Organic chemistry

Although not often aired, Joe Henderson has strong opinions about the market, especially after running his own broking firm for the past 20 years. During that time Henderson has kept a relatively low profile. While he is prepared to pay £150 000 to McKinsey for consulting advice, he is dismissive of the consolidation in broking and the amount of debt firms are taking on and appears resentful of "insurance people" running brokers. He also does not mince his words when talking about the nationals and, quite frankly, he believes they spend more time doing internal work than on behalf of the client.

Henderson has been at the client-facing end of the business, which he feels is "hugely important". He says: "I try to instil this into my colleagues that clients want brokers to act quickly and efficiently - if they are waiting for claim cheques then we should chase them up."

Forced out of a construction company following a flotation, Henderson says: "Two-thirds of people who go into business on their own don't make a conscious decision. What tends to happen is the people they are working for go bust. We thought there was a gap for a good construction broker." Starting with five staff in Scunthorpe in 1986, within a year Henderson decided to open in Leeds for a "more financially based address". There are now seven offices including Peterborough, Newcastle and Hull.

Insurer relationships

When did he first know he had a really good business? He jests: "I don't know if I do yet. I've never felt I'm a big hitter." When pressed further, he comments: "Perhaps 10 years ago, when I took a three-month sabbatical and I realised my colleagues were the future rather than me. Four of the directors have been with us almost 20 years."

Has Henderson's relationship with insurers changed? He says: "It has evolved. There came a time when we realised we were as good as, if not better, than the opposition. We were developing the business with quality clients and we are quite selective with what we take on board. It is all down to relationships - it is still a people business. The underlying requirement is the insurer has to provide the client with the appropriate level of cover, be financially stable and have a commitment to meet the obligations of policy. I think Direct Line has done the industry a world of good, has taken away the bit we weren't very good at and given the customer what they desire."

Henderson points out his firm resigned its agency with Independent three years before it went bust. Last year, to coincide with the firm's 20th anniversary, Henderson published a book, which included a brief summary of insurance over the period. Henderon says: "This was very sad, we tried to come up with 20 of everything but when it came to quality front line insurers, we couldn't." [There are eight insurers in the book.]

A total of 30% of his portfolio is construction and the rest is large corporate businesses, including retail and haulage insurances. There are also affiliations with three brokers in France, Spain and Germany. He comments: "We don't do much business in West Yorkshire - it is more on a UK basis. We are very strong in Lincolnshire, which is our roots. Our aim is to be first or second in the areas we operate."

Henderson has a subsidiary operation at Lloyd's for construction risks. Contractsure is a large broker that gained full Lloyd's accreditation in three years, and 90% of the business is its own clients. It acts for four publicly listed construction companies, and has won a PFI contract with a premium of over £1m, with a total value of £164m. Henderson is enthusiastic about the Lloyd's connection. He comments: "The problem with Lloyd's is that we take it for granted. It is unquestionably still the best market place in the world. They still have the best underwriters - they are genuine underwriters - they are very experienced and professional."

Henderson's achievements are impressive, and it is one of the biggest success stories in independent broking. In last year's accounts, ending April 2006, revenue was £9.56m and profit £1.7m. By April, Henderson is confident turnover will exceed £11m with a profit of £2m. Gross written premium is expected to increase from £75m to £100m, boosted by the acquisition of the books of business of Newcastle-based FHI (Northern), with over £10m of GWP. Henderson is keen to stress this purchase was more of an opportunity rather than a tactical approach to consolidation. He says: "If you see an opportunity you should make the most of it but we are not and will never be a consolidator. Our balance sheet is very clean and there is no external finance. If a similar opportunity arose we would love to do it."

Henderson wants to double revenue in the business within five years. How does he propose to do this? "Half the business is recommendations in a year; the other half, we act on behalf of a number of groups that generate marketing leads. There is no magic formula but you have to be active and when the opportunity arises make the most of it.

"We are moving to fees [a quarter of the book] but commission doesn't concern us. All of these consolidators have geared themselves to get 30% to 40% commission and the European Commission has said it wants to see what you are earning. Within three years, at least 50% of the business will be fees." Would he buy one of his local rivals? "If they couldn't buy into our ethos we wouldn't bother," he says.

On consolidation

Is Henderson tempted by the money being injected into broking at the moment? He responds: "I don't think there is anyone out there who our profile suits in terms of clients, and our staff - they aren't number crunchers selling toothpaste - they are insurance professionals."

He continues: "I can see certain benefits of consolidation but one or two of them are turning into baked-bean-selling outfits and could be selling anything - they are just churning it out. It is like considering the consolidators are the Aldi of the supermarket world and we are at the Waitrose end. Oval has got it the least wrong - my concern is where do they go - I think it is inevitable they will end up with insurers and banks. I don't have a problem with Axa buying [Layton Blackham and Stuart Alexander]. I would speculate they want to be in the churning end of the market - the SME 'stack it high, sell it cheap' scenario." Has he been approached? "Inevitably, we had tentative initial talks but it is not for us."

