Deakin and Kitson - Playing the efficiency game

Change is constant and prevalent in super-sized companies that are adapting to a world dominated by the internet, an interdependent global economy and local market shifts such as broker consolidation. Norwich Union is the market-leading general insurance company in the UK, yet even this position cannot guarantee much for long as competition from major European players keeps them fretting about the future.

Over the last year - under the leadership of Andrew Moss, group chief executive of Aviva and the man who forced Patrick Snowball into a dramatic exit - the insurer has embarked on a 'one Aviva, twice the value' vision. This has led to NU's parent's name, Aviva, becoming the dominant group brand, meaning that the firm will be no longer as closely associated with its hometown of Norwich. Poland, Ireland (where the company is known as Hibernian) and the UK are the last to incorporate the Aviva moniker; from 2010, only one subsidiary in Holland will trade without it.

Sales and marketing director John Kitson is optimistic about the change, arguing it is a "logical business strategy" that has been "heavily researched". Claiming there will be little impact on brokers that have become tired of insurers' efforts to re-brand, Kitson says: "We will phase it in and it is critical we don't give them (brokers) hassle or cost." He adds: "We are keeping our logo (the spire of Norwich cathedral) and are proud of our heritage." As NU announced the change, it said that it was sponsoring Norwich City for the next three seasons; the Aviva sign is already on the seating and fan John Kitson said, at the time of signing the deal, that it was the best week of his life.

Although Kitson may be flying high after being promoted last year to head of sales and marketing for intermediaries, RAC and NU Direct from his previous role as intermediary director, around 1,800 NU staff will soon be licking their wounds after yet another round of layoffs from an insurer that appears addicted to them. Union Unite described the job cuts as "brutal" and "devastating": in Worthing, 600 staff will be made redundant after the insurer moves to smaller premises from its current Warren Road office. Altogether, 22 offices will be affected. In the eight years since the merger of Commercial Union and Norwich Union, around 10,000 jobs have been thrown on the scrapheap.

Wide perspective

Janice Deakin - corporate sales director for RAC, NU affinities and brokers - and Kitson are keen to emphasise the bigger picture: the company employs 18,000 staff in its general insurance arm and takes on thousands of new starters every year. Although NU is officially closing its operational services (such as customer services in 13 offices including Basildon and Sheffield) these functions will then be covered by seven so-called 'centres of excellence' located in: Norwich; Perth; Glasgow; Stretford; Manchester; Leicester and Southend. Both Deakin and Kitson are keen to point out that 40 broker sites remain with around 1,200 underwriters in tow. Deakin says: "We are everywhere that we need to be, though we wouldn't rule out opening more sites."

From NU's perspective, it appears that smaller is better for insurers as it attempts finally to tackle duplication, evolving technology and a significantly changed broker market. The closing of its Morley (Aviva's property investment arm) owned local sports ground Pinebanks in Norwich is a sign of the times in UK general insurance. Last year, 30 directors were let go as the streamlining process in the UK general insurance arm stepped up a gear and the likes of Kitson and Deakin were given expanded responsibilities.

The constant worry and stress over jobs has surely meant that morale has taken a hit, especially for those being asked to reapply for their own jobs. Kitson is bullish: "If you are in financial services and can't cope with significant change then perhaps you shouldn't be there. We don't want to change constantly and want to minimise the angst and anguish. In marketing, we went through considerable change; we spent a lot of time rebuilding morale and refocusing people. I've been through it myself both here and at other organisations - you become used to it. There is more change in the broking world than in insurance." In his individual manner, Kitson describes broker buy-outs: "Kevin was with Tim and is now with Gary ... the list goes on and on."

The NU management duo are both frank when explaining what the press release calls "major operational transformation". Deakin says: "Our responsibility is to be a competitive and lean organisation. We want straight-through processing with the least number of touch points and errors." Brokers have complained regularly to PB that too many NU staff are involved in projects, though Kitson defends NU's approach: "We regularly come out on top for service but we feel we are the best of an average bunch and we won't rest on our laurels. This is a big jump forward rather than baby-steps." He explains: "We need to improve our structures, processes, servicing and our office locations. In the next two to three years, we want to take a big step forward in our service so that between 25% to 30% of our communication are because somewhere along the line the process has failed, which is not good for the customer or the broker."

Better

Kitson continues: "Our online systems have improved and four offices will be consolidated for claims handling." We have heard this kind of talk from insurers before though Deakin is explicit in determining what will constitute improvement: "Our measure of success would be that a broker would rarely ever call to chase us; we would be helping them proactively."

There is a feeling in the market that the rise of broker-owned managing general agents could be a factor in the need for insurers to reconsider their operating structures. Deakin and Kitson downplay NU's significance, stating that less than 10% of its broker business is sourced through MGAs. Despite rumours of expanding the book at Giles' Ink Underwriting - which specialises in high-risk construction and printing presses - and setting up an MGA with Willis, Kitson says: "We are comfortable with this level and there is a slim chance of it expanding. We might talk selectively with a broker about an MGA, though don't assume that we will be part of an expanding Ink Underwriting." Deakin has reservations about the MGA model growing too fast: "The 'general' word is the biggest worry. The heart of delegated underwriting in this context was always with niche and specialist areas. It would be an interesting question to ask brokers 'why an MGA for a broker?' Everybody wants something different." Kitson continues: "Some brokers will blur into becoming an insurer but we won't blur into becoming a broker."

