Scotland speaks

Who was there:

Andrew Adam, sales director (Scotland), Towergate

Colin Preston, regional managing director, Bluefin

Stevie Sutherland, business development director, Kwik Fit

Neil Campbell, director, CCRS

Alan Johnston, director, Moreland

Jim Rennie, Scotland manager, LV=

Mike Crane, commercial director, LV=

Chair: Andrew Tjaardstra, editor, PB

The recession

Tjaardstra How bad is the recession in Scotland and what impact has it had on your businesses?

Campbell From our point of view, the recession has been positive; people are reviewing insurance costs and looking at alternatives. The construction sector has been hit hard and it has to cut its costs. Only one of our clients has gone into administration and our focus is very much on organic growth. We are winning business off other brokers.

Rennie This is potentially the worst recession in 50 years and the impact is meant to be greater here than elsewhere according to the analysts. Is the recession driving existing books of business into the hands of the likes of Neil's company [CCRS], which are marketing-led businesses?

Preston Clearly, construction is suffering but some sectors are even expanding.

Adam Some of our clients have gone bust but, on the other hand, we are seeing a lot of business startups. Our profit and loss account is similar to last year.

Johnston We haven't seen too much [of a negative] impact and it is not all doom and gloom. Some of our construction clients have moved into the public sector.

Adam We do a lot of social housing business and there is growth there.

Campbell A big part of the Scottish economy is government agencies and they will have to start cutting soon.

Sutherland From our perspective, competitiveness is key. We are venture capital-owned and we are on target to hit our EBITDA this year. It is difficult and we have to be smarter - looking at different brands to capture different segments of the market.

Rennie Are clients still strong on up-selling?

Sutherland Last month was our best for this and we haven't seen any decline; we may have to give some discounts on the premium though.

Tjaardstra How does it compare to other recessions?

Crane My concern is that the recession has been called a bit early. The press hype is there but there is more to come. From an insurance perspective, you expect to see changes in claims trends and businesses going out of business - we haven't seen that much yet. It started in an odd way - in the financial sector - so perhaps it may not pan out like previous ones.

Adam There is more to come. I know many clients that have money and are postponing refurbishment because of a lack of confidence.

Campbell Some businesses are watching and waiting.

Johnston There are projects such as the extension of the M74 and the athletes' village for the Commonwealth Games will be turned into social housing. I know many builders that are retraining to become civil engineers because that is where the money is.

Campbell A lot of the larger companies are coming down the food chain to bid for smaller projects because they need cash flow, so squeezing out the smaller companies.

Preston We aren't doing anything that differently from 15 to 20 years ago; if you look after a client through thick and thin then you have a business.

Adam There are more clients putting you to the test and you might lose a few.

Preston If you have a good relationship with a client, they will give you that final bite of the cherry.

Tjaardstra Are there any practical management changes that you are introducing?

Campbell The market for employment is strong and there are better candidates. A few years ago, for experienced staff, you would have to offer a substantial increase in salary. More people are attracted to our roles and we are being inundated with applications for any jobs going.

Sutherland We increased our head count this year and have two new account executives growing insurer development.

Preston We are watching costs - such as stationary - like any other business but there is no pay freeze.

Johnston No pay freezes. We are looking at costs more but nothing is too different.

Sutherland The most successful businesses will always look at their costs.

Insurers

Tjaardstra How has the insurance market evolved in Scotland in the last few years?

Sutherland For us, the internet has changed things. There is more business over the web.

Johnston Insurers are constantly changing. It is almost that they have their own cycle. A few years ago, Axa and Aviva were chasing consolidators and, as they drop out and chase provincials, others replace them.

Adam They centralise and then decentralise. They combine commercial and personal and then vive versa: always changing.

Sutherland Axa has just cut almost 600 jobs.

Johnston Five years ago, Axa was saying that commercial direct was the way to go, now they are not; in five years time it will be back. I think Allianz could pick up a lot of these jobs with its Lloyds TSB deal. There is nothing new: they all think they can break the cycles but they can't.

Campbell Look at the market at any point of time and it is always changing. When insurers open up regional offices in Scotland, as with QBE, they come into the market aggressively.

