Do the bidding

It’s a sunny July day when Insurance Times meets Kerry London director Paul Samways at the brokers head office in the heart of a south-west London suburb.

As he poses for the photographer outside the blue steel offices, set in a small industrial estate nestled rather incongruously in a residential area, Samways recounts a recent run of corporate entertainment he has been invited to — Wimbledon, golf in Ireland. “It’s a hard life,” he jokes.

Samways has certainly been busy since he joined the business in 2002. Despite a low profile, Kerry London has become one of the UK’s largest independent brokers, having grown swiftly over the past four years on the back of an aggressive acquisition strategy.

And while the group is still biased towards construction, where its roots lie, it is a significant player in the fleet market. In November, Kerry London sought to revolutionise the fleet market with the launch of an eBay-style internet auction service for small fleets of between five and 25 vehicles.

The concept of Direct Fleet is a simple one. Brokers, or fleet operators, enter the details of the fleet risk on to the system and insurers bid to win the business.

Like eBay, Direct Fleet operates an incremental bid system, so insurers offer their best quote and the system will automatically increase the bid in increments to outbid competitors up to the maximum bid. Insurers can see the highest bid and change their bid if they wish.

Kerry London has signed up 70% of the fleet market to Direct Fleet’s panel, including Zurich, Allianz and Axa.

Samways says: “These smaller fleets are labour intensive for brokers, so the aim of Direct Fleet is to get to market on a cheaper basis.”

The savings can be passed on at both ends of the distribution chain, he says. The company claims Direct Fleet increases brokers’ processing efficiency by 80% and their conversion rates by 50%.

“Fleet operators get lower premiums, while insurers get the cheapest route to market,” says Samways.

He claims Direct Fleet can make fleet business, which is notoriously difficult for brokers to make money on, more profitable.

“Many brokers don’t get involved in the fleet market because of the high level of administration. It is not a profitable area for brokers. There’s a lot of work for 15% commission, such as changes to the schedule of vehicles, drivers with convictions.”

A hundred brokers are now using the system and last month the service recorded its highest business volumes since its launch, with £1m of business shown to insurers.

“Fleet operators get lower premiums, while insurers get the cheapest route to market

Samways says interest in the system “really took off” at this year’s Biba conference where Direct Fleet was demonstrated with live bids. The company has now hired three account executives to go out and meet brokers and show them how the system works.

Samways has high hopes for the system. “Everyone said direct insurance [in personal lines] wouldn’t work, but it has revolutionised the market. We hope Direct Fleet will be that way too.

But he accepts there has been some resistance to the concept from brokers and insurers.

“It is a big cultural change in the way we do business. More traditional insurers might think it is an erosion of their role. But they still underwrite the risk — it is just a cheaper, more efficient route to market,” says Samways.

“Brokers may be concerned that it waters down their relationships with insurers. But [small fleet] is a commodity product. If relationships were the only thing, then Direct Line wouldn’t exist.”

Since Direct Fleet’s launch in November, £1.5m of business has been written. “We’re very happy with that but would like to do more,” Samways says, adding: “We’d like every company doing fleet to use us to eradicate the competition. We are sure others are trying to do something similar.”

Samways is keen to expand the Direct Fleet concept to other lines of business. “It would never work for large, complex risks. But it would work with other commodity products and we would definitely like to do more now we have put the software together.”

He says that a property product could be the next step, but stresses that the current focus is getting the fleet offering right first.

Kerry London’s own fleet book is worth around £20m in annual premiums, which represents around 10% of the group’s entire book of business.

Samways is quick to talk about the current soft fleet rates when asked for his views on the market. He says that new capacity coming into the market is keeping rates down.

“Insurers are talking about rating increases, but just as you think the market is about to harden, new capacity comes in and that doesn’t help.”

He says insurers have two rates. The holding rate, which is typically seeing increases of 3% to 5%, and a new business rate, which is different. “Until this dual attitude to pricing changes the market won’t harden,” he says.

Will the market harden? “I can’t see how it won’t harden, it has to happen.” He adds that with the level of reserve releases the cupboard is now empty “and some very influential chief executives are saying it will harden”.

“Just as you think the market is about to harden, new capacity comes in and that does not help

So how has Direct Fleet affected premiums? Samways says that the bids at the Biba Conference were monitored and there was a 40% difference between the opening price and the closing bid.

“Insurers control the price, so they can’t complain,” says Samways.

Kerry London was formed in 1986 by chairman Joe Kelliher. The company grew steadily until 2002 when it embarked on an aggressive acquisition drive that included the purchase of Samway’s own broking firm, leisure and property specialist APN, and in 2005 the £60m underwriting agency Euclidian, now renamed Vantage.

The company now controls around £200m in annual premiums and boasts Ken Wallace, the former intermediary business director of Norwich Union, as a non-executive director.

For now, the group has changed its growth strategy and stopped buying, because of the “unrealistically high and unsustainable” prices of acquisition targets.

Samways gives the example of a business that Kerry London was willing to pay a multiple of 1.6 times brokerage for, which was eventually sold to another company with a price tag of three times brokerage.

“We achieved critical mass from acquisitions between 2002 and 2006, but we are now looking for organic growth. We are looking to recruit good account executives, but it’s not easy to find the right ones. We are starting to see more teams and good people come out of the consolidators, as their earn-outs expire.”

Kerry London is keen to invest in teams. It recently launched a sports and leisure division, created with appointments from Marsh and Heath Lambert. Last year, the company was appointed as the official broker of the English Cricket Board, beating off the national brokers.

The group is also set to launch a reinsurance division with the appointment of a team. “It’s a departure for us. We want to diversify the business as far as possible,” says Samways.

Twenty years since its launch, Kerry London remains staunchly independent. “We’ve had many offers from the big boys to VCs, but we’re not interested,” says Samways, who also dismisses suggestions of a listing on the stock market. “I don’t think it will float.”

Samways is optimistic about the future: “We are in a good position with our independence. It gives value to our clients and insurers.”

However, he adds: “We would love the hard market to return.”