Regional market spotlight: The North West

Manchester versus Liverpool. Top football teams, it’s a draw (but don’t tell them that). Great bands such as Oasis and the Beatles, another keenly fought draw. But an insurance market regarded as the hub of the North West?

One-nil to Manchester. Like Wayne Rooney, who defected from Everton to Manchester United, many insurers have left Merseyside – although a vibrant broking community remains.

Brokers are spread across the North West in towns and cities including Liverpool, Preston and Lancaster. But few insurers in the region have a sizeable office outside Manchester.

“There was a time when insurers would have had a regional presence in Lancaster, Liverpool and Preston,” says Ann Beswick, head of underwriting services at Groupama. “But as costs have been rationalised, the market has evolved in Manchester.”

Charles Hurst, managing director of Liverpool broker Coulter Hurst, adds: “The mainstay of insurance companies is more based in Manchester, but there are a small number still represented in Liverpool.”

Stephen Darcy, director at regional consolidator CBG, agrees that Liverpool has declined as an insurer centre over recent years. “Insurers have pulled out of Liverpool; the same goes for Preston,” he says.

Norwich Union is the exception: it still has an underwriting centre in Preston. But it is planning to close its city-centre office in Liverpool as part of a UK-wide restructuring that will lead to the loss of 1,800 jobs over two years.

The insurer will be withdrawing its operations function from 13 cities and creating seven centres of excellence based in Manchester, Norwich, Perth, Bishopbriggs, Stretford, Leicester and Southend.

Ecclesiastical, which has restructured its regional network, is also expanding its Manchester office to create a major service centre for the North.

As part of the restructuring, the insurer’s office in Newcastle will close in the second quarter of 2009 and its offices in Birmingham and Gloucester will become major service centres.

Ecclesiastical, which specialises in insurance for charities, educational institutions and the heritage sector, explains that the changes to the Manchester office are designed to increase its capacity.

Despite the closure of the Newcastle office, it says it will focus on home-based underwriters, allowing it to develop a service that is both local and market-leading.

Paul Lee, director for the North at Ecclesiastical, says: “Manchester is a diverse market and that’s why it is a magnet for insurers. With Arista, ABC and QBE having opened up, the city is fertile ground for new entrants.”

However, according to Lee, many of the insurers flocking to this personable city are smaller outfits, rather than the giants of the industry.

“Major insurers’ presence in the North West may equate to just one function of their operations, possibly a call centre. For large insurers it can make better economic sense to fragment their businesses’ functions overseas or in other parts of the country.”

Mike Askew, CBG’s group managing director, agrees there are few larger insurance companies based in Manchester now. But he adds that a lot of smaller insurers are coming to the city. “There are now over 300 insurance companies with registered offices in the North West,” he says.

When it comes to brokers, the picture in the North West is not so different from the rest of the UK. Consolidators are changing the landscape and their arrival in Manchester and Liverpool has already pushed out many of the smaller independents.

Hurst, the Liverpool-based broker, says the city’s broking community has seen a massive wave of consolidation in recent years. Coulter Hurst, which was founded in 1999 and has 25 employees, is not even a network member. Hurst says it is one of only a handful of fully independent brokers left in the city.

So can independents survive in the rest of the region?

Roger Scholes, Willis’s regional broking director for corporate risk, who is based in Manchester, believes they will. “There is a good broking fraternity outside Manchester. The broking sector would be very proud in Liverpool, as it would be in Cumbria, Bolton and Preston. There is a broking sector that would pride itself on being local.”

John Penwill, who heads Marsh’s office in Manchester, adds: “There is scope for competition on SME business. The audience for the North West is heavily dominated by the middle markets and the multinational sector. The multinational sector is serviced by the national brokers. But as you drop down to your lower market sectors, a lot of independent brokers or consolidators are introduced.”

The success of regional consolidators such as CBG and Bollington demonstrates the advantages of scale in business operations and distribution.

Bollington has an SME call centre for small commercial clients based in Stockport and a number of commercial offices to provide hands-on account management for the larger commercial clients. It has more than 200 employees and more than 75% of these are based in the North West. As a group, the consolidator is approaching £100m in gross written premium (GWP).

“If a national broking group tries to get into a particular small provincial area, you tend to find it doesn’t succeed very well.

