The luck of the Irish

For decades, the city of Belfast has been synonymous with violence, strife and disruption but it was not always like this. In common with many of the UK's great cities, Belfast came to prominence in the industrial boom of the 18th and 19th Centuries, through linen and rope production, the tobacco trade, heavy engineering, and, most famously of all, shipbuilding.

However, this thriving economy did not last, and by the 1960s Belfast had slipped into serious economic decline as the industries that it had relied upon for so long began to fade away and gradually disappear. The inevitable social and economic problems that followed this decline were, from the late 1960s onwards, compounded by 'the Troubles'.

Apart from the obvious threat to life and limb, the Troubles also had a negative effect on the economy, with investment sporadic and thin on the ground. In fact, such was the hamstrung nature of the Northern Irish economy that billions of pounds in government subsidies were poured into the area simply to keep it afloat. Struggling to keep its head above water during this period was the insurance industry.

Ask anyone about the Belfast insurance market and they will invariably declare that it is 'different'. Ask them why it is different, and you will start to run into problems. That Belfast is somewhat removed from the rest of the UK market is almost an accepted fact, however, discerning what this difference is proves to be much more complicated.

The fact that Belfast was immersed in decades of sectarian and political strife obviously sets it apart from the outset, but why should this feeling of difference persist in these current times of peace and political progress?

To start with, the Belfast market does not seem to follow the same pattern as the rest of the UK. It too is at the mercy of cycles but they tend to be much more pronounced and change at different times than in the rest of the UK, usually just behind or just ahead of the rest of the country.

Secondly, there appears to be far less consolidation taking place. There have been a few mergers and acquisitions within the market but so far there is no sign of the likes of Towergate, Oval or Smart & Cook.

In addition, the direct channel is still in a fledgling state. Direct Line has only been operating in the city for the past three years or so, and the only other players in this arena are Axa's and Allianz Insurance's respective direct vehicles. This may be down to the nature of the people of Northern Ireland and their traditional approach to buying insurance, a feeling that is reinforced by the fact aggregators appear to have made no impact in this region at all.

So these are the symptoms but why is it that the Belfast, and by extension Northern Ireland, market behaves in this way?

Drain on resources

The lack of political and economic certainty has had a significant impact on the market in the past. People were reluctant to invest and even more reluctant to underwrite risks in this city. But the industry did not simply stop operating. It continued operating despite the myriad of problems but players in this market were inevitably inhibited in their business practices and opportunities.

Jim Halliday, managing director at Willis UK and Ireland, has been in the industry for more than 40 years, and has operated in Belfast for most of that time. He is able to identify several reasons why people may view the city's market as inherently different.

"There has been a perceived difference," he explains. "People didn't want to insure property in Belfast, and liability was a problem here too. There was also the impact of the old jury system, which allowed the jury to set the amount of compensation that a liability claimant could receive."

The problem of insuring buildings should surely no longer be a problem but the legacy of this old jury system still lingers in the mind of many an insurance operator. Although it ended 10 years ago, there is still a stigma attached to Belfast's claims history. And while most in the market are willing to accept that, historically, there has been something of a claims culture in the region, they maintain that the actual cost of these claims was lower than in other regions in the UK.

In fact, it is argued that in light of the growth of 'where there's a blame there's a claim' companies, mainland UK is catching up with Northern Ireland in terms of a burgeoning claims culture.

Although terrorist damage was covered by the government, the management of these claims acted as a drain on the resources of the industry in Belfast.

Brian Kelly, director of Crawford & Company, Ireland and UK, believes that the city can press on and behave in the same way as other markets now that its time is no longer devoted to handling terrorism-related claims.

"We dealt with insurance claims as well as criminal damage and terrorist claims in the past. We can now do what our colleagues in the mainland can - we are able to embark on our own initiatives, which will allow us to grow the business," he says.

"We think about the opportunities lost in the past and it makes us hungrier - there is now an expectation that we will be able to grow the business. There is more enthusiasm due to the fact that we now have stability in the community. There is a belief now that the opportunities are there for the taking," he adds.

Mr Kelly's enthusiasm is replicated throughout the Belfast market and among most of its inhabitants. There is hope for the long-term future of this city, and the tangible signs of this are dotted around in the shape of new hotels, conference venues and shopping centres. During the Troubles, this type of long-term investment - and scale of investment - would have been unthinkable, but now that the political situation has steadied, investors have grown in confidence.

Now that the local market has been able to settle and open up, it would seem that the natural progression would be for it become amalgamated into the rest of the UK market and to fall under the same pressures. Surely the time is ripe for consolidators to move in, and for direct writers to make a greater impact? Not so, if you listen to local operators.

