Regional review - Cardiff: a sleeping dragon?

It is the largest and most populous city in Wales yet, in comparison to many of its English or Scottish rivals, Cardiff is relatively small in size. According to the Office of National Statistics, the city has a population of 336 000, and thus fails to make it into the top 10 most populous cities in the UK, ranking lower than Nottingham and its English neighbour Bristol.

With this in mind, it could be argued that Cardiff has a more than sufficient national reputation, belying its small scale. In the realms of sport and culture the city excels itself, with the likes of the Welsh rugby team's Millennium Stadium and Cardiff City's ground national sporting venues. And with Shirley Bassey and Charlotte Church among its celebrity ranks, it could hardly be argued that the city is shy, retiring or lacking a voice to be heard.

The insurance market here, like so many outside London, defines itself as close-knit, where local businesses place business locally, and independent intermediaries strive to fight off the overtures from London's broking behemoths.

However, it is in cities of this size where recession often hits hardest. When ailing Royal Bank of Scotland Insurance announced a series of UK branch closures, the UKI insurance office in Cardiff was among those axed; while NIG, an insurer often held dear by commercial regional brokers, relocated across the Severn Bridge to Bristol, a decision widely lambasted by the local markets.

Unpopular spending cuts
With the coalition government's unpopular spending cuts affecting the income and expenditure of local government and local authorities — both key employers in the region — the daunting challenges facing a so-called 'parochial' market are clearly evident.

RSA, Zurich and Aviva are the insurers many Cardiff brokers consider to have "any significant presence" in the city, according to a major independent player in the region.

But the lack of significant insurer presence is something Aviva sees as an opportunity, rather than a signal the market is on its way out. Paul Charlton, head of trading at Aviva South West, and Mike Hobbs, trading manager at Aviva Cardiff, also recognise the additional responsibility the insurer has in the region.

It has a commercial underwriting team and relationship management team in the city, albeit on a smaller scale than it had under its Norwich Union guise.

The insurer also has staff working across the city at various brokerages, and at its Swansea base. Through its legacy companies, including Commercial Union, the company has a history in the city going back more than 50 years.

Mr Charlton says it is inconceivable that the insurer would not have a presence in Cardiff — and believes the local brokers favour an office in their proximity, despite technological advances. He explained: "The reason we have been in Cardiff is that we get value out of trading locally with Welsh brokers. We don't believe you can trade in Wales without a presence here."

Speaking of rivals' decisions to leave the city — and inevitably create a big gap in the market — he refers to these as "short sighted", and lacking any long-term vision of Cardiff's development.

Mr Hobbs adds: "We see it as a commercial advantage to us. The reaction of brokers to the insurer exits hasn't been taken lightly. They agree you can't keep changing strategy."

Mr Charlton claims RSA is its main rival in the city, with a small regional office, adding that Zurich sticks to personal lines or major corporate business in the region. Despite the fears of a contracting buyer base, he is optimistic: "What you find in Wales and Cardiff is an entrepreneurial spirit with brokers. Brokers will find a way of taking advantage, and providing solutions to customers regardless of the economic cycle.

"Cardiff is fortunate to have community brokers that put the focus on Wales and Welsh businesses. Thomas Carroll is one example. There are also brokers that use Cardiff as a base and cover the entire country, such as Moorhouse."

However, coalition cuts are an obvious concern for the region, Mr Charlton adds: "The cuts that will hit hard are for the passport office and the DVLA. These bring a lot of revenue to the area and employ many people. Those risks are not placed in local markets, but there will be a knock on effect. This will do extra harm in rural communities."

Cardiff Insurance Institute president Julie Taylor, speaks glowingly of the local market. She says the institute has an active series of events and functions aimed at improving the professionalism agenda in the city, and knows the local market in detail.

Ms Taylor, who works for Giles Insurance Brokers, says the insurers that departed the Cardiff area are still within reach: "The contacts that brokers such as Giles have with the major insurers continue. And there is still an insurance presence in Cardiff; Aviva and Allianz are still here for example.

"Bristol is starting to compete more, yet we tend not to lose too much business over the bridge. We have Admiral and Lloyds TSB here, and the market continues to grow.

"On the insurance company side, perhaps it is shrinking. However, I think of it as a UK-wide market now, rather than a local one. A lot of SME business, for example, is traded online, so where you are based is totally irrelevant. On the broking side, I have seen growth over the last five years."

Prominent names
It could be argued that one of the most prominent names in the Welsh broking market is Lyndon Wood, chairman of Moorhouse. Mr Wood, a self-made entrepreneur, began broking from his bedroom in 1990. After 21 years of dedication, Moorhouse, the Caerphilly-based broker, now stands as one of the most dominant commercial players in the local market, and focuses on nationwide 'small ticket' business.

According to Mr Wood, there were no barriers to setting up in South Wales. The broker focuses on telephone and internet distribution, and he downplays location having a real impact on its success as a business.

"I started door-to-door. Finding out what people did on renewal and going from there. Then I realised I could pick up the Yellow Pages. You target the trades, and call them regardless of where they are."

