Martin Hudson - Under my umbrella

Yet another insurer rebrand has hit the market this month. On this occasion, Travelers is bombarding the market with red umbrellas as the insurer shows off its new logo and drops the famous St Paul prefix from its name in the UK on 4 February, following a similar disposal in the US in 2007.

The man overseeing this change is Martin Hudson, chief executive of what is now Travelers International, who comments on the rebrand: "The idea is to reconnect with our brokers and re-energise the business."

Although Travelers has concentrated its efforts on building relationships with a relatively small section of the broking community in the UK, its dominant parent in the US market has a staggering 12,000 broker agencies as a result of the April 2004 merger of St Paul Companies and Travelers Property Casualty, making it the second largest insurer in the US. Travelers should also be seen as a significant player within the UK commercial market as it falls firmly within the top 20 commercial insurers (PB, January 2008, p.40).

Far and wide

Hudson's remit extends to brokers across Canada, the UK and Ireland. He says he is "very well known" to a few UK broker managers, though he runs what he describes as an inverted structure where those with profile are the people who do the business day to day. Asked if brokers can call him, he replies: "Yes, but I believe it would happen rarely. They know they can pick up the phone to me but they only use that facility sparingly, because if they used it once a week it would rapidly lose traction."

Hudson is a measured and thoughtful leader and it can be argued that his company's approach to the UK market also demonstrates these traits. He appears more of a consultative CEO than an authoritative figure; he is extremely careful with his phrasing during the interview and, despite dealing with brutal catastrophes, recognises the subtleties of the market.

Hudson says: "The passage of time has allowed us to be more of a major force in the US than in the UK. We have been building the product set, people and infrastructure and investing in automation as a precursor to having a market footprint in the UK that looks much more like the US. Our vision is of that gap closing. We are building gradually as circumstances allow."

Travelers' principal areas of insurance are in the public sector, technology, automotive and professional indemnity. The sectors mirror those of its US parent although recently the UK arm has also moved into writing more general business.

Working with around 300 brokers, Travelers has been in the UK for 18 years and has underwriting offices controlling over £250m of gross written premium in London, Birmingham, St Albans and Manchester. The company also opened an office in Leeds in March 2007. There is a staff of 400 people in the UK, with a further 250 in its syndicate and 80 in Ireland. When the Leeds office opened a spokesman for the insurer said that, in addition to its specialist property and casualty lines, the firm would also target general commercial sectors such as manufacturing, large retail, hotel and leisure groups, property ownership and warehousing.

One example of the company's business footprint is its relationship with the Royal Chartered Institute of Surveyors, which was put in place to provide advice on risk management to individual firms. Travelers runs seminars that any of its members are entitled to attend; the partnership is in its third year and includes sponsorship of the RICS risk management conference.

Meanwhile, Travelers Syndicate Management offers risks such as airport liability, cargo and global property, kidnap and ransom and property damage to electricity generators and ports. This business is conducted through Syndicate 5000 at Lloyd's, which has a capacity of around £250m GWP, and a property team for power facilities is the latest to be acquired. In May, Travelers snapped up Galatea Underwriting Agencies, a specialist Lloyd's marine underwriting agency. The company is now trying to shore up its technology offering in Lloyd's and has backed the ACORD standard, though Hudson admits there could be a painful transition for some brokers as technology becomes more prevalent and takes over some of their usual duties. Determined for the latest technology venture to succeed, Hudson is certainly not put off by the failure of Kinnect.

For Hudson, the most challenging aspect of running a successful insurer is finding high-quality staff members. He says: "We have recruited a lot of people over the last 18 months. You have to be patient to find the right person and then assimiliate them into our culture; that is the hardest thing. If you don't do it right then it has the worst consequences, if you do it correctly it is more of an enabler of business success."

Hudson does not think there is such a thing as a "right culture", but says: "A firm must be authentic, consistent and one in which you can communicate with your broker partners. We have a particular culture that favours people willing to take personal responsibility. One of my mantras is to try to keep authority balanced with accountability. There is a self-regulating outcome here: the more somebody wants to get ahead and take charge (of a situation) then the more they take responsibility for the outcome (of it). Those that like to hide in the crowd hate it here."

As ever, managing the volatility of prices is forefront of an insurer chief executive's mind. Commenting on the market cycle, Hudson says: "It is easier to navigate the market cycle if you base your judgement on data rather than sentiment and avoid the herd mentality. The market is not pricing for natural peril risk as much as it should. If you regard the floods as a one-off then you could write it off to experience, but you don't need to be an Al Gore follower to think that this kind of event will become more frequent and less predictable. The industry will get better at working out the average annual cost of the storms and floods.

"People should consider what is cyclical. There are very few things the professionals within our industry do differently today from 2004. The only underwriting element that 'gets a tick in the cyclical bucket' is the price we charge." He believes that sticking to his guns will reap the best rewards: "Concentrating on data gives me the confidence to be aggressive at the right times and also know when to step back. Our GWP should not be a target but rather an outcome."

