Lyndon Wood - King of his castle

As private equity piles into insurance broking like there is no tomorrow, Lyndon Wood is as far removed from the secretive, pension fund-funded buy-out firms as you can get. Almost debt free, based in picturesque south Wales and without a tie in sight, Mr Wood is the antithesis of the private equity suits that have created alliances with some of the leading personalities in broking and are poring over brokers' financial results with many hundreds of millions to spend.

Based 10 miles from Cardiff, Lyndon Wood's business has been able to make a mark across the UK thanks to its being a pioneer in building relationships between brokers and insurers on the internet. Wood's business model is simple but effective, distributing insurance products with a proactive marketing approach. He also likes to act first and fast and is out there banging on insurers' doors telling them to get on with it. He says: "The hardest thing is speeding up insurance companies. I have connections from the top down and a reputation for delivery; the hardest thing for them is keeping up with me." His business approach is forthright: up and at 'em. It is not only insurers that he reserves his criticism for, as he comments about his peers: "I think some brokers surround themselves with negativity and need to wake up; there are too many that moan. You are in business and that is exciting and fun. I am a salesperson and look for opportunity every step of the way."

Wood is determined to grow rapidly despite the stalling economic outlook: "I don't recognise hard and soft markets and don't feel them as a business. If you paid attention to everything that is going on out there then you wouldn't do anything. You have to come out fighting; we are increasing our sales force and writing more business."

Wood's business has gone through many ups and downs and his current success reflects well the fact that you learn so much when things go wrong. Starting off at the tender age of 19 in a non-regulated world in the days of soaring interest rates in 1990, he approached a myriad of insurers to find out what they covered and soon carved out several niches, though he would not advocate a similar move now, citing his lack of experience: "My first agency was with Aegon writing self-drive hire cover, then I started insuring nightclubs and received messages to place business from other brokers out of the blue." This approach was successful until the market softened around five years later - income went to zero with the onset of a softening market and the realisation that brokers no longer needed him to place the business.

Contingency action

Perhaps undermining his argument of not needing to pay too much attention to the underlying economic environment, Wood was again caught out after the events of September 11, 2001, when he had 90% of his business placed 'in one basket' with a Lloyd's binding authority. With little capacity or access to agents, he lost 45% of his clients, on which he reflects: "This was my most stressful time." Filling a gaping hole in his business, Wood bought a small broker in Liverpool in order to access a significantly wider agency base and then promptly closed the broker down. He started to write business with the likes of insurance giants Norwich Union, Royal & SunAlliance and NIG and has not looked back.

Showing how far he has come, he has invested heavily in training recently. In January's PB he wrote in the Viewpoint column: "The uplift in our business last year was down to the investment in the training and development of our staff." (PB, January 2008, p.13) He even argues that the psychological aspect of training and the motivation it can inspire is more beneficial than "gaining increased technical know-how". Wood prefers to hire those fresh to the industry and believes that school leavers can be moulded, preferring them to those with corporate backgrounds that may have developed tunnel vision at insurers. He comments: "Often, these companies restrict lateral thinking and creativeness." Moorhouse has its own training academy and a dedicated team of in-house trainers that coach Chartered Insurance Institute courses and some from the Institute of Leadership & Management.

Ironically in these times, one of his biggest challenges is recruitment. There is a huge sign draped outside his office that seems to almost try to suck the locals in from the street and Wood wants to add another 65 staff members by the end of the year to the 111 it already employs. Although Moorhouse's car park is already overflowing, there is plenty of office space for the business to move into. Wood owns the building and recently has expanded, adding a walkway in between the front and back of the offices to ensure that the temperamental Welsh weather is kept at bay. When asked what he looks for in an employee, the answer is predictable: "Hunger and desire; somebody with enthusiasm." This is something that Moorhouse's boss appears to have in bucket loads.

Moorhouse has thousands of brokers that use its online facility, Xbroker, for products such as property owners, goods-in-transit and tradesman's liability. It was the first portal set up for commercial products for brokers and is run through a mixture of its own software (for commercial lines) on Xbroker.com and via software suppliers Open GI, CDL, Insurecom and Software Solutions Partners for personal lines - the latter is something Wood claims that his competitors do not have: "Brokers access those products. We receive the EDI message and report the EDI reports daily to the insurers. The biggest part of the book is private lines, which more than 1,800 brokers have accessed." The brokers vary in size from £200m businesses to one-man bands, again showing that, in the 21st century, utilising technology to your advantage can be more important than where your office is.

Progress

Xbroker started as a strategic alliance with HSBC in June 2003 offering branded products to HSBC Spectrum. Seven mainstream insurers are now on board and, according to Moorhouse, 2,000 brokers have agencies with the commercial facility. Altogether, the site accounts for over £15m of gross written premium. Growth was helped by the acquisition of the failed Caerphilly- and Rugby-based underwriting agency Shakespeare Underwriting in the first quarter of 2006.

