King of the high street

Patrick Smith is an insurance institution. Following a distinguished career at Norwich Union, he resigned in 1999 - after being pipped to the post of head of general insurance by Patrick Snowball.

Since then, Smith has not looked back, after throwing himself into broking and turning round a company that was going backwards under the ownership of Royal & SunAlliance. From 2001, in partnership with French insurer MMA, Smith embarked on a rapid acquisition expansion that has seen Swinton sitting close to the top of the personal lines' broking ladder.

In fact, the little-known internet aggregator Its4me, established by Smith in 2000, was the catalyst for the expansion.

Smith says: "Swinton was originally going to be an opportunity for Alexander Forbes to expand into general retail but they pulled out. Its4me was dependent on Swinton, and MMA bought both businesses. It bought Swinton's 250 branches for £54m."

He adds: "Swinton had been shrinking for a decade (from 1.3m to 750,000 policies) and had no commercial direction. It had a policy of being a professional advice company - the mantra was 'we will advise you but won't sell to you. Instead, we focused on selling and cross-selling."

In 2002, Swinton bought Colonnade bringing 60 more branches and the merger of 39 shops, something Smith describes as a "nice sizeable extra step". This brought an additional two call centres to add to Swinton's one but these were quickly closed and the policies were distributed amongst shops to give staff, according to Smith, "something to do when the phone didn't ring."

Meanwhile, an overflow and out-of-hours call centre was established. Smith's deep belief in the high-street model was crystallised when, in the 1990s, he wrote a critique of AA closing its branch network.

So why the conviction in branches? Smith explains: "Most people don't visit a branch, the value of a branch comes from the knowledge it is there - it brings comfort. When we analyse the response to cold calling or direct mail, we know that people respond more in areas where we have branches. The propensity to buy from us increases the closer you are to a branch. In addition, branch retention is higher than call centres."

With each branch acting as the unit in charge of the local area, Smith believes there is more employee loyalty due to small teams doing a more satisfying rounded job. He says: "Each one is a mini-business. It is more rewarding than being in a team of 100 or 200. It is a more personal approach. Customer queries are not dealt with in call centres."

Hence, despite the recent acquisition of Budget Retail, which has added 92 branches, Smith is willing to allow a Budget and a Swinton to stand opposite each other.

A total of 250 acquisitions, which on average are books of business of around 50,000 policies, have been achieved with the help of bank loans. The preferred model is to integrate books of business into its branches. Smith adds it is expensive to start a branch from scratch. Whereas, after the acquisition of Colonnade, the acquisition trail was suspended to allow a bedding in process, Smith says Swinton is set to continue buying post-Budget, with money being no object. He says openly: "We can afford to buy anything on the market."

With substantial buying power, more acquisitions are expected shortly. Smith rules out moves for A-Plan and Endsleigh - two other large players in the high street broking market - but says he is looking to increase the policy count from two million to three million in the next five years. Although Swinton is the largest player on the high street, this is clearly not big enough for Smith who has higher ambitions. He reflects: "At three million, you are then a big boy."

There are several strands of organic growth that Smith is looking to tap. One is Gateway, a new Gibraltar-based insurer backed by MMA, which is designed to offer a second stream of quotes if Swinton's original panel fails to come up with the goods - something it does 75% of the time. This will be offered to customers from October, before their leads are passed onto other brokers via Call Connection. He concedes the Financial Services Authority and his panel are examining the move closely and adds "it is essential we continue to give the panel every opportunity."

Another organic strategy is to establish Swinton's presence on the internet and the integration of Its4Me, which has over 100,000 policyholders. He anticipates one-third of Swinton's new motor business will be written on the internet next year. There is even a small to medium-sized enterprise call centre writing £13m of gross written premium, which Smith wants to double in three years. The SME side uses Acturis, as opposed to Software Solutions Partners for the majority of the business.

Behind all of this is a large and targeted marketing campaign. Although Swinton was a pioneer in television advertising, Smith feels it does not pay, especially for motor. Instead, Swinton spends between £16 and £18m on discounts, Call Connection, Yellow Pages, mail shots and cross-selling opportunities.

Commenting on the huge advertising campaigns of the direct writers, Smith says it is half about bringing in new business, and half about advertising the brand.

