Blanc endorsement

As the credit crunch reverberates around the world and places obstacles in the spokes of some of the large, aggressively expanding companies, it is refreshing to check in with the management of small, well run companies that are not trying to rule the world. Although scale can provide great value for thousands and potentially millions of shareholders ultimately, small management teams such as at FMW Risk Services can provide stability and an innovative culture that may give some of their larger rivals some food for thought.

Not every broker wins three awards in the same year, with two coming from prestigious events for brokers. Essex-based FMW Risk Services pulled off the triple victory by winning Commercial Lines Broker of the Year at the British Insurance Awards in July, Commercial Lines Team of the Year at the UK Broker Awards and Essex Business of the Year at the Essex Business Awards - both of the last two coming in September. The awards reflect FMW's niche approach that has seen it become a key player in areas such as transport and media.

One of the most notable features of FMW has been the introduction of a set commission rate. Sparked by a conflicts of interest thematic review by the Financial Services Authority, FMW re-examined the way it placed its business. In order to bring in the most revenue from insurers the broker had been earning volume-based commission over-riders and profit shares, and these "trigger points" could be seen potentially as reasons for moving business from insurer to insurer. Blanc believes that "many brokers hadn't even thought about it", suggesting that it had become ingrained in the culture.

Instead, the broker negotiated a standard tariff of commissions ranging from 10% to 25% with a flat 2% over-rider for all business, which Blanc describes as a management fee for being part of an approved panel of insurers. He says: "We have identical deals with all our underwriters and the 2% includes work we do that actively promotes their business."

Referring to other brokers now reviewing their remuneration structure, he jokes: "We are pleased that Willis is following FMW's line." Blanc fails to understand why some classes of business derive more commission than others and reflects: "Who said one should be this and one should be the other? Who said that personal accident travel should pay 25% commission and motor fleet should pay 10%? It makes no sense, particularly given that motor fleet is one of the most work-intensive classes of business that there is. Most brokers work on around 15% and if all commissions were the same that would be the simplest route." Commenting on fees, Blanc feels that clients "don't want another lawyer or accountant to deal with", adding that it is refreshing they can pay a one-off charge for their insurance without having to worry about further payments later in the year. He adds: "It can take hundreds of hours to negotiate claims settlements. We have found that fee is another word for 'discount'; clients never know when they will have a claim."

Disclosure

Despite FMW being open with the market about how it gains its revenue, the broker is not keen to see the introduction of mandatory commission disclosure. He says: "Independent financial advisers bombard you with paperwork and it is no more transparent than a brick wall. Although it is all there, and if you have a PhD in economics you can work it out, it is not transparent. I have severe doubts how it can be enforced in any meaningful way and it wouldn't be a level playing field. If something is not broken, why try and fix it?"

Blanc feels that competition between brokers makes it difficult to see where disclosure could bring benefit to the client. He reflects: "Our clients don't need the FSA to protect their bottom lines; we are often competing against several brokers for a hauler's contractors business and if we have limped away with 10% at the end of the day we are doing extremely well! It is an extremely competitive market." Reflecting on how times have changed, he says: "Before, the structure of the deal was put together by the underwriter, but now we want them to be members of our club. A reason for us to move business should be because of improved policy terms."

FMW's business is divided into four sectors - transport and logistics, construction, property and media satellite - and includes diverse insurances such as food and drink. Blanc remarks: "As opposed to following locations, we follow niches and go wherever the business is." The target has been to establish £1m relationships with each partner insurer.

A £12m premium transport book includes car transportation companies, vehicle salvage companies, motor trade, vehicle storage units and trailer manufacturers. The car transportation is a niche in its truest sense as it has less than two hundred companies; FMW has cornered it by placing 100 of them. Blanc explains: "We deal with anybody that is involved in moving vehicles and anything to do with the car transportation sector. It is a specialist niche and that is the joy of it."

FMW does business in locations where the cars are either built or imported, such as Tilbury, Purfleet, Sheerness, Grimsby and Bristol. The company works with a variety of insurers including Carraig (which is registered in Gibraltar), Norwich Union, St. Paul Travelers and underwriting agency Lonham Marine for goods in transit and marine cargo; around 20% of FMW's business is placed with Lloyd's.

The book

Like most commercial brokers FMW has a significant construction book, with around £9m of premium placed. Blanc is keen to stress they are not involved in what he terms as the "scruffy end" of the market such as scaffolders or demolition contractors. FMW plays at the "high end" of property development, including a top 10 UK housebuilder that develops many brownfield sites. Commenting on the volatility of the UK housing market, Blanc says: "The housebuilders' profits would decline if property values decreased, but they can afford a decrease of up to 20% because they are doing so well now."