The term 'parochial' crops up again when describing the local business market. Welsh companies — especially SMEs — are usually loyal to their local broker, Mr Wood stresses.

However, there are exceptions to the rule. He explains: "I came across a business with a £10m turnover, and they moved to a broker in Leicester. I asked them why, and it was because they sold themselves on their claims charter. So, that is evidently a weakness with Welsh brokers, where they give you a price and that's about it."

The divide within Wales is something that clearly amuses Mr Wood. South Wales, like all other regions in the UK, has a healthy rivalry with its neighbouring cities: "Even Cardiff brokers struggle to get business in Swansea. That's why Aviva has a branch there. Aviva insures a large proportion of Swansea because it is based in Swansea."

The insurance company market — or lack of it — is something that concerns him: "There is nothing too exciting going on. And you don't see many new initiatives in this market.

But brokers are doing their best to innovate despite this: "Thomas Carroll is probably the closest to trying to achieve something new. It is attempting to create new avenues in its traditional fashion. There are several consolidators across Wales, notably Giles. But no one is doing anything invigorating."

The consolidator factor is something that commonly troubles the independent broker across the country. With Giles, CCV and Bluefin having a presence in Wales, the number of independent brokers has inevitably fallen.

However, Mr Wood denies the consolidator trend has impacted on the market in Cardiff: "There is nothing major happening at the moment, or brokers buying each other of a substantial size."

While the recession is a problem in the area, Mr Wood says his target market is still thriving: "You would think that tradesman-type industries would be severely impacted. But we have seen growth — and are writing more policies post-recession. The larger firms are laying off builders, so they are setting up on their own."

Tim Rees is development director at Protectagroup, a Cardiff broker with an annual gross written premium of £20m that concentrates on high net worth business. The company was acquired by CCV in April 2009, taking over Towergate's operation in the city.

Since Protectagroup, CCV has made seven broking acquisitions, with its most recent swoop for Hanbury Insurance Services coming in February this year.

Unsurprisingly, Mr Rees speaks positively about being part owned by the consolidator: "In this market we operate autonomously, and report to CCV. We can also tie in with the Towergate family."

He says businesses will not necessarily choose the firm because of its national identity: "The market is inwardly focused, but if you do not provide the best service then business will go elsewhere.

"A lot of players have effectively left a hole in the underwriting capacity of the area. Aviva and RSA for us have the biggest presence, but in terms of major decision making and authority levels, everyone has migrated to Bristol and Birmingham.

"That trend, unfortunately, has been going on for 10 or so years. Aviva used to have an enormous business as Norwich Union on Newport Road. Now it is a very small presence there."

"I tend to think, with the advent of technology, it is a relationships business. It helps if an insurer is local, but it is not of great importance to us. We trade equally happily across the group."

So, will the exodus from the market spell the end of Cardiff as an insurance market with any substantial clout? No, says Mr Rees: "The opposite will happen. Insurers will recognise the quality of the broking and consumer market. There are businesses here that carry international clout, and maybe we will see that trend reverse."

Does a CCV business operating in Cardiff have much autonomy? "Yes. The London market tends to do its own business, and is never going to be displaced as the major insurance centre," he says.

Regional broking houses in the Cardiff area do not get any bigger than Thomas Carroll. The firm is the largest commercial independent broker, with a GWP of £32m. The brokerage employs 110 people at its Caerphilly, Swansea and Brecon offices.

Bucking the trend
Managing director Rhys Thomas describes the firm as being "totally independent", having had "no end of suitors".

To buck the trend of consolidation swallowing up independent brokers in the region, Thomas Carroll has stood firm. Founded in 1972, the firm concentrates on property risks, and has flourished — opening in Brecon in 2009, and Swansea last year.

For many in the local market, the broker is a flag-bearer for the Welsh insurance sector. The deceptively large headquarters overlooking Caerphilly castle, are decorated with Welsh dragons, Welsh rugby shirts, and even a signed picture of Welsh beauty Katherine Jenkins. To put it mildly, you cannot help but be aware of the firm's national identity.

Mr Thomas says: "As a country within its own right, with its own assembly government, there is a certain amount of loyalty as a community.

"There are some foreign invaders, or consolidators, which have come into the market in the past five years. There is also a diminishing number of independent brokers in Wales, which is quite sad. Our competition has changed considerably over the past few years, and we are now competing against Aon, Marsh and Willis. So we have had to adapt."

But surely, with the emphasis on local businesses sticking together, Marsh, Aon and Willis would have no chance? "There is an element of that, but clients would have to be assured of our expertise and that we could do the job. We are a chartered broker and have had to invest," Mr Thomas continues.

"No doubt, it would be harder for smaller independent brokers to compete against them. But we are very successful. Marsh has started to pick up business here. The fact that consolidators have entered the market has changed things."

However, it can go both ways. With the break-up of many consolidator-owned businesses coinciding with restrictive covenants, it is clear the number of potential staff looking to go independent — or join a large existing independent — is increasing.

Mr Thomas says: "We have been heavily investing in people. There are many who want to go independent again and clients who are looking for independent advice."