Of course, it is not an insurer-only responsibility to ensure that the cycle runs smoothly. Hudson says both brokers and clients can help: "We work closely with around 300 brokers and our key relationships are with 50 of them. It is best where the bandwidth of the conversation between client, broker and insurer is 'broadband', where all of our knowledge is flowing through the broker to the client and everything the broker knows about that client is coming to us.

"There is a certain group of clients that is prepared to look at its long-term risk needs and to trade its information for value. If our brokers can use us to help them win one of those clients then we will be their best partner. We are less useful for transactional clients. We are far more valuable in helping brokers win a new client rather than debating an extra percentage point on existing portfolios. This approach builds broker business and will make them more money."

Consolidation

Hudson is also wary of some of the models used by a number of the consolidators that have been dominating the market for the last five years: "There are different models of consolidator ranging from those acting as a holding company and those that allow the broker's basic value proposition to the end client to be maintained. At the other end is the complete purchase of the soul and industrialising the value proposition in order to extract additional margin from the risk providers. We work very poorly with the latter, partly because of the economics; I don't think some of the profit commission structures pay the risk capital provided by the insurer to support the transaction. In that structure, when things go badly, they win and I lose. I think that is a mug's game."

It could be said that the trust built up between the client and the acquired broker means that consolidators are not challenged by the client after buying the broker. Hudson is concerned that the client is not being informed of the full situation post-acquisition. He comments: "It is important the client is informed about the change in access to their insurer markets and the effect of consolidation on the cost of their product. I have a worry that they are not in that position and have placements restricted to a small panel of insurers, and that the dramatic increase in what the customer pays in brokerage is not sufficiently transparent.

"I'm a capitalist and so I think there is no model that shouldn't be allowed, though I have a concern that clients don't understand the effect of the consolidation. On the whole it is made opaque. I'm surprised that clients don't show more interest in this. If everybody charges £100, out of which an increasing number of insurers are receiving £50 rather than £70, then the more volatile a market price correction will become."

Clearly, much of the consolidation is having an impact on Travelers' relationships with its brokers. As Travelers has a small target audience, there is a legitimate question to be asked regarding the potential for growth from its current 300-broker partner base. Hudson explains: "It really matters who the broker is and whether or not you have to have enough transactions with their client base to hold a conversation that is not just transactional but more qualitative. It would be counter-strategic to appoint another 300 brokers to achieve 15% in growth; the cost and lack of substance in the broker relationships would be perilous."

Hudson also believes that there will be many more start-up brokers in the future: "Some of our brokers are bought but consolidation is not an end state. There are bright people in their late 20s and early 30s who want the opportunities that their bosses have." Asked if he would work in partnership with a broker to try and find new young talent, he responds: "Yes. We don't want to run them, but short of that the field is open. You can't go from zero to hero just by pitching-up with a good story; it is about understanding. We are prepared to put in the effort to learn and find that the broker is either motivated or not. We have long, deep and vibrant relationships with the closest 50 (brokers)."

Growth

Despite a relatively small broker panel, the business development team has doubled over the last 18 months and Travelers has been strengthening relationships with brokers such as Berns Brett, Aston Scott and St Giles.

Travelers has also been steadily working on the claims side, an effort that has seen 50 staff members work from home on a full-time basis. Reflecting on his favoured business model, he says: "I prefer the notion of a swarm to a notion of a battleship. Investment in big inflexible bits of infrastructure is not something we have done. I believe if you are being attacked by a tank it is easy to repel but if by a swarm of bees it is too much. The more you create large infrastructure, the more it develops its own agenda. We want to retain a unified sense of culture and strategy but that is impaired when you build infrastructure that employees feel more loyalty to than the whole of the business."

Despite the rebrand, there will be no dramatic change in Travelers' direction in 2008, on which Hudson expounds: "2007 was a rich year from a product development point of view. We released marine industries, media and entertainment and our Xpress online covers. We also recruited a team for property insurance for power and utilities.

"The next step in building the footprint is to continue to build our products and relationships, keeping the momentum going. We have a growing appetite for general commercial business and are upbeat about our new red umbrella. The market will bring us whatever the market brings us but I am confident, whatever it is, we have the resources to be successful regardless of cycle."

MARTIN HUDSON BIOGRAPHY

Martin Hudson started work at a Lloyd's syndicate in 1977, moving to the St Katherine Insurance Company in 1980 which was subsequently acquired by St Paul Fire & Marine in 1988.

Between 1977 and 1990 his main area of activity was liability insurance and reinsurance in North America.

In 1990, St Paul entered the UK business-to-business insurance market and Hudson was one of the early founders of a new greenfield operation. He conducted the firm's new product research, development and launch programme until 1995, then going on to lead the company's growth to its current level of over £230m of gross written premium.

Hudson was appointed chief executive officer of the company's Lloyd's operation in 2002.