The PB Interview: View from the rock

Gary Humphreys, who has a strong motor background, has a warning for those about to try something innovative: "Don't pioneer anything: let other people take the blame." He is a cynic because of the criticism his company took by setting up an insurer in Gibraltar in 2001, becoming the first insurer to passport into the UK. The island had a tarnished reputation from the banking sector in the 1990s but it has since become one of the major players in insurance: it serves as a base for Admiral, Zenith and Saga.

Markerstudy likes risks that are different and shies away from competing with the mainstream players most of the time; for example, much of its business is written for young female drivers.

At first, Markerstudy was a broker-only insurer but it has now diversified heavily into broking, with ambitions to move from controlling around £40m of gross written premium to £100m by the end of 2010. It has grown its broking arm, Markerstudy Retail, predominantly through acquisition, purchasing businesses with up to around £10m GWP such as the Insurance Factory, Thames City and Caterers Club; it has even moved into commercial by taking on Sandwell.

Humphreys believes that small, niche brokers that do not compete with the likes of Kwik Fit and AA have a great opportunity to keep close to clients and highlights its broker The Insurance Shop, near Birmingham, as evidence of this: it still handles a large amount of walk-in business.

Another similar broker, Stourbridge-based Mobilers, specialises in mobile hot food vendors, ice cream vans and caterers' liabilities. Markerstudy's brokers deal mostly with specialist areas such as taxis, motor homes, motor trade and mobile units, both over the internet, in person and by phone. Meanwhile, two other Markerstudy brands, The Insurance Factory and Thames City, operate predominantly on aggregators.

Humphreys is not daunted by the challenges of growing his firm's broker book rapidly, after all, Markerstudy has recently more than doubled its insurance business with the acquisition of Zenith. He comments: "With the way personal lines business is bought, by increasing your advertising and aggregator presence, you can grow very rapidly. Our preferred method of growth is by acquisition. We would like to make a good-sized acquisition this year. We would like to move to the next level but we want ownership and control of the business."

Gary Collins has headed the retail division after joining from Fresh Insurance in 2009. Boasting the marketing strapline 'putting fun into insurance', the retail division comprises 12 businesses that Collins is trying to bring together by working on areas such as creating technology systems synergies. He works alongside operations director Mervyn Vaughan and head of sales Russell Bence.

Markerstudy itself makes up about 5% of the broker's account and Humphreys is keen to stress that he doesn't want other underwriters to feel that they are "cherry picking". He says: "We are a niche underwriter and we wouldn't supply enough to support our brokers anyway."

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The underwriter has attracted an increasingly large broker base and now has 1,000 agencies; the acquisition of Zenith's book of business means that Markerstudy will more than double that number.

Humphreys credits Markerstudy's chief executive officer, Kevin Spencer, with creating a board environment from which they can move quickly. He cites the Zenith deal as one such example, which was completed in November 2009 for an undisclosed amount. Humphreys says: "We don't report to lots of committees and are flexible. We have first-mover advantage."

The Zenith brand will remain separate, with actuarial and regulatory capabilities joined together in Gibraltar, although a percentage of Zenith's 200 staff in Haywards Heath is under threat, with a consultancy period having started. In addition, Markerstudy has taken a team of eleven from QBE to its office in Chelmsford, Essex, a number that includes veteran Steve Stone as niche underwriting manager. This follows the Sydney-based insurer's decision to pull out of the UK personal motor market. Following the Zenith deal, some back-office functions will be merged, such as detecting fraud and information technology. Humphreys is keen that a consistent approach be taken across the brands, with them holding joint meetings. To do so, some of the infrastructure in Gibraltar will also be enhanced.

Humphreys gives an insight into the rationale of the deal: "We are very niche and focused on bottom-line profit. Zenith was a fantastically profitable insurer when it was first established in Gibraltar but then it changed directions several times when the initial owners sold the business. Unfortunately, the market that it tried to compete in saw it drawn into competition against the Direct Lines and Esures of this world and Zenith never had the scale. The footprint of the business was clean but the margins were too thin to make a sustainable underwriting profit."

Humphreys continues: "These things are also about timing: as some leave the market, it is good to stay in. Where capacity becomes scarce, underwriting terms tighten and rates harden. We are seeing opportunities to put significant rate increases in across the whole portfolio. Some of this happened in the last quarter of 2009 as HSBC and QBE pulled out of the market: our loss ratio improved 12% in 2009 over 2008." Zurich is also introducing 20% rate increases in March, with insurer chief executive officers continuing to bemoan a lack of rates movement.

Potential

According to Humphreys, of Zenith's £140m book of business, which was bought from Trinidad-based Guardian group, around £80m is "nice, profitable, non-mainstream motor" and with some assistance on the underwriting, he thinks that this book can grow. Some overseas and binding authority business has already been dispensed.

Determined to keep Zenith's name for its 1,500 brokers, Humphreys is unconcerned about branding issues, stating that customers often relate to the broker brand, especially when buying through an aggregator. Of Markerstudy's 1,000 brokers, 80% of personal motor comes through the big names, followed by the upper middle providers such as A-Plan, Allen and Allen and MCE. Humphreys highlights: "Probably 90% of those customers don't know which insurer they have. A brand image is really only vital in direct distribution. I think Markerstudy is proof of that: it is an unusual and quirky name that doesn't roll off the tongue but it's not inhibiting our growth by any means."

Humphreys feels that Zenith had become too introverted and was not interested in ratings or flexible structures, losing focus on some of its market: "We are using our agency development team to rekindle some of those relationships. It is dangerous to set a broker an income target. Profit and products are more important."

The broking sector has been consolidating significantly in recent years in both commercial and personal lines, driving up commission rates and giving customers less choice. Humphreys appears relaxed about this, though: "I wouldn't say we have been hurt by this situation. It is not damaging in the sense of losing business [with it coming out of the high street to a more centralized place] and there is little movement in terms of commission, although some have decided to go down the net commission route because of aggregators."

Ironically, Humphreys is not a fan of consolidation. He comments : "We want to see local brokers resurgent. We are trying, through an intitiative with the HSBC Intermediary marketing division, to support high street brokers because we see a greater profit margin where customers can visit the shop and are close to their broker. We are giving them marketing support and we also have our own marketing company, Gingermonkeys." This cheekily named company has already given Markerstudy a light feel to its website and advertising.

Expansion

Humphreys says that he is looking at Northern Ireland to establish further broker relationships: "Where Markerstudy has been successful is that it has always stayed away from mass-market motor. We write niche and non-standard products and so our competitors are smaller, the premiums are higher and there is more underwriting skill required because these niches are more volatile."

Markerstudy's young female driver product accounts for almost half of the insurer's business. By contrast, its Solo product, a non-standard policy for those with 'unattractive occupations', is for distressed business and is expensive; it tends to have low renewals because the firm does not look to reduce premiums. The company also deals with motorbike, taxi and schemes business. Humphreys says: "We understand that niche and non-standard business is only bad news if you don't price it or underwrite it properly. We are always a people-led business and our underwriting heads understand the risks."

With a GWP target of £300m for 2010, these are heady times for an insurance group reaching its tenth anniversary next year. Expect further broker acquisitions, possibly even the purchase of an insurer, though don't expect it to move from its niches.