Profile: Gary Humphreys, Markerstudy

Markerstudy’s Gary Humphreys is a busy man. As group underwriting director he spends most of his time heading up the company’s insurance division, which he says will write around £750m in premium this year. On a day-to-day basis this means devising the strategy, business planning and performance reviews, to name just a few tasks. But his job as the firm’s second-to-largest shareholder also includes sitting on the boards of all of the other companies within the Markerstudy group, which currently includes 51 brands.

The insurer grabbed the headlines in May this year when it pulled its agency with Brightside, affecting private car and commercial vehicle van insurance at the broker. Humphreys insists that his personal relationships with Brightside chief executive officer Mark Cliff and its managing director for volume lines Russell Bence, who was previously at Markerstudy, are still good. But the story follows a complicated history between the two companies, including Markerstudy’s failed bid to buy the broker back in 2013. Now three years later Humphreys admits that another move to bid for Brightside could be on the horizon.

Acquisition trail

“We’re always interested in any acquisition if it’s a business we feel we can do something with,” he states. “At the time we thought our price was right and we were out bid. If it [Brightside] came back on the market at the right price then we might well be interested again.” 

Humphreys further discloses that Markerstudy has been in “informal talks” with Brightside owner Anacap. He keeps tight-lipped on any details and declines to confirm whether discussions will lead to a new bid, adding that the insurer is constantly in talks with multiple parties.

If it [Brightside] came back on the market at the right price then we might well be interested again

“We talk to everybody on an informal basis and Anacap is one of those,” he continues. “There are lots of capital markets that are involved in the insurance sector and obviously the money behind Towergate, A-Plan and Autonet are all partners of ours. We do try to talk to these people regularly but it doesn’t necessarily lead to anything.”

Acquisitions remain then an option, but are not at the top of the list of priorities for the company, because “there is integration work to be done” following previous purchases. The insurer has purchased a number of businesses since it was set up in 2000, and Humphreys highlights that only niche products and markets are of interest.

“We’re in talks with a couple of different opportunities in the market,” Humphreys adds. “There is nothing in terms of concrete offers, but there are a few opportunities that perhaps will land in the first quarter of next year.” 

Maintaining that Markerstudy has previously always funded purchases out of its profits and revenue, he states that the future might bring a different strategy and a need for alternative arrangements.

“Depending on the scale of the acquisitions we may need a partner. Certainly in the broking arena the types of businesses that are now attractive and potentially would be complementary to us would need to be of a significant size.”

In addition to pulling its agency with Brightside, Markerstudy also recently reduced the amount of business it has with Be Wiser. But Humphreys denies that there is anything unusual going on at the insurer and notes that the action was taken following routine performance evaluations.

“Be Wiser was just an underperforming book. We take those decisions on a regular basis,” he continues, explaining that the company reviews brokers’ performance every quarter. “This year we’ve taken action on several accounts as you would expect.”

Markerstudy’s main focus is still on private motor insurance. But it recently ventured into pet insurance and household, areas which Humphreys says the firm is keen to grow in further, be it through organic growth or acquisitions. He confirms that, in addition to the insurance division, the company is looking to expand its broker business.

“We’ve moved the focus away from straight motor business to more niches, more commercial, more household,” he explains. “We’ll continue to do that because you really need big scale to compete with the nationals now on personal lines.”

Unrated

Unrated insurers have been in the headlines over the past few months, normally for negative reasons. Issues have included the liquidation of Gibraltar-based motor insurer Enterprise Insurance and the ongoing case of Gable Insurance, which has been declared in default by the Financial Services Compensation Scheme. Humphreys explains that the troubled insurers have increased awareness across the UK market and spun rating back into focus for brokers. 

“A number of brokers who had large Enterprise accounts have woken up to the fact that they need to do their own due diligence on their panel of insurers,” he states. “Historically a broking view would be that it’s the regulator’s job. Whilst there is some truth in that, everyone has a responsibility to make sure that they’re happy about who they trade with.”

According to the director, he is receiving a rising number of queries from brokers about Markerstudy’s financial information as a result. However, he highlights that despite the current interest the group will not be going for a rating, stating that for a privately owned company “it is not of any benefit”. 

“We’ve always shared information with the large brokers as part of their due diligence,” he continues. “But some of the smaller brokers, who I don’t think would even have thought about asking previously, are now interested.”

