Breathing fire into the risk business

"I can’t think of anybody that’s more risk averse than insurers,” laughs Doug Richard, celebrity entrepreneur, multi-millionaire and

former Dragon, as he relaxes on a rare day of September sunshine.

Looking terribly crisp and Californian in an open-necked, perfectly pressed pink shirt and grey trousers, Richard is speaking to Insurance Times at the Institute of Risk Management’s annual conference.

And who could be better qualified to appear there than Europe’s biggest venture capitalist, a man who invested $140m of capital in start-ups last year alone?

But Richard, who is best known in the UK for starring in the first two series of the BBC show Dragons’ Den, has some stern words for the insurance industry, which he believes is failing entrepreneurs in this country – and failing itself in the process.

Ask Richard what’s wrong with today’s insurance industry, and you better be prepared to take cover. His Californian drawl gathers breakneck pace as he begins: “You have a business that is small but with an intent to get big. That’s the kind of business investors look for.

“Very little in the insurance field is done to create packages for the support of scaleable opportunities (starting small and growing large) even though they are the ones that most insurers would want to pick up the business from.

“On the one hand they are the most appetising potential customer, but in contrast there is very little done to meet their needs. What do I mean?”

There’s no chance to answer before he’s off at a gallop again: “I mean that they have the same complexity of needs as a large business but they are small. Being small doesn’t make you simple, it just makes you small. They tend to be run by more sophisticated people with more sophisticated issues, therefore someone should put together a package that is sophisticated though it is small.”

Trust relationship

And on he goes: “That is not necessarily appetising to an insurer because it has to put all the sophistication, and presumably cost, in putting a product to market for a small return – but the insurers aren’t very good at risk reward because they don’t know how to look at the long term, they don’t realise that what they are doing is building a trust relationship and an insurance relationship over a longer period of time.”

That this argument is delivered off the cuff, rapid fire, in a matter of seconds, is characteristic of Richard. While far from the humourless character he appeared on TV – he claims the BBC edited out all his jokes – his well-heeled American charm cannot quite hide the strength of his convictions and speed of his judgments.

As the founder of four successful technological or investment businesses, Richard has had much first-hand experience of insurance. He believes it is a necessary tool for crossing the divide between a one-man business, where an entrepreneur is taking his own risks, and a business with outside backing, where the entrepreneur is risking other people’s money.

“The first thing an outside investor takes on when they put money into a business is key man insurance,” he says, though he questions the validity of the product because money can never replace the truly key man – “though it never hurts”, he adds, ever the businessman.

He is more enthusiastic about business interruption insurance – although potential entrepreneurs take heed. He warns: “If someone says to me they have business interruption insurance, but they don’t have a methodical daily back-up system for their IT systems, then I would think they were idiots”.

Richard is currently running three

“Insurers aren’t very good at risk reward because they don’t know how to look at the long term

Doug Richard

businesses – Library House, which monitors entrepreneurs and start-ups, investment group the Cambridge Angels, and the soon to launch mobile communication technology company Hotxt, which promises to

revolutionise texting by slashing the price and increasing security.

Somehow, he has found the time to chair the Conservative small business task force – and it is when railing against bureaucracy, institutional short sightedness and over-regulation that his Dragonish tendencies come most clearly into focus.

The first topic to bring a frown to his remarkably tanned brow is directors’ liability – and for the former director of a public company in the US, this is clearly personal.

“The pendulum has swung to the point where a director’s accountability has become quite severe. It has become more onerous, and directors are far more cautious and therefore more likely to pick up insurance against the far greater likelihood of some disgruntled person suing them for things that they actually had no control over,” he says, picking up speed as he warms to his argument.

“On the one hand directors should be held accountable for the behaviour of their businesses, on the other hand, if you have 10,000 employees, it’s impossible to expect anyone in any authority to keep an eye on all of them, or to prevent people from doing the wrong things.”

Richard believes it is the ability to live with this kind of risk, and to enjoy it, that makes a successful entrepreneur. Perhaps that is why the cautiousness of governments, and the risk averse culture of regulation, irritates him so much – a feeling with which small brokers will be all too familiar.

Richard comes across as a scathing critic of New Labour red tape, and fierce champion of the little guy with the big idea.

“We should have precisely the minimum amount of government necessary for our benefit, and I don’t think that’s our current situation,” he says. “We are without a doubt overburdening small business with regulation. The challenge is that much of the regulation that’s in place is blind to the size of the business. Thus regulation that’s perfectly minimalist in its impact on a company of 10,000 can be near fatal for a company of three.”

This is the drift of his task force’s final report, although he adamantly refuses to be drawn on its content ahead of its release by the end of the month. It seems obvious though that it will call for less regulation, and for greater investment in technology.

Perhaps unsurprisingly, given his Silicon Valley background, Richard is passionate about investment in technology encouraging innovation and thus economic growth.

Britain, he says, is not fulfilling its potential. He says that calling our current internet infrastructure “broadband” is “like calling a country lane the super highway”.

“Capacity drives innovation, innovation does not drive capacity,” he insists. “We won’t create new things until we have a new place to play and you are not going to learn a game in a park unless there is a park in which to learn games – full stop.”

There’s that machine-gun delivery again. Yet he doesn’t always play the Dragon – he later has the audience rolling in the aisles, and that’s no mean feat, given a room full of risk managers.

Nevertheless Richard breathes fire when talking of his convictions. Given his record of success, the insurance industry and government should be in no hurry to slay this Dragon.