Preston There were offices in Aberdeen, Edinburgh and Glasgow 30 years ago. Now it is just Glasgow. New players coming in - such as QBE and LV - help keep the market dynamic. We need to keep placing business locally to encourage the insurers to open here.

Campbell There is no substitute for local service but sometimes insurers can't provide documents that I can come to collect. Two large insurers can't even scan a document, which is breathtaking and unacceptable.

Johnston Some [insurers] are appallingly slow with technology; there is no need to send paper documents any more.

Rennie Sometimes we issue the document as a PDF but the brokers still print it. We should be working electronically.

Crane Insurers should be able to provide documents in the way brokers and clients want it: as hard copy, an electronic document or through a web-based portal. You have to have all of them. It is disappointing that service hasn't moved on from 20 years ago - the same problems are still cropping up. They are still failing to deal with the hygiene factors, such as will I get a reply in an acceptable timeframe?

Johnston It is hard to know when to submit presentations to be prioritised correctly. If you submit them early then they aren't prioritised.

Crane It is crazy for brokers to chase insurers.

Campbell Sometimes, the service is so poor it is as if we are doing them a favour; there is then an opportunity for the hungry, dynamic insurers. There is a lack of clear strategy. It is dead easy: we need the proximate price, a quick response, documents issued and claims handled. Yet, they make it hard.

Sutherland At General Electric, the chief executive officers would come up with five-year plans but leave after a year-and-a-half. We provide data for insurers that they can analyse but some large insurers don't do anything with it.

Crane Legacy issues are still a massive constraint.

Tjaardstra Is it important to have a local office?

Adam Local relationships are key to getting things done.

Preston Yes, though it is important that insurers empower the local offices.

Adam If you are liked better than the competition then you can still get a result.

Johnston There are too many underwriters and not enough salesmen. Too many people at insurers have an attitude and there is not enough 'let's get things done'. You can always tell when head office phones in: the staff become scared to do stuff. We know their strategies better than they do; there is a lack of initiative and they are scared of authority.

Hardening market

Tjaardstra Is there any sign of a hardening market here?

Adam As long as there is dual pricing, there will be double standards.

Johnston Fleet is rising slowly and is in line with inflation. However, I have spoken to three major insurers in the last week that claim the difference between renewal and new business is between 1% and 1.5%. That is not my experience. Renewals should really be cheaper.

Adam There is a walk-away price.

Campbell The cycle is still the same and it always lags behind.

Crane There is a lag and the rating action has not been adequate. Some say we need a big event [to start a hard market] but what bigger event can there be than a global financial meltdown?

Campbell I think the events of September 11, 2001 were an easy excuse as a catalyst for the last hard market. There have been larger events since, such as the hurricanes.

Johnston It is the capacity in the market that gives new opportunities and keeps prices lower.

Adam In a recession, it is hard to raise prices. However, if you help them through the first part then you could put prices up.

Rennie This industry is still counter-cyclical.

Preston I think we still might need a cataclysmic event [for a hard market]. When Aviva tried to put up prices, everybody else saw it is an opportunity.

Crane We need to understand the different sectors and make scientific adjustments to price. You shouldn't apply generic increases.

Consolidation

Tjaardstra What is the latest in Scottish broker consolidation?

Johnston Those brokers that have ignored them have missed the best time to sell. Those in their early fifties are here to stay.

Adam Peter Cullum has said that we have more funds to acquire, although it is very difficult to identify those that want to sell.

Campbell There are a lot of regional businesses that are consistent but not growing.

Crane Some are still treating their businesses as a lifestyle.

Adam The first thing we look at when we see a client is which company is the holding broker.

Crane The pricing landscape appears to have changed.

Johnston If you were to sell out at one-and-a-half times earnings then you could make that over five years.

Sutherland We bought Express Insurance and it has been a great strategic fit and given us significant profitable growth.

Adam There have been only three start-ups in Scotland over the last five years. It is hard to start your own business.

Campbell For us, consolidation is an opportunity because the consolidated brokers become more inwardly focused.

Preston At Bluefin there is a consultative, regional approach, and we now have more access to facilities and markets.