Heir aspirant

Despite being at the helm of Norwich Union General Insurance for under a year, Mark Hodges seems at home as the managing director of the UKs largest composite insurer; something that could be expected of a man who was once protege to the likes of Patrick Snowball and Ken Wallace.

Hodges has held a position at the sharp end throughout all the many evolutions of NU and it is this knowledge and experience that has propelled him into the hot seat. "If you go back through the acquisitions of London and Edinburgh, which I was very involved in, the demutualisation and floatation of Norwich Union, the merger and then, last year, the acquisition of the RAC, there have been some significant things going on in the company which have helped to stretch me and keep me here," explains Hodges. As such, his ambitions are currently all centred around his current role, which holds many fresh challenges. One such challenge is balancing NUGIs responsibility as a dominant force in UK general insurance with imposing its scale to competitive advantage - a dynamic Hodges is mindful of, not least with motor.

He explains: "We have said for some time that motor rates need to go up at least in line with claims inflation. So then you'd be looking at 6% or so this year - we achieved 4% last year and certainly it's in my plans." Brokers will be glad to hear that this includes fleet, which is good news on the basis that when fleet rates tip, the market generally follows.

However, things are not so straight forward for Hodges in bringing this about, as he explains: "It is interesting, as we started the year, that a number of players have reduced their rates. We believe we have advantage because of our scale, because of our supply chain, because of the knowledge we have of the book and we're calling for a degree of what we would see as common sense in the market."

Lack of consensus

Given that, at present, there seems to be a total lack of consensus among insurers about motor rates, just because NU wants to put its rates up - despite its size - the market may not follow suit. "There's no doubt that at the moment it's mixed out there," Hodges says, adding "but certainly from a Norwich Union perspective we are looking for motor rate increases - and I'd include fleets in that - to go up in line with inflation this year."

Hodges is keen to ensure he keeps steering NUGI in the right direction with its focus on underwriting discipline. As underwriting for profit was embraced by insurers, that found their balance sheets and stock portfolios in tatters after years of unprofitability and stock market collapse, this action has produced profits that are now being used to fuel competition.

However, Hodges says discipline is not just something to be embraced during the lean years and is hopeful that, as competition heats up, sense will ultimately prevail. "Fundamentally, we believe in underwriting for profit as a company and if you look at the capital, and what it's exposed to, we've had relatively benign weather in the UK for a number of years now but you only need one catastrophic event and that could put the capital in a different position.

"The reality is the market has been successful and balance sheets have been built back up to where they were maybe a few years ago. The issue around discipline is, if you look at the ownership of the larger companies, those firms are all looking at capital efficiency and sensible long term returns. I'd like to think that you'd still see that underwriting discipline, certainly that's how we feel but it's difficult to predict what others will do."

On the point about balancing NUs responsibility as the UKs largest general insurer and its considerations as a commercial animal, Hodges says: "At the time of the merger between Norwich Union and CGU we discussed the difference between being the biggest player in the market and being the market leader, in terms of what does that mean from a behavioural perspective.

"We take our position very seriously. We do have a responsibility to our shareholders, primarily in terms of rating sustainability, and that plays out in terms of what it means for our customers because we just don't see the sense in rates peaking and toughing every two or three years. We do think about that leadership position but of course we are exposed to market forces and ultimately we've got scale, we think that's an advantage, and it's something we want to keep - nobody ever shrunk to greatness."

Regarding the staff reshuffling NU has engaged in recently, Hodges hopes NU will, as it has after mergers and acquisitions, continue to evolve top class management. "We inevitably went through restructuring after the acquisition of the RAC, which saw the creation of the the NU GI division that I run. Obviously, Simon Machell has gone off to run the RAC business and there is a natural evolution going on there in terms of management teams and who's responsible for the day to day running of the company. One of the successes of NU is that we can continually evolve senior teams and develop people, and I'd expect that to continue while ensuring a degree of stability. In terms of the broker market, we have as our intermediated director John Kitson, who I think is a class act - having appointed him - and I hope he will be around for a long time and be a success in that market."

When asked about the criticism of insurers that they are just becoming capital providers, as they delegate the underwriting and servicing of business, Hodges is reticent about the proportion of NU business handled by underwriting agencies and intermediaries.

However, he comments: "All insurers are interested in cost as it's a source of competitive advantage. However, I would say any business where we delegate the servicing or to some extent, and to some extent is important to me, the underwriting is subject to rigorous controls.

"Also with some of our bigger partners, where there's a blend in terms of who's looking after the customer and who's doing what, we're absolutely clear about the relative authority and we don't underwrite anything we don't understand, or where we don't have a say in the quality of the underwriting process. We're not seeking to be a capacity player, that's a dangerous route for insurance companies to go down."

It may seem something of an oxymoron in business terms that Norwich Union's commercial business - its largest profit centre - has remained the same size for over five years. So what are NUs plans to grow it - is the next logical step to acquire commercial books of business? "For the personal lines acquisition process we have a model in which to feed those sorts of books. It's not been a huge source of business for us but it has been a reasonable one. We have a model with NUD, which is well established now, and we have good experience of how to transfer those from an intermediated basis onto a direct basis and that reflects the general market trend in standard motor business.

