruits; Andrew Jackson, UK portfolio manager for property and packages; and Jamie McNab, UK portfolio manager for liability. Both joined from Zurich this month.
Investing in the future
With underwriting director Ray Cox, distribution director Simon Cooter and chief executive Peter Burrows already on board, it is evident that Brit is investing a significant amount of time and resources in its UK business as it aims to hit its stated ambition of £2bn gross written premium across the group by 2010. The domestic business was recently rebranded 'Brit UK' and sits alongside its reinsurance business Brit Re and London market business, Brit Global Markets.
"We clearly believe in a diversified strategy because it reduces volatility," explains Mr Douetil. "We also think that to be diversified you have to be large. You can't actually be diversified and small, because you don't get the economies of scale. You can't be an expert in 80 classes of business and only write £100m of premium."
In the first six months of 2007 Brit UK wrote £148m, compared to £146.5m over the same period in 2006. Mr Douetil admits that after growing aggressively from 2002 to 2004 it has scaled back its growth as the market has turned. Nevertheless he is confident, having predicted a hardening market in mid-2008, that it can stamp its mark on the UK insurance landscape.
"We have created a platform where people think they can make a difference," Mr Douetil explains. "And it is much harder to defend a market share of 20% than having one of 1.5% and growing it to 5%. I know which is the more fun task to do."
He adds: "The UK strategic business unit is an important long-term development for us, something we have been developing since 2002 and has made more than £200m in profit since it started. It is not as if we have been losing money on it and are eagerly waiting to make it back, it has been profitable for us every year since it started."
Current soft market
This brings Mr Douetil onto to the thorny issues of the current rating environment with speculation as to when rates will turn rife in the market, along with the finger pointing among larger players as to where the blame lies for the soft market conditions.
"I don't think anybody can look themselves in the mirror and say they are pricing UK business in 2007 at levels that can make shareholders the required returns," comments Mr Douetil.
"But we have been brutally honest with ourselves because I don't want to make up for any inadequate reserving in the coming years. I want to set realistic ultimate loss ratios based on the current rates now, which will give us a competitive advantage in the future because some people will have to start making back money.
"There is no doubt that at our level we are more of a price taker rather than a price setter. But the difference is we can choose whether or not to take the price; and in some circumstances we have chosen not to. At this stage in our development we can't move the market by ourselves."
One area in which Brit is different to many of its contemporaries in the UK market is that it has no plans to buy brokers. Indeed it has also scaled back some of its wholesale business in favour of dealing direct with retail brokers, and as such Mr Douetil is adamant that it has such a clear policy on channel management it never knowingly competes with itself.
"We instantly know within the group if we have been approached with a piece of business anywhere. Many people say they can do that but from my understanding, that is not quite what happens," he explains.
Mr Douetil started his career with Willis having taken on an apprenticeship at a week's notice, and has worked on both sides of the fence - even establishing his own broker Special Risk Services in 1989. As such he has some candid views on those insurers currently trying to be both underwriters and intermediaries.
"I have worked in both underwriting and broking businesses and culturally they are fundamentally different. I can't see the rationale of an insurer buying a broker.
"Those (insurers buying brokers) are buying at very big multiples so they are paying a lot of money if it is an investment. If they are buying brokers to integrate them that is interesting as it creates all kinds of conflicts - and in my opinion never works. You only have to look at what happened with Hill House Hammond, and Willis in the old Sovereign days, to see that when an underwriter and broker get together it is normally the underwriter that ends up losing money."
With so many insurers buying brokers, Brit may be able to trade on its stance to competitive advantage. "Why would a broker deal with us if we were buying other brokers?" questions Mr Douetil. "I think brokers should be far more ruthless with their carriers. Why should they let us get away with buying a broker and still expect us to see business from them? We are not going to buy brokers and we expect that to appeal to the wider market."
Another area where Mr Douetil has strong views regards the frictional costs within insurers, which he estimates equal 20% to 25% in business acquisition costs and 5% to 10% in internal costs. "Those are enormous numbers," he says. "It is where the banking market was 20 years ago. We should not have those frictional costs in our business and make insurance cheaper for the end customer. It is going to happen and I want Brit to be at the forefront of that because it's where we will pick up market share.
"Now I don't think it will be a long-term competitive advantage because everyone will look to meet you and then you need to take out more margin. But if you are not there to start with you are not going to have a sustainable business to grow."
Mr Douetil has been at the vanguard of change in the London market for a number of years in his roles on the board of the Lloyd's Market Association from 2004 to 2006, as chairman of the Market Reform Group and chair of the industry's contract certainty steering group. Predicting changes in market attitudes, possible problems and industry defining developments seem to come easy for Mr Douetil, even before taking on these roles.
"We didn't provide Placement Service Agreements with our global market business and went on record about it well before (former New York attorney general) Eliot Spitzer's investigation. As a result we have hugely benefited because the big brokers who weren't showing us all their business now show us considerably more," says Mr Douetil. "And the middle tier brokers who got close to us at the time have grown on the back of it and we are now seeing more business. If you look where our growth has come from in the last two to three years, it is that area."
This leads Mr Douetil onto the subject of transparency, how brokers are remunerated today, and how he believes they could be paid in the future. "Brit buys insurance - from property to directors' and officers' to professional indemnity plus about £180m of reinsurance - and we ask brokers to get a net price from the market and then we pay them a fee. We know exactly what they get and that fee could often be higher than the brokerage they were getting in the past. It is to the value of what we think they provide and they agree with us."
Six years ago, he recalls calling for net pricing in the commercial market, a move that had such resistance, he jokes, that alongside calls of heresy he considered hiring a bodyguard just to walk down Bishopsgate. Now though, he says there is a growing groundswell of opinion in favour of such a move (net pricing, not bodyguards) with large brokers among those having no problem with it.
"It is illogical that if the broker is the advocate for the insured he should be remunerated by the insurer. If we are remunerating them how can a broker be an advocate for that client? Net pricing would make it a lot easier," he adds.
"I am not naive enough to believe that it will happen overnight, but let's get to a stage where the client fully knows what they are paying. Incidentally I don't think it will put more on Brit's bottom line, but it will mean that we get a fair chance to see business that is not coming our way because we aren't paying volume overriders".
Moving on to the London market business specifically, Mr Douetil admits that Lloyd's is a stronger place than it has been for a long time. He says that Brit has various constraints in the group, such as how much exposure it wants to the US dollar or long-tail business, and previously it insisted that it wanted no more than 50% of its business in Lloyd's. This has been altered to 60% recently.
The Lloyd's market
"I am not saying we are going to write 60%, but we now have a greater tolerance," explains Mr Douetil. "Why? Because when we put that constraint in at the beginning of 2002 the World Trade Center had happened, Lloyd's rating was on credit watch at A- and lower than ours, the franchise was poor, money was stuck in the system for three years and it was looking very worrying.
"Five years on, Lloyd's rating is the same as ours, Equitas has been sold, you can access your money after 12 months, it is capital efficient, a strong franchise and brand - so we are delighted to do more on that platform. And if it continues reforming, then it will be an even more attractive place to do business."
While Brit has international aspirations and constantly explores the viability of other platforms outside Lloyd's, as indicated by last week's announcement that it is to set up a Gibraltar-based reinsurer, he is adamant there is still much to do closer to home before it explores more exotic locations for business opportunities.
"There is no doubt that in due course Brit will start expanding in other geographic areas, but I use the analogy within Brit that unless you are winning your home games on a regular basis, you don't start thinking you can win away because it is a lot harder. We are getting there, but we still have growth potential in our existing businesses, so I want our management to concentrate on what we have got - for the time being."
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