The PB Interview - Laurent Matras: Through the storm

When asked how his time has gone since joining Groupama as managing director from Axa two-and-half years ago, Matras responds: "It feels like yesterday that I started. The market has moved incredibly fast the last couple of years. In personal lines [we have had] the dominance of the aggregators and the credit-hire phenomenon has spiralled, and so injury costs have gone higher. There was a perfect storm. The landscape has completely changed and it has taken the industry — and Groupama — some time to adjust to it. We are now as an industry moving in the right direction."

This year we have seen some extremely poor results in motor released by the likes of RBSI, with its broker-only subsidiary NIG pulling out of the personal lines market altogether. Provident was another with notable problems. According to a survey of insurers by Towers Watson, the UK personal motor market is set to remain unprofitable until at least 2015.

Matras has seen some mixed results at Groupama since joining, with results dipping from a profit of £30.1m in 2008 to £14.1m in 2009. In the first half of this year, things have turned around: the French-owned insurer saw a 5.2% increase to £237.7m of premium, while profits increased 30% to £13.7m thanks to a double-digit increase in private car rates. Meanwhile, its commercial book remained almost flat at £57.5m.

Driving force
Matras has been instrumental in helping Groupama improve its figures. He comments: "The most visible symptom of our adjustment is that the motor rates have been increasing by double digits up to their 30s in the last 12 to 18 months. There has been a brutal, quick correction that was entirely necessary: it was a question of life or death in this market. Groupama was early because we started it in the middle of 2008; we spotted something was going seriously wrong on the injury side early. We are lucky to have a good management information system on a single platform."

He gives a detailed explanation of what was motivating the market: "At the front end, farming has become endemic. Brokers started playing on aggregators and needed the revenues from farming to pay for this. To become competitive, they needed to cut their commissions to pay the aggregator fees of around £35 for each policy so that the technical rates were not being compromised. Personal lines brokers needed to fund the gap and started being a lot more active in claims' referrals and there were more add-ons. Direct writers were doing this already."

Finger of blame
Matras believes that the core reason for the crisis is claims farming. He comments: "Solicitors got better at catching victims, not just the drivers of the non-fault cars but also the passengers. It spiralled into double-digit injury inflation. The vast majority is whiplash: you can't disprove it and you have to pay. It is like a rainy day, you can't do anything about it. We know a vast proportion of these claims are exaggerated or made up but there is nothing we can do about it at the minute.

"The second set of corrections was around fraud management. At Groupama we are more active and ruthless: we have doubled our fraud team." In September, Andy Paggett, who is well known in the counter-fraud community, joined from Ageas as counter-fraud manager.

Matras's work is far from finished. He is now determined to collect more information from clients earlier to bring the UK up to speed with its European neighbours. He adds: "The new transformation in the market is moving the controls from claims to underwriting. The market will concentrate on validations at the underwriting stage, not when the claim has happened. On the continent, they have been doing this for 30 years but here we don't check identity. Direct writers have been doing this and it is a race for brokers to put in place these processes. They are complicated and not cheap."

As regards the longevity of aggregators, despite them being a relatively new entrant into the market, Matras says: "I think they are here to stay. This market is amazingly Darwinian and they will evolve into something else but they won't disappear. It is completely embedded in customers' DNA."

There has been a continuation of the price-driven advertising onslaught from the insurance sector in recent months and Matras is firm in his thoughts that the public will not be educated toward value over price: "Not on the motor side. It is a compulsory cover and not an exciting one so, from a customer's perspective, it will always be about trying to squeeze the last pound."

Commercial warning
On the commercial side, Matras is keen for brokers not to make the same mistakes as in motor. He wrote on the insurer's website: "The motor market has turned into a bloodbath but are we about to repeat the mistake in the commercial arena? Because some underwriters appear in danger of losing the plot and, relatively few years after, we emerged from the wreckage of the last soft market." His view chimes with Andrew Torrance, chief executive officer at Allianz, who has accused rivals of being "naïve at the levels of profit they could derive from their growing portfolios" and called for a 5% rate rise next year on the basis that reserve releases are running out.