Warming to a question about his competitors, he enthuses: "We have two great items: one is an asset called the opposition and the other is a liability called ourselves." He adds: "Our biggest asset is the opposition. The nationals appear to be in turmoil, the consolidators are lacking clear direction, the morale at the consolidators is very poor - I interview more people from the consolidators than any other sector of the market. And the small guy is being driven out - I think the broker network model is good for that end of the market. However, with some of the deals being offered at the moment they might be better selling up - buyers are paying over the odds."

There has been a steady increase of money made available for acquiring brokers, for example, venture capitalist 3i's investment in Harrogate-based Smart and Cook. Does he resent the injection of capital? He says: "Not at all - you have to look at why, though. There are relatively low interest rates and relatively poor returns in other industries. What would concern me, as a potential investor of one of the consolidators, is if the major insurers that support it had a change of policy on enhanced commissions. That aspect of the business is not within their control. If CGNU decide to withdraw the almost immoral levels of commission then none of those consolidators would be profitable."

Does he buy the argument that having delegated authority should increase commissions? He says: "No - that's just a way of justifying it. I don't think the brokers are living up to the workload they are supposed to be doing. What concerns me with the Financial Services Authority - we know of brokers where they are placing business openly with insurers to kick in bonus deals."

Providing value

He is similarly disparaging about the nationals: "The majority of the nationals are run by the men in grey suits, the only way they can look at a business is to cut costs instead of investing in the right people. We have staff here who worked at national brokers for 30 years, quality people, but the nationals just take the knife instead of saying how we can make this better?" Henderson reserves praise for one national, which through its commercial network arguably has a better understanding of regional broking. He says: "Of all the nationals, Willis is probably the best at the moment. It's great they have come back into Leeds."

Henderson has been concentrating on where best to provide the client with added value. After selling the personal lines book to Swinton last year, he has recently established a healthcare book. Henderson says: "I think clients like the idea of a dedicated unit for what is inevitably a personal problem. If the financial director's wife has an in-growing toenail he doesn't want everybody to know about it. It works very well in that respect." He adds: "The reason we did it is because other people were not doing a very good job for our clients."

One area Henderson has shied away from is risk management. Where many brokers provide an in-house service, Henderson believes it is best outsourced to specialists. Having tried it in-house, he says clients expect it for nothing. Outsourced to a specialist, he believes, ensures a technically better and more up-to-date service. However, he says there are arguments both ways but his clients tell him they prefer an independent view.

Is he looking to open more offices? "How long is a piece of string? We are not looking to open offices for the sake of it. If we do it, it will have to be of a sufficient size. It would be nice to go into Scotland and Manchester. It would have to justify the workload and exposure."

Henderson has been determined to improve his business management techniques and this culminated in hiring corporate consultancy McKinsey, which was in for "two months" in 2004 and, according to Henderson, highlighted "how badly run the insurance industry is in terms of distribution, duplication and inefficiencies."

Honing his own management skills, Henderson had a spell at Manchester Business School in 1988. The business now employs 170 staff at eight locations including Leeds, Peterborough and Newcastle. Where does he find his employees? "Two-thirds are promoted from within and are self taught. We are fully up to speed with the Chartered Insurance Institute program and every individual has a bespoke training program."

Marketing is a key aspect of Henderson's business mix. A deal has been signed for the broker to become the official sponsor of Yorkshire Cricket Club, costing £50 000 and a similar amount was raised for charity last year. The affinity with cricket is complete given that Henderson resides in Trueman House and Kevin Pieterson, England's star batsman, opened Henderson's refurbished London office in January. "Our investment in marketing in terms of people, sponsorship and all aspects is £1m a year." Is it money well spent? "You look in terms of the yearly brokerage that you can put against it - but sometimes the best business is what you get in the second year. Brand awareness is important and you have to be active in the market place." He reflects: "I think throughout the company we are developing a brand. Winning new business is still a buzz and there is an enjoyment factor and pride."

Local markets

Commenting on the local market, Henderson says: "The Leeds market is not as buoyant as it used to be, but we are anxious to support it as much as possible. It is possibly too close to Manchester." Henderson continues: "It is the way the market is going generally. The vast majority of the big insurers are in Leeds but I can see that changing in the next five years. Axa is one firm that needs to improve its service offering."

Does Henderson think the public's perception of insurance has changed? He reflects: "I think we have a window of opportunity now that because of the direct writers and certain aspects of cover, we can differentiate as a professional insurance broker. Again, calling on my business experience and other interests, we see ourselves as balance sheet protectors and, in essence, we look after assets: buildings; plant; and people. We also have certain liabilities: third-party employees; environmental and the like. Our job is to put together a program as balance sheet protectors."

Despite moving into impressive purpose-built offices, Henderson is already eyeing his next move, which will be a larger building. He has spotted an opportunity for the independent to thrive in a changing market and is well placed to sustain his business through the present period of turmoil.

CV

1986: Chief executive, Henderson Insurance Brokers

1980: Construction industry

1974: Branch manager, Leeds, Manchester. Liverpool, Preston, Stenhouse Group/Aon.