The broker chooses how the customer receives the paperwork, though the documentation has both Moorhouse's Xbroker moniker and the insurer's. The product is also run through HSBC Intermediary Marketing Division which, according to its website, "offers financial security to underwriters through specialist credit management and broker vetting skills". Four members of staff are dedicated to ringing brokers to keep up relationships.

Moorhouse develops the scheme with the insurer and in some cases reserves the right to discount it. He describes it as "half of a managing general agent", with some profit shares based on the loss ratio, though Moorhouse does not handle claims. Wood adds: "It is all about quality products at the right price, not about being the cheapest. We negotiate rents with the insurer, launch the product and then sell it to brokers." Just do not call him a wholesaler - he hates the word.

A five-year deal with Cobra is expected to generate around £40m of premium, based on the amount that Cobra controls. Wood explains: "It is what we think is achievable over a five-year period. Cobra had a gap for online trading and we filled that gap." He admits Cobra brokers will get a better deal than the rest of his broker base but defends this point, citing the "scalability and the volume" that such deals can give. In addition, Wood seems perplexed that smaller independents are not already part of networks.

Aiming to add to its £30m of gross written premium in 2007, the Welsh broker is targeting an additional £35m in GWP this year. In February, Moorhouse wrote £4.5m GWP of business and, according to Wood, was on track to beat that amount in March. The firm will have to produce this amount of business consistently if it hopes to achieve target and presumably will involve him hiring all of the extra staff members.

Wood remarks: "Large businesses don't know how to grow organically. I think some of the acquisitions are a bit pricey. Some people are paying £1 for £1 on premium; it could take them four to five years to make a return and by then a competitor could come in.

"What intrigues me is how quickly you can grow a business (organically) in a short space of time. I believe in hyper growth." Questioned as to whether or not he had external help to develop this strategy, Wood dismisses the suggestion: "If you understand your business then why fork out tens of thousands on consultants?" Instead, he works closely with his lead director, Sian Price (there is no managing director or chief executive at Moorhouse), who was recruited as its human resources and training manager in May 2005 and who worked previously at Legal & General as a management development consultant. If Wood has any concerns over the competition from insurers determined to grow their direct market share then he does not show them. Appearing relaxed, he says calmly: "Customers going direct? I don't lose sleep over it; people shop around. Sales increased on Constructaquote.com (one of Moorhouse's retail offerings) after Direct Line ran their direct commercial adverts (which was notorious for using the phrase 'cut out the middleman'). People didn't realise they could buy their commercial insurance in that way."

One area that would help Wood's income significantly would be an increase in commission income. He believes that £250 premiums deserve over 40% commission, given the costs and margins involved. However, he feels that 20% commission is more than enough for the £5,000 risks that could add up to a day's work. Perhaps surprisingly for a regional broker that deals with a large volume of personal lines, he would like a fee structure for every risk and wants "brokers to start acting like lawyers" and says it takes longer to get ACII qualified then to qualify as a lawyer.

It is hard to accuse Wood of lacking ambition and if he gets half way to his target then it is unlikely to be perceived as a failure. Despite the benefits of the acquisition of Shakespeare, Wood is not keen to grow this way again in the near future, though he will not rule out bringing out the cheque book if the "right deal comes up". Wood is also not contemplating selling. He owns 75% of the business while his wife holds the rest. Although his profit and loss accounts have been a little bit bumpy over the last two years, he is confident of a healthy windfall this year, on which he comments: "We have a very small amount of debt; cash is king."

Wood is restless and often texts fellow industry executives in the night with ideas. His aim is a £100m GWP broker in two years; perhaps he sets these targets to make sure he always keeps busy. If the insurers can keep pace with his hyper-growth strategy then Wood will definitely have 'something to smile for' (his firm's motto, which he came up with himself). It certainly would be an interesting conversation if one of the world's private equity chiefs catches up with Lyndon Wood.

FROM NOTHING TO TWO BENTLEY GT CONTINENTALS

Martial arts lover Lyndon Wood left school at 16 without any qualifications to his name and to make matters worse he ended up living in a Ford Escort. Hitting rock bottom when his car broke down in the pouring rain at three in the morning one night, he bought a house, took a job, quit it and set up an insurance business from his living room before he reached the age of 20. Wood confesses that he did not even know the difference between a soft and a hard market when he started out. Today, Wood flies regularly to his villa in Spain and has high-level connections at the majority of the UK's top insurers. His self-confessed weakness is cars and currently he owns four, including a Porsche Cayenne, two Bentley GT Continentals and a Mercedes people carrier.