Brexit fallout

Brexit and the possible impact leaving the European Union could have is another challenge for the insurance industry. Markerstudy’s group chief executive officer Kevin Spencer was not shy in making powerful remarks ahead of the EU referendum in June. He urged his employees to vote remain and warned about possible job cuts at the company in case of an out vote. When asked about the result of the referendum and whether it will lead to redundancies at Markerstudy, Humphreys takes a measured standpoint. Noting that it is too early to say what impact Brexit will have until it is clear what will come from the government’s negotiations, he adds that he is “not overly concerned” from a business perspective.

“It was a shock, but the main issue for us as a business is more about understanding what that means, which hopefully over the next few months will become a bit clearer,” he says. He also highlights that the company’s offices in Gibraltar and Malta ensure it has “a foot in both camps”.

“It probably just makes some opportunities less attractive at the moment because you wouldn’t necessarily go into certain territories until you know what the future holds from a trading perspective.”

We’re regulated by the Financial Conduct Authority and the Prudential Regulation Authority here, and we’re regulated in Malta and in Gibraltar and it’s pretty much the same regulation the world over nowadays anyway

He maintains that Gibraltar is an advantageous place for the insurer to be domiciled, even after Brexit, and stresses that the smaller scale of the “good quality regulation” allows the provider to have a closer working relationship with the regulator there.

“Whether the UK will have a greater influence over Gibraltar post-Brexit is a possibility,” he contemplates. “But we’re regulated by the Financial Conduct Authority and the Prudential Regulation Authority here, and we’re regulated in Malta and in Gibraltar and it’s pretty much the same regulation the world over nowadays anyway.” 

Speaking of regulation, it is clear that Solvency II is a hot topic at Markerstudy at the moment. Humphreys remarks that it will be “interesting to see whether the UK’s Solvency II policy is dumbed down to more European levels” following Brexit.

“It was supposed to be a European-wide standard, but it’s clear that it’s anything but European-wide in its interpretation,” the director continues. “Different jurisdictions have taken different approaches and it’s generally accepted that the UK has to an extent gold-plated Solvency II, which for UK companies is potentially a commercial disadvantage.”

He denies that being unrated would mean any disadvantage when it comes to being able to comply with Solvency II rules. Humphreys reports that Markerstudy had previously hoped that Solvency II, being a European standard, would “negate the influence of rating agencies”. 

Aside from a possibly more lenient approach to Solvency II, he makes it clear that he is not one of the people who believe that the regulatory burden will become easier for businesses in the UK following Brexit.

“The regulation mandate is being driven by the UK government and not by Europe,” he states.

It’s generally accepted that the UK has to an extent gold-plated Solvency II, which for UK companies is potentially a commercial disadvantage

Broker focus

So what are the other challenges in the market at the moment? Humphreys points to an increase in mergers and acquisitions with consolidators buying many of the high street brokers. As a result, broker networks are becoming more prevalent as those who don’t want to be acquired “group together to try and protect their market”.

“There have been a number of managing general agents that have sprung up recently, which suggests that larger insurers aren’t servicing the high street brokers in the way they used to,” he adds. 

According to Humphreys, the specialist nature of its business means that Markerstudy must work closely with its brokers. He explains that the company takes feedback from the around 2,000 broker offices it deals with every quarter in order to find out what challenges they are facing and what kind of assistance they need.

The insurer works with the full spectrum of the broking community from the big nationals to one man bands.

“A lot of our niche products work only with high street specialists and not with the big nationals,” he continues, noting that he wants to support the smaller local brokers.

“Generally speaking, they’re closer to their customers. Because they can’t compete with the nationals on price it’s generally a service-led proposition, which means that customer retention is better. There are fewer fraudulent cases where they’re dealing with the customer directly as well.” 

Driving change

Markerstudy also operates in telematics, but according to Humphreys the market for this type of insurance is plateauing because customers see the large amounts of data collected as intrusive. He explains that there is currently a move towards camera technology, which is viewed by the public as more of a protective measure.

“The majority of people who go down the telematics route are younger drivers and it’s forced through necessity rather than a choice,” he notes. “You often find at renewal that they move away from a black box policy.”

The director adds that the company gets 90% retention on its camera policies, which is more than double what it gets on black box insurance. Despite the public’s hesitation in sharing personal information with insurers, Humphreys claims that the future is all about big data and using it to get ahead of competitors. He predicts there will be a larger regulatory focus on data and what it is used for when the changes to the data protection laws come into force in 2018.

“The key is using data to avoid fraud because the margins in personal lines are pretty slim,” he concludes. “If you can avoid the fraud you’ve got a reasonable chance of coming out the right side.”