Another significant talking point in the market is the rise of the broker consolidator. In an increasingly complicated world, it is perhaps understandable that consolidation could help out insurers' cost bases, despite their appetites for enhanced commissions, though NU's chief executive Igal Mayer has insisted on NU's commitment to supporting small independent community brokers. Deakin says: "We have 3,500 to 4,000 relationships and it is our objective and desire to keep a broad distribution platform through brokers; we see brokers as the future route to market." Kitson thinks that consolidation may have peaked and believes frustration with the model could lead to some significant developments, including some consolidators overstretching themselves. He says: "Last year was dominated by the Axa moves and this year has been the turn of the capital gains tax changes on 5 April: a crescendo with an enormous amount of activity followed by the credit crunch and then rates moving up a tad following the flood losses. This year, the question is: have the consolidators peaked? Have some of them taken on a bit much?" Perkins Slade was a high-profile deal that collapsed in June after months of talks and Oval's attempts to delay the purchase until the autumn. Despite NU's protests, is it not contributing to this consolidation by investing in Yate-based Jelf? Deakin responds: "This allows us to support them and to keep them independent." Kitson adds: "We like Jelf's model."

NU is continuing with its broker investment strategy. The insurer decided in May to invest £5.7m in Group Direct in a reverse management buyout of Brightside, floating it on the Alternative Investment Market at £60m. Kitson says that its brief stake in Giles, bought by Charterhouse soon after, was not the initial plan: "Our intention is not to go in for a quick buck. We are asked all the time for equity stakes but we are very selective and this was a good investment." Deakin adds: "It (NU's broker-stake building strategy) is not a step towards full acquisition. The brokers explain their strategic rationale and if it fits then we'll invest, although it is unlikely that we would go above a 10% stake."

Both Kitson and Deakin are keen to stress the role that independent brokers play in their business lives, despite their expanding roles which include RAC and affinities. Kitson says: "50% of our revenues come from broking. Janice and myself will spend more time in the broking market than anywhere else. For some of our brokers, that's not enough and they understandably want our time and input. Some say that they miss us and, on the contrary, some say that we are a pain in the arse."

Despite warnings from Igal Mayer that Axa could tie its brokers as he claims has happened in Quebec, Kitson is quick to defend Stuart Reid's approach at Axa-owned Venture Preference: "Everything about his attitude and business behaviour is like an independent broker. While it is like that, we are delighted to work with Stuart. We want to encourage entrepreneurialism and we don't buy brokers - we are not quick, nimble entrepreneurs.

"I question who we are to give them advice. We sit in admiration of how they work." In a seemingly pre-prepared speech, Kitson then stresses how well he believes the chemistry in his team works: "We have learned an enormous amount about the market over the last few years: Janice, Phil Bayles, George Berrie (both directors of trading) and Igal Mayer (who has now moved to the suburbs of London). Igal is an insurance guy and the combination is working pretty well. We don't stand on ceremony. Whether we are meeting the small brokers or the affinity players, we interchange and it is rare to see a team stay together that long (although he means only a few years). It is a hard, tough market and we are pleased with the support that our brokers have given us in the market. To those commercial brokers that have helped us move the market forward, thank you."

Result

Kitson is evasive on the subject of NU's bottom line. In the context of a balance sheet propped up by massive reserve releases and the effects of the devastating floods of summer 2007, he is keen to accentuate the positive: "We can't be specific but we are holding our own and are most pleased with commercial motor. We are carrying about a 4.5% increase in commercial motor." Although this could be yet another false dawn for the hopes of a hard market, it is certainly an encouraging sign and something for the market to build on.

As insurers continue to catch up with reduced rates, change in the broker market and the runaway train of technology, it is clear that the management team at Norwich Union is prepared to make tough decisions in order to keep ahead of the competition. Kitson and Deakin talk a good game but now must deliver on their promises to keep the broker market at the forefront of their minds and improve the insurer's internal processes. It will not be easy and it is likely that there will be many twists and turns, even over the next 12 months, yet insurance is a long-term game and we could have to wait until 2012 before being able to judge if the decisions made this year are beneficial to brokers and Norwich Union alike. However, by then there could be a few more job cuts to digest.

JANICE DEAKIN

Janice Deakin is Chartered Institute of Purchasing & Supply qualified and worked originally in larger supply chain and commercial roles in pharmaceuticals and manufacturing. She was at Westland Helicopters in the two years before joining Norwich Union in March 2000, managing a £2bn contract to provide Apache helicopters to the UK Ministry of Defence. Deakin started her career at NU with claims sourcing and supply and then led the £2bn supply-chain function; she became commercial director at RAC - the supply chain team delivered over £50m of synergy savings following its acquisition in 2005. In September 2006, Deakin was appointed trading director, covering sales of commercial and personal lines business through 40 regional offices across the UK with around 1,800 staff. In November 2007, Deakin was appointed corporate sales director for RAC, NU affinities and brokers.

JOHN KITSON

John Kitson was head of life marketing at LloydsTSB when he joined NU in December 1995 as its head of marketing. Following the merger with CGU, Kitson was appointed director of product development and e-trading and then became NU's retail director in 2003, responsible for profit and loss at Norwich Union Direct, brand and advertising strategy, new product development and 3,000 staff in the UK and India. He was appointed as the firm's consumer director in 2005, which included all NU marketing, personal lines sales and servicing, NU Direct and building the RAC Direct insurance business for which he led 5,000 staff. Kitson became NU's intermediary director in January 2006 and, following a restructure, took on the role of sales and marketing director for intermediaries, RAC and NU Direct in 2007. He is also a member of the Norwich Union insurance executive.