"However, in commercial it's very different because we don't have that direct capability. There's been lots of speculation but the strategic analysis we've done suggests that the vast majority will stay as intermediated business. That is because customers are looking for advice and that's a different type of advice to when you buy a standard product."

He adds that commercial direct will remain at the simple risks and smaller end of the spectrum. He continues: "The simple answer to the question 'are we interested in buying commercial books of business?' is no, because we don't have the model and it's not where we see things going in the future."

Commercial growth

About NU's commercial growth, Hodges says: "The book has been profitable but in terms of growth it depends where you peg it from. If you go back to 2000 to the time of the merger we still have a smaller overall account. That's because we came out of things like London markets, and we've cleaned the book to be more disciplined in what we would and wouldn't underwrite. We want to underwrite where we have the core skills, the underwriters are hugely important to the model we've got, we still have a distributed model with 40 offices around UK.

"From that peg you could say we're smaller but in the past three years - having got the book to what we want it to be - in policy terms its about the same size; we haven't grown it dramatically. Obviously, the market has been fairly hard, up until around 18 months ago. It's softened a bit now and I would say it's more or less the same sort of size it has been but we would like to grow the account."

So, how exactly? "We've done lots of research into what brokers want from us. They want fast and easy access to decision makers and want good quality products and servicing. The number one thing we're working on is how we can improve the fast and easy access to decision makers," Hodges states.

So, the commercial growth plan is, by giving brokers what they need, you hope they will in turn bring more high quality business to NU? "If we can provide high quality underwriters and service that is efficient, effective and uses technology appropriately, together with our brand and our knowledge, I hope we'd be a company that brokers would choose to work with. The challenge for us is to make ourselves a company of choice through technology and service and people, and that's what we are striving to do."

The other inescapable preoccupation the industry has at present, apart from regulation, is Towergate, particularly the implications its sale would have on the market. Amid much speculation and supposal about this NU is one name that often crops up as a potential suitor. Is Hodges in a position to set the rumour mill straight? Has NU written off the possibility of acquiring Towergate to neutralise a threat?

"What I can say is Towergate is an important relationship to us, they've got a successful business model but anything that I say around our intentions - or not - has the possibility of being misconstrued, so whatever I say just wouldn't be helpful."

He continues: "It is a tough one but the reality is - and it's exactly the same in conversations at a corporate level - that the minute anyone opens their mouth they're digging a hole, so I'm afraid no comment is all I can give, apart from to say we do like to be transparent but only when there is something firm. People will speculate - there's nothing I can do about that."

However Hodges goes on to set Towergate in the context of being one of many when responding to one broker's observation that, in terms of Towergate's control of NU business, it is a case of 'tail wagging dog'. "As I said we've got a good relationship with them but we also have lots of big and good relationships with many different providers - it's one of our strengths. If you look across the corporate partners business, at the brokers we work with, all of our relationships are important to us."

In terms of NUs commitment to provide useful technology to brokers Hodges says NU is planning to step up its efforts with imarket during 2006. Responding to an observation among some brokers that, while imarket is a laudable attempt, there is a lack of will on the part of insurers and brokers Hodges says: "It's a market imperative driven by customer demand. In the commercial market if you look at the more standard end, then look at the cost of distribution and add an insurers cost - if you're the end customer competitive forces are driving us to look at that model and imarket is one of the potential solutions."

He continues: "From an NU perspective, in 2005 the will was there but maybe we've been a little slow out of the blocks to get into the market leading position you'd expect from us. In 2006, without wishing to be too cryptic I'd expect to see us doing a hell of a lot better. We do think it will work and we are committing resources to accelerate our own position."

Broker business

While he would not be drawn on specifics about products or how this renewed effort will manifest itself he does add: "If I could put it this way, the challenge I've given the team is if we see ourselves as a market leader in this business, why wouldn't we hold this position with imarket? I do think it's an essential part of the business mix going forward."

Reflecting on his time working for - and later with - Ken Wallace, Hodges recalls some of his advice, which has stood him in good stead. "I think the thing he constantly reminded me of, especially in the broking world, is that it is a people business, and to remember you are doing business with people. Sometimes you think about systems, technology and processes and have that big company view but Ken was always very good at a personal level - that is definitely something that he impressed upon me."

Hodges makes his parting shot in typically earnest tones: "I would finally like to stress again that the broker market is hugely important to us. We get lots of attention for what goes on in personal lines and online but the broked business is still the biggest part of NU and remains absolutely vital. We know there are areas we want to do better but nobody should be in any doubt that it is regarded at the highest levels in our business that broked business is the most significant part of our business. And this is the view at the most senior levels in NU."

CV

2005: Made managing director of Norwich Union General Insurance

2001: Appointed as Norwich Union's finance director

1991: Joined Norwich Union.