Norwich Union's recent rise in motor rates has hit the headlines like nothing else in insurance for years. Smith reflects: "There is a history of cyclical bad behaviour. This has been broken and instead of plunging towards the depths, it is drifting towards poor results. Better cars and speed cameras have helped. however. There has been an inexorable rise in unit claims costs and rates will have to rise against these costs, which have eroded profits. Is Norwich Union right and others wrong? The answer is probably somewhere in the middle. Insurers are slow to react - when does a blip become a trend?"

He continues: "Underwriters always believe they are right. Underwriting is not a science and, ultimately, the market is the decider. Huge rapid increases are not good for our business - we look for an orderly increase. Norwich Union has always had courage but it is not the market leader and that is the significant change from the last crisis. You make judgements on prospective claims rather than past results." However, NU has seen a major setback at Its4me where, according to Smith, in August it has declined from a 5% share to being "off the screen."

A key influence

Smith has a fascinating CV which amply demonstrates he is one of the key influences in the rise of Norwich Union. After studying maths at Cambridge, he joined NU in an actuarial job, before moving to France in 1978 for what he describes as his "first serious role". His job title, 'actuary on a placement from head office reporting to French management', painstakingly agreed between British and French management shows how times have changed.

Smith says: "In those days in the UK actuaries told you what was what and there was no product development from the point of view of the customer." In France it was different, and Smith became director technique (chief actuary) focusing on product development. He adds: "I loved the contacts with the agents."

Returning to the UK he took up the task of group direct marketing manager with a staff of one, Jackie Ordish, now operations director at Swinton. Smith says: "I put together a strategy, she can deliver."

In 1990, he was asked to head up Norwich Union Healthcare after finding out it had not managed to find anybody for the job. Approached in August, with the launch planned for September, he soon found out it had no "sale force, brokers or marketing in place - it was assumed the main inspectors would sell it."

He comments: "It was a desert. I had to build up everything meaningful in the business in six months. Within a year, we were back on track with the business plan. This was a defining year in my life because I then knew I could go into the unknown and do something."

Then, in 1992, Smith became the head of personal lines which brought him home to Norwich from Eastleigh. It was a tough time for the industry, with it suffering its worst year of loss making. Smith says: "In two years we lost more money than we had in the past two hundred years. The claims and premium cycle was 18 months and we only did rates reviews twice a year." Smith radically changed the structure by removing underwriters, and converted the thinking from underwriting to pricing. Smith comments: "Too many people had black box thinking, and were using their positions and exercising baronetcies. Smith then saw an opportunity to grow fast, when he felt the market overcorrected itself, by sitting below on price.

In 1995 Smith helped set up NU Direct, which is now so well established it is hard to imagine the insurance world without it. When asked about the conflict this would have with brokers, he says: "In France, I became involved in the channel conflict with direct marketing. However, as long as you look after the agents and what they want, they will turn a blind eye. We were distributing healthcare through six channels." In addition to these roles he also became chairman of the former high street broker Hill House Hammond, which NU had acquired.

Soon he was in charge of all retail business, and his career seemed destined to reach the heights of being put in charge of all general business, however, Patrick Snowball had other ideas. Smith reflects: "I wouldn't have been satisfied working at the same level."

Instead, Smith concentrated on putting together a plan to improve and develop Swinton, and spent the next year looking for ways to buy the broker. Smith says: "It was the biggest player (in the personal lines broking market) and had the potential of Hill House Hammond, where profits had increased from £3m to £19m in five years."

Future paths

The rest is history, and profits at Swinton have increased from £2.7m to £29.6m in 2005. The gross written premium is set to rise to over £600m with the integration of Budget Retail's book of business. In August alone, Swinton wrote 250,000 motor policies.

When asked about his future career path, Smith, who has been moving towards the strategic end of the business, comments: "I will continue as long as the challenges are there. I am not good at managing the status quo. However, I won't be here in five years time and won't be a non-executive. I will probably be involved in other business interests." He has begun putting a succession plan in place, with two direct reports - Jackie Ordish, Swinton's operations director, and another is Peter Halpin, deputy chief executive.

CV

2001: Chief executive, Swinton

1995: Managing director, Norwich Union Direct

1992: Director of Personal Lines, Norwich Union

1992: Chairman, Hill House Hammond

1990: Managing director, Norwich Union Healthcare

1986: Group direct marketing manager, Norwich Union

1978: Director technique, Norwich Union, France

1971: Actuary, Norwich Union.