Paul Broadbent, Broker Network

CBG has swallowed up 18 independent brokers in the North West so far. It believes part of the success of consolidators can be attributed to the attitude of insurance companies. Darcy explains: “They wanted to focus on a certain size of broker. So to compete and survive, I think a lot of brokers have had to join a network, sell to the chap down the street, sell to a consolidator or join an alliance.”

Askew adds: “The capital gains tax changes [in the last Budget] obviously had an impact. There was a window of opportunity to sell your business at the reduced 10% tax and I think a number of deals were accelerated.”

With most major national brokers now having a presence in Manchester, the market has altered. Although regional consolidators have been around since 2000, the consensus is that consolidation from the nationals began to take real effect in 2007.

Paul Lee, director for the North at Ecclesiastical, says: “In recent times we’ve seen more of an infusion of consolidators. Jelf have arrived, as have Cobra and Bluefin, and so the independents have been eroded. The pace of this really picked up in 2008 and the back end of 2007. I think a lot of brokers are planning their strategy forward and as the pressure from consolidators increases from other parts of the country, they have to plan how they are going to go forward.”

Keith Simister, who runs his broking firm with his wife in Radcliffe, near Bury, is one of the independents determined not to sell up (see box, above right).

He believes the independent brokers that wanted to get out of the market have gone and consolidation has reached a plateau.

“I think, from now on, we’ll start to grow again and take our place in the insurance sector. There is a place for us. People are fed up with phoning and not knowing who they’re going to speak to. I know that being asked to press a button and then listening to music for 15 minutes is very annoying.”

Simister points out that there are still plenty of people who want their insurance arranged by someone who is more personable – particularly those who don’t like using computers, or clients with hearing or vision problems.

But going it alone or selling to a consolidator aren’t the only options. Brokers that join a network can stay independent while enjoying some of the benefits of being part of a large organisation. Broker Network has 200 members across the UK and about 40 of them are in the North West.

Paul Broadbent, business development manager at Broker Network, believes clients in the North West prefer to work with companies based in their own communities.

“If a customer is from Chester or Lancaster they want to deal with someone locally and that is where our brokers win. In fact, if a national broking group tries to get into a particular small provincial area, you tend to find they don’t succeed very well,” he says.

Broadbent believes this is largely down to a community spirit, which remains vibrant in the more provincial areas of the North. He says local brokers are great with customers and their business hours are generally better. The opportunity for a customer to pay for their car insurance over the counter is alive and well, he adds.

Even bigger commercial businesses, based in areas such as Preston, Chester, Bury, Blackburn or Lancaster, sometimes prefer to deal with a local broker than with a Manchester firm, he claims. However, Broadbent does admit that selling can be a greater temptation for brokers in and around Manchester.

The network itself bought commercial broker Priestley & Partners, which is based in Altrincham, Cheshire, for an undisclosed sum earlier this month.

“They were very successful, but they just felt that the area in Manchester was very much dominated by CBG. They just wanted that little bit of protection,” says Broadbent.

Despite the economic crisis, there are signs that the North West is holding its own. While larger insurers have moved out of the region, smaller insurers have been quick to take their place. What’s more, consolidators, independents and nationals all find there’s enough business to go around.

Despite the demise of the manufacturing industry, the region’s employment has been transformed since the 1970s and 1980s with the growth of the services sector.

The renaissance of cities such as Manchester and Liverpool over the past decade has spread wealth across the region. Liverpool is currently the European Capital of Culture, while Manchester hosted the Commonwealth Games in 2002 and will soon welcome the BBC to Salford and the new £300m, 200-acre MediaCityUK development.

The centre of Manchester was extensively redeveloped after the IRA bombing of 1996. Anthony Broome, commercial manager at QBE in the city, believes this encouraged businesses to move in and presented opportunities for insurers.

These include the City of Manchester stadium, which was constructed for the Commonwealth Games and is now the home of Manchester City FC, bringing more investment to the city. QBE insured one of the major contractors that built the stadium.

“There were areas that were very run down a few years ago, but a lot of it has been developed now, which has created more business opportunities. There is a real buzz in the city now,” says Broome. There have been radical developments on brownfield sites in Manchester, such as the Civil Justice Centre to the west of Spinningfields and the Beetham residential tower.

Lee says property development in Liverpool and Manchester will continue to bring business opportunities to the insurance market despite the slowdown.

“This market in the North West is buoyant against the downturn in the economy and the financial crisis. There is still some significant development in this area and the twin cities really are on the front foot.”