Other clients include civil engineers and tunnelling contractors on the high-end liability side. For premium spends of over a quarter of a million pounds, FMW has a range of self-insurance schemes. Blanc says: "We help clients put together self-insurance programs, especially for high-end liability. This is particularly successful in the hard market and we aim to be first choice for anybody looking for a self-insurance solution, especially when the market turns again. We have a great relationship with Abacus at Lloyd's and St. Paul Travelers. The companies take a greater share of the risk; we are not talking about captives." In addition to encouraging the harnessing of greater risk in-house, FMW is in the process of trying to secure two- to three-year deals while "the going is still good".

As well as the "usual suspects" such as Axa and Zurich, Blanc also uses underwriting agencies such as Primary and Towergate-owned Fusion. Following the breakdown in relationship between Royal and SunAlliance and Primary, Blanc has some interesting views on Primary's operating model. He comments: "From an underwriting point of view Primary was putting up some very aggressive pricing, but their surveyors made sure it worked for them by being vigorous on the surveys. The only thing that was odd was that we'd often have risks held by Axa or RSA and then Primary would then bid aggressively for them. I can remember it almost came to a bidding war and you'd have Axa and Primary in a Dutch auction for a piece of business" He added that it was probably going to be insured with Axa anyway, however, Blanc feels it has been resolved: "They have sorted it out now but it was a bit odd for a while."

FMW has also established a niche within a niche, introducing a satellite product negotiated with an insurer at Lloyd's to allow channels to join BSkyB and incorporate red button technology or digital interactive broadcasting from "Bingo to Playboy", according to Blanc. BSkyB insists on an indemnity in case anything the broadcaster does damages the platform, with that indemnity being a cross between a public liability and professional indemnity. He says: "The broadcaster has two choices: go to the bank to get a bond to give to BSkyB that eats into their credit lines - often an impossibility for smaller channels - or use a broker." Whereas originally FMW had a monopoly on this market, other brokers such as Aon have now jumped on board. He says: "The end is nigh as a niche as we don't perceive it is the kind of business that could ever have a claim and the premiums are now coming down."

Diversification

FMW is diversifying further, playing in the high net worth field and setting up a private clients division. The company is set to sign three affinity deals in the coming months.

The brokerage was formed after a management buy-out led by Blanc, then aged 30, in December 2000. Negotiating a £1.6m, five-year loan with Lloyds TSB, Blanc took a 46% stake while another director, Dominic MacMahon, took 29%. There are a further five shareholders including non-executive Richard Shale, a chartered accountant who gave a "detailed and complicated forecast to the bank". He says: "They were the only bank out of five that was prepared to back us. It was a very big bank loan and a further £1.4m was raised from the management team." The team acquired the business from the FMW Group, which had £12m worth of premium at the time. Blanc has been at the brokerage since 1989 and became the first male outside of an executive position to join the company.

A five-year repayment plan was smashed when all the borrowed capital was returned within two-and-a-half years and the management team has yet to return to Lloyd's for more funding, although the door is very much open. The catalyst for the buyout was the purchase of Farr - which has a large housing association book - by Hercules, which has subsequently been bought by the troubled Erinaceous Group. At the time Farr was sold, Blanc cashed in his 10% stake, gathered after joining the board in 1996 and taking part in a management buy-out in 1998, putting it towards buying out the remaining general book of business.

Blanc says the first six months under new management was "petrifying". He adds that it was "nerve wracking" watching sales and remarks: "We were a general, general insurance broker and a bit of a mish mash". In 2003, Blanc embarked upon a mission to go niche and has not looked back. The strategy was crystallised following a meeting with industry sage Tony Cornell, who emphasised the branding of being a niche player and gave Blanc and his management team the confidence to drive into specialist areas. Blanc's strategy has so far come off and is likely to pay dividends in the hard market.

With a turnover of £5m and profits edging £1m, it would be an attractive target for a consolidator, however, there are no plans to sell. It is probably not a coincidence that many of the younger broker entrepreneurs feel the same way, despite the rich rewards on offer from the consolidators and their determination to grow through acquisition.

Instead, Blanc has a target of £50m of gross premium income for his business. Despite a softening in the market, the broker managed to grow its revenues by 5% and its top line GWP by over 15%. It has never acquired and has a young management team, with Blanc insisting they would rather win business than buy a business. Blanc comments: "We will double premium income in a hard market and we are ahead of budget this year. However, the market needs to move en masse and past losses have not filtered through; we can't smooth the cycle."

Targeting to grow their key accounts with insurers to over £2m, you would not bet against seeing them in awards supplements again in the near future. The broker is on the right track to make some serious gains and win even more awards.

CV - PETER BLANC

2000: Managing director of FMW Risk Services

1998: Acquired a minority shareholding and became co-manager of the company's UK commercial division

1996: Joined the board of FMW

1992: Account executive, FMW

1989: Joined FMW as a trainee motor broker

1988: Joined Legal and General as an underwriting trainee.