Q&A Theo Duchen and David McDonald: From Nairobi to Nottingham

When Post met Acturis co-founders Theo Duchen and David McDonald two years ago, they were eagerly eyeing opportunities outside their UK commercial broking stomping ground, both abroad and closer to home. McDonald admitted he would be disappointed not to have any international business in play by the end of 2013 and, indeed, in January 2014, Acturis announced it had completed a deal to acquire Denmark-based specialist insurance provider Nordic Insurance Software.

NIS an assistance, travel and health insurance specialist that already operated in more than 30 countries delivered Acturis its goal of going from a UK-focused software provider to a global operator. The company’s acquisition of German motor insurance software provider NAFI eight months later put it among the leading insurance software providers in Germany, bringing its UK-based insurer clients a new route to that market.

Fifteen years after they first joined forces, Duchen and McDonald are enjoying the challenges presented by a more demanding and tech-savvy UK market – as well as the excitement of entering new territories.

Nothing is ruled out when it comes to further acquisitions, but McDonald is clear that bedding down and growing their recently acquired businesses – as well as continuing to grow organically in the UK – are more important.

What has been the most significant change to the business in the past two years?
McDonald: The UK business has grown by 40% in that period. In the meantime we made two acquisitions – NIS based in Copenhagen, which is a global business, and NAFI based in Höxter, Germany, which is focused on German motor business. Those deals mean that in the current financial year [ending September 2015], north of 20% of revenue will be international certainly if we include the international component of Acturis itself.

Duchen: Two years ago, our international revenue outside the UK was zero – but now roughly a quarter of business is international. That’s pretty good going. We never wanted to be restricted to the UK and there are a lot of opportunities in which we can use our experience to go into international [markets].

What about the organic international expansion?
McDonald: There are two things: First is our small number of brokers in other countries – they are typically overseas outposts of our UK clients. In fact, we are probably one of the leading software houses in east Africa. We have broker clients in Kenya, Uganda and Tanzania. One person we know had a broker friend in Nairobi who needed a platform and, for us, once they are connected onto our system, it isn’t much different than if the broker was sitting in Nottingham. At the moment that is a relatively small part of the story. [Most of our business comes from] what we do with insurance companies – where we have a suite of products that are available through our extranet to a broker base. We have several clients with a European footprint and we do the same in Europe for them.

Duchen: The broker channel in these countries is growing, so [our software management system] is a good tool to use to get a foothold in these markets.

McDonald: It’s relatively low-cost and enables the companies to build on the investment they have already made in the UK and extend into other markets.

Was it always your intention to acquire businesses?
McDonald: The acquisitions are not trying to achieve the same as Acturis. NIS is about very specific, vertical, niche areas within insurance that have a global nature to them. There are few other vertical areas where this can be applied.

Duchen: NIS is in very different areas from us. We’ve always been interested in the travel, assistance and international health insurance markets but they aren’t areas in which the UK broker channel has had a big presence. It gives us the opportunity to get a strong presence in what is a global market. It is also strong in dealing with complex claims. We’ve already had our first implementation in pet and that has and gone well. I can see huge opportunities for pet, where the claims area is surprisingly complex. Pet will be going live soon.

McDonald: NAFI, on the other hand, provides what might be thought of in the UK as a pricing engine for private motor and fleet. If you are a broker in Germany, you will almost certainly have NAFI as the provider of your motor quote pricing. There are 3000 brokers in Germany using the system and that is pretty much the whole of the market. We see as it as a starting point for us to develop the sort of electronic trading that we’ve been doing in the UK for 15 years.

Were the companies you acquired looking for a way to expand or to sell up?
Duchen: They were looking for a partner to help them grow.

McDonald: A lot of companies are conservatively managed. Perhaps they needed a boost to go into other lines of business. We want to expand NAFI into different lines within Germany – our aim is to connect NAFI with the Acturis offering. This means our insurance customers here that want to participate in the German market can be linked up with electronic trading through the Acturis technology and then connected to 3000 brokers. We have something quite interesting to offer insurers.

Duchen: It offers them a low-cost electronic way of entering a market.

Are further deals on the horizon?
McDonald: We are always looking at opportunities but nothing is concrete. We want to look more closely at these [two acquisitions] and get them going and we have plenty to do in the UK. Our user base is up more than 30% in the UK in two years.

Duchen: We can’t lose sight of fact that 75% to 80% of our business is still focused in the UK. There are 12,500 full-time users of our system here.

Have you grown in personal lines in the way you hoped?
Duchen: E-commerce is growing. We work with a lot of business to customer websites now. Two years ago that was just beginning.

Has there been a cultural change around e-trading?
Duchen: People didn’t wake up one morning and see the light, but the conversations people have are changing. For example, in e-trade-focused user groups, three years ago, a lot of users would be asking ‘How do I?’ – but now they ask us very specific questions and suggest improvements.

Does that make our job harder or easier?
Duchen: It is more challenging but more interesting. We get some great suggestions.

Has your peer group become more sophisticated as a whole?
McDonald: All firms are investing and every player has different obstacles to overcome. We invest more than 20% of our revenue in research and development every year. We are lucky that our core system is relatively young; we don’t have a 25-year-old legacy system to contend with.

Duchen: And the cloud-based system enables more opportunities for us as we move on.

McDonald: Six years ago, the cloud or software-as-a-service hosted in cloud wasn’t necessarily an advantage to us; we had to sell it to clients. But now it is clearly a massive advantage as so many customers are looking at that sort of solution.

What is your view on the role of peer-to-peer insurance?
Duchen: If you didn’t know the insurance industry you would think it’s a no-brainer. But I cannot see how it is going to be that popular – existing players don’t exactly make a fortune out of motor insurance. Prices are falling, so why would a peer group want to make a loss? There are pockets [where people struggle to find insurance], but it isn’t like in banking where whole swathes of SMEs couldn’t get loans for a time.

Do you work much in the field of telematics?
Duchen: It is growing and certainly becoming more embedded in fleet. We have a growing personal lines book so we are starting to see a bit more of that.

McDonald: In some ways telematics data is another form of input, and with the cloud-based system we already have, the technology is in place to allow pricing of product. We are connected to about six aggregators and doing real-time pricing with them, which has been a big thing for us.

Have you increased headcount?
McDonald: We are up another 20% in the UK. Last year, we hired 60 graduates, and about 55 of those are still with us. From 200 UK staff in January 2013, overall headcount now stands at 242 UK staff and 92 overseas.

What are your thoughts on regulation of the sector?
Duchen: The cost of regulation here in the UK does not put us at an advantage and my fear is that it is not even-handed across the European Union. The regulatory burden is huge for brokers and it is not like the industry is growing. Look at any indices and it is flat or negative, and since 2010 inflation running has been running at 12% to 14%. Can the industry afford [regulation] is the question – and I do not know if it can.

What can we expect in the next 12 months?
McDonald: I would hope total group revenue will be up another 20% to 25% and we will have made big progress in Germany, bedded in [the NAFI acquisition] and have some other product lines in place.

Duchen: In the UK we will have certainly done more work around functionality.

This article was published in the 19 February edition of Post magazine.