Take direct writers, for example. It seems that Belfast is a traditional market that still values one-to-one contact and interaction with brokers.

Gavin Higgins, chief executive of CJ Higgins Insurance Brokers, believes that the very geography of the city has had an impact. "Belfast is compact - it is often called a global village - and news travels fast here. Due to the limited distances involved here, people find it easy to visit their broker as they still want to sit down in front of them to discuss their business," he says.

He believes that this is one of the main reasons that direct writers and aggregators have made such a limited impact.

However, Andrew Galway, development executive at Marsh and chairman of the Northern Ireland branch of the British Insurance Brokers' Association, believes that although the impact has been limited so far, it will not be long before direct writers make a significant impact in Belfast.

"The biggest threat to the market at the moment is direct writers. They are commoditising insurance but people in Belfast still want the service that brokers can provide. This commoditisation goes to the very top level of commercial business in the city," he says - although he still believes that there is a very personal element to the way business is conducted in the city.

Untouched market

Another threat that faces the Belfast market is consolidation. Many would be forgiven for thinking that it would be a case of rich pickings for mainland-based consolidators. While it largely remained untouched during the Troubles, brokers have started to concentrate their efforts on growing their businesses. As such, it seems logical that the same consolidating pressures that have come to play in the rest of the UK would start to apply in the city.

One high-profile mainland consolidator has already started 'sniffing around' looking for potential targets. However, according to local players, it will not be mainland players exploiting Belfast but the other way around.

Steve Kelly, head of trading for Scotland and Ireland at Norwich Union, believes that any potential incomers will not find it easy: "There are huge difficulties for newcomers in Belfast - the idea of people breaking into this city is hard to imagine. It is more likely to be the other way around, as there are the same restrictions here as on the mainland, so Belfast brokers are looking outwards."

Tom McGrath, president of the Belfast Insurance Institute, also sees signs that consolidation is on its way but he is less sure that the indigenous market is as protected as Mr Kelly believes it is.

"In order to grow, brokers will either need to consolidate or start pinching each other's business. Some smaller brokers are looking to sell, and when the time is right, the consolidators might well move in. They will arrive but they will be surprised at how cheap some of the businesses will be," he says.

Despite this belief, Mr Higgins is the perfect example of the growing trend of brokers in this city. CJ Higgins has already completed the purchase of one local rival, and is also nurturing a growing business in Asia.

"The closeness of the market may be inhibiting consolidation," he suggests, "but we are actively looking to acquire businesses as long as they are the right fit and are of the right quality.

"We are looking to acquire firms based in the south of England. We haven't formulated a definite plan yet but we feel it is easier to enter the market there as there is less representation on the ground. Funding will not be an issue," he adds.

So it appears that mainland brokers should be worrying less about how they are going to grow across the water and worry more about the attention that is being paid to them from within the confines of Belfast.

A market that has been operating under unique and debilitating pressures is now finally able to operate as other markets have been free to do. With a population touching 1.7m, and with 100 brokers all fighting to service it, the Northern Ireland market - controlled almost exclusively from Belfast - is finite.

As a result, brokers in the region will either have to start consolidating locally in order to grow, or will have to look elsewhere to acquire new business. It appears that the rest of the UK and the Republic of Ireland are increasingly seen as a sure route to this necessary growth.

Optimism and hope

The overwhelming feeling in Belfast is one of optimism and hope. This is true both of the general population and, more specifically, the insurance market. They are finally able to operate on a level playing field, and players are convinced that they can hold their own with the rest of the UK. "There's no reason why we wouldn't outperform some of the best in the mainland," Mr Higgins says. "We have the ability and the talent, so it's only a matter of time before it happens."

This is more than just bluster. There is a distinct feeling in this market that things are about to take off. Belfast has often been regarded as the poorer cousin of the UK market with all its 'differences' but now that the political cloud that has hung over it for so long has finally been lifted, this city is ready to make its mark on the national market.

Perhaps Crawford & Company's Mr Kelly sums it up best: "Looking forward, the opportunities are fantastic - it is very much a fresh start for us. Finally, the shackles are off."

BELFAST FACT FILE

Belfast is the anglicised version of the area's Irish name, Beal Feirste, meaning "the sandy ford at the mouth of the river". It has been the capital of Northern Ireland since 1920.

The IRA Ceasefire in 1994 and the signing of the Good Friday Agreement in 1998 have given investors increased confidence in Belfast. This has led to a period of sustained economic growth and large-scale redevelopment of the city centre.

The city has by two airports: in 2005, Belfast International Airport was the 11th busiest commercial airport in the UK, while the George Best Belfast City Airport was the 16th busiest.

It is in the top five fastest growing regional economies in the UK.