And what does a regional giant like Thomas Carroll make of the insurer shortage in the city? "Ultimately, we have to make certain decisions to survive. It is a shame when relationships end, and it is no coincidence that our strongest relationships are with those that are still here."

Dependant on the public sector
According to Mr Thomas, insurers moving across the Severn Bridge to Bristol is nothing new but the challenges created by spending cuts are a source of anxiety: "Wales is going through some difficult times. The Welsh market is heavily dependent on the public sector — and that will no doubt affect the local labour market."

Moving away from the downbeat mood overhanging the city as a whole, Mr Thomas stresses there is nowhere his company would rather be: "We are an owner-managed Welsh business and we are proud of it."

As to the question of whether he would ever sell to an 'outsider', he responds emphatically: "We are fiercely independent and don't want to be bought."

With the lack of insurer presence and concerns that local brokers may be undermined by consolidation, the outlook for independence and identity might seem bleak for the Cardiff market. However, with the new wave of internet companies, the city and the areas in close proximity to it have thrived.

Price comparison site Go Compare is one of the most widely known insurance names in the country, thanks to its irritatingly catchy Gio Compario adverts, which have captured the nation's attention.

The firm's chief executive, Hayley Parsons, is highly regarded in Cardiff and across the UK. There is no doubt she is one of the most high profile entrepreneurs in the industry. She began working on the business having worked at Confused, FTSE 100 firm Admiral's own comparison site.

Ms Parsons has an affinity to the city, and believes entrepreneurial spirit can thrive regardless of location: "We built our technology and thought we really needed to go for it. I have worked at a number of new start-ups, all in Wales. One of the things for me is that the business is about the people, rather than the area. There is plenty of talent here, and we have done well on it. I am not a fan of going down to London."

Go Compare employs 94 people in its offices close to Newport, 12 miles from Cardiff. Ms Parsons insists the city's insurance market still has a future: "A lot of call centres have replaced the old insurance entities that used to exist here. Many staff switched from the insurance companies too. Axa ended around the same time Admiral started its growth. And you couldn't find somewhere better to work."

Ms Parsons' friend and former colleague, David Stevens, agrees. As chief operating officer of Admiral — Wales' only FTSE 100 firm — he believes the city is ripe with opportunity.

The company employs more than 1000 people at its Capital Tower HQ, and is set to move to a new office, which at 220 000 sq ft is understood to be the biggest pre-let office project ever seen in Cardiff.

Energy and enthusiasm
Its brand repertoire includes Admiral, Elephant, Confused and Gladiator, and the firm recorded a sizeable £266m profit before tax in 2010. The firm has 2.75 million customers.

Mr Stevens, a founder director of Admiral, says a number of potential areas were considered for the launch base: "Our London backers said they wanted us within two hours. We drew up a map and began considering various cities. However, the energy and enthusiasm of the Cardiff bid struck a chord with us. They visited us and, from then on in, they did a great job.

"There was also a grant from the Welsh Assembly Government to come here, which was a huge factor. A small management team moved in, and it has been a great location for us. Much more happens here than it would in an equivalent 350 000-person city."

Admiral was able to gain from other insurers leaving the city — something it continues to do, he says: "From a professional level it was fortunate timing. Several big competitors in the insurer market shrunk their city offices. A lot of early talent came from that retrenchment, and many of our staff are loyal to South Wales."

The success of Admiral is evidence that the city can produce a financial services giant. But is Cardiff a city where new start-ups will be able to emerge, and insurance able to thrive?

Mr Stevens is confident that any grumblings concerning the local market will be met with defiance. It would be foolish to write the city off just yet: "Wales would be a successful choice. Admiral's success is proof that this city has the skills, and that the people have the capacity to create something successful."

Farewell to Cardiff — or hello Wales?
Insurer Axa left the Cardiff market in 2009, but has recently outlined ambitions of returning to the city. Under its new Welsh commercial CEO Amanda Blanc, the firm has targeted a revamped regional strategy. As revealed by Post, the city joins Newcastle and Bristol as regional areas where the insurer needs to "fill some gaps".

Ms Blanc said the insurer's lack of presence in the city was a concern and it would "listen to broker opinion".

Responding to the report, Moorhouse chairman and CEO Lyndon Wood told Post he was "definitely pleased" with the news, having experienced difficulties with the insurer in the past: "Over the years we have tried and tried to do business with Axa, but to no avail."

Last year also marked the entrance of Arista into the Cardiff market. The Lloyd's backed commercial managing general agent signalled its intent to do business in the Welsh capital following the appointment of Mark Chichester, who joined from NIG, as senior underwriter.

Mr Chichester is tasked with helping to develop the South Wales market and enhance Arista's technical proposition to brokers in the area. Arista chief executive Charles Earle said at the time: "Mark's local experience will be hugely helpful in driving Arista forward in these areas. Demand from brokers in South Wales has been growing and Mark's appointment is very much in response to that demand."

Speaking to Post in Cardiff, Mr Chichester said that recent insurer exits from the market, including that of NIG and UKI, had encouraged the MGA to make the decision: "There are definitely firms looking at the city. We saw South Wales as an opportunity, as a lot of insurers that serviced these markets had left in previous years."