Broker choice
Rather than chasing volume, Matras has been working closely with brokers to develop the insurer's online proposition. It has been making strong progress in this area and the latest offering is an online professional indemnity product. Commercial e-trading is growing and Groupama is determined to be at the forefront of this evolution through extranets and software houses; the company is already a PowerPlace member.

In addition, a new liability product for small business was introduced in the first half of this year; the insurer also now gives brokers the opportunity to choose their own commissions: for example, small brokers can choose between 0-15% commission and can access both the net and gross prices.

Matras has spent much of his time grappling with the regulatory challenges of Solvency II. He spoke in an article in Post earlier this year about how the change in regulation was taking up most of his diary; in the first quarter of 2010 alone, he clocked 400 hours of meetings.

He also insists that, despite often having to journey to head office in France to report and strategise, this does not affect his time in meeting brokers. Matras says that he tries to see them as much as possible and is available to talk to appropriate broker leaders on t he phone.

He will not be drawn on how Groupama's broker business is being run, saying it is the preserve of the individual brokers and his chief executive officer, François-Xavier Boisseau, who is also chief executive officer at GUK Broking Services, the name of its broking arm. Matras affirms that he has a good working relationship with them but that it is little different from his work with other brokers.

Overall, the brokers, which include Carole Nash, Lark and Bollington, have been performing robustly in the first half of this year, with revenues of £33.3m compared to £34.1m over the same period in 2009.

However, there are set to be changes at Liverpool-based personal lines taxi specialist broker ChoiceQuote, where the broker has opened a formal six-week consultation with 68 employees. Personal lines will be transferred to Carole Nash. Boisseau said: "Trading conditions where ChoiceQuote operates have been tough throughout 2010. Not only has price comparison meant our margin disappeared but underwriting capacity has reduced significantly too.

"Cathie Bruce [former distribution and customer service director at Groupama] will continue as managing director. Her focus will be managing any transitional arrangements decided upon. Thereafter, I have asked her to consider a broader role within GUK to help us identify further synergies within our broking group."

Expansion
On the insurer side, Groupama is also consistently developing new ways to service brokers by giving them greater access to underwriters; it has opened a new underwriting team for London and the South's commercial brokers, a complement to its London schemes unit and the UK-wide team in Manchester. The new section will focus on non-motor small and medium-size enterprise commercial lines and will report to Dawn Dillaway, head of commercial underwriting.

As Matras reflects on the challenges ahead, including premium rates, Solvency II, the Eurozone debt crisis and coalition government austerity measures, he will be heartened by the consistent support of the broking community and how he has led his team through a particularly difficult time in personal lines. Now, he needs to use all his knowledge and power to navigate the growing challenges within the commercial arena (see box out). Matras has the patience and determination to help his firm achieve this.

Matras on commercial lines
Laurent Matras makes his thoughts clear in PB's sister title Post on 16 September 2010

"The motor market has become a bloodbath. Are we to repeat the mistake in the commercial arena? Discipline seems to have deserted us again. Forget the fine words of my senior colleagues in other companies about the need for rates to rise: the bad old days are back. And let us be in no doubt: the responsibility rests firmly with those wielding the pen.

"While the larger companies do their best to control pricing, they tend to set conflicting top-line targets and may not have the systems and processes to ensure local underwriters follow their lead. This might give brokers and their clients a flexible underwriting service but it's no good for the bottom line, especially when everyone then competes to hold onto good business, forcing prices down and squeezing profitability dry. The willingness of some carriers to pursue growth rather than profitability and the desire of some newer players to make their mark at inadequate rates is always a recipe for disaster.

"Aren't insurers now offering brokers extra reward for volume? The same ones who were recently urging greater restraint? This madness is taking place against the background of a market that is hurting and a broking community that is keen to move away from falling prices and the nonsense of dual pricing. I read somewhere that one definition of insanity is doing the same thing over and again, expecting a different result: we just never seem to learn. Insurers need to remember that we control premium rates. It's our responsibility to exert the necessary discipline. Like it or not, the buck starts and stops with us."