Interview: Innovation Broking – rise of the anti-consolidator
Co-founders Paul Dickson and Howard Pearson explain how they plan to grow without acquisition and why big brokers have ‘failed miserably’ on client service
Paul Dickson says that he expects his company to be 50 people strong and be controlling £25m of gross written premium (GWP) in five years’ time, it’s natural to assume that the new company will soon start making acquisitions.
After all, other recent start-ups, including Peter Cullum and David Margrett’s Global Risk Partners, and Chris Giles and Brendan McManus’s PIB, will be pursuing a buy-and-build model.
But Innovation Broking, which Dickson co-founded with former OAMPS UK chief executive Howard Pearson in April 2015 following the pair’s departure from Arthur J Gallagher, aims to be different.
Far from pursuing a buy-and-build strategy, both Dickson and Pearson, development director, seem to have a distaste for it, not least because they contend it has shifted the focus away from client service and onto extracting value from acquisitions and seeking more commission from insurers. They also feel buy-and-build has run its course in the UK.
Dickson says: “It is unlikely that we are going to go out and buy a company because I think that particular phase of broking activity has slowed down.”
He adds: “We are saying: let’s bring together a group of leading commercial insurance brokers with good client networks who are concerned about providing a high level of service to their clients.
“Clients make the world go around. We are not in this to squeeze insurers to pay us more money, to put teams of people to negotiate with insurers to get that extra half a per cent. That is not our model at all.”
Pearson says: “The prices [being paid for brokers] are being set not by the development potential of that company, but more by what you can squeeze out of it. We neither believe in that nor have a passion for it. We want to build, not squeeze.”
A different game
The question is how, in a fiercely competitive market, is Innovation Broking going to achieve its aim of becoming a significant commercial insurance broker in the UK without buying other companies or playing bigger brokers at their own game?
One factor in Innovation’s favour is that it has hit the ground running. The company has not had to start from scratch. It is a trading name of Dickson Financial Services, which was set up to house the employee benefits business of Dickson Insurance Brokers when Dickson sold the broking part of the company to Giles in 2008.
Dickson Financial Services gave Innovation Broking a ready-made headquarters in Watford, and in the first week of 2016 the company opened an office in St Dunstan’s Hill in the City of London – a stone’s throw from the heart of London’s insurance centre.
Dickson has also brought to Innovation some of his old clients, mainly in the technology sector, that have been with him since the Dickson Insurance Brokers days. As a result the company passed the £1m GWP mark in its first six weeks of business.
Innovation has continued adding clients in its target area of mid-market companies employing between 50 and 1,000 people. They include drinks maker Slush Puppy in the UK and Europe, AIM-listed Postman Pat toy manufacturer Character Group and one of the UK’s leading encryption firms. The last deal it signed in 2015 was for Japanese children’s entertainment brand Pokemon in the UK.
Eight months in, Innovation Broking controls £3m of GWP and is budgeting for £5m at the 12-month mark and between £15m and £17m by its third year.
Dickson and Pearson contend that their focus on service rather than extracting value is in one reason for their success.
Dickson says: “There is a middle market out there that we both instinctively feel is not well served. At one end you have brokers whose business model is driven by increasing margin in any way they can because they borrowed so much money, and at the other end you have got the very large firms who aren’t really interested in the smaller clients.”
He adds: “Mid-market businesses don’t want to deal with the big international brokers. They still want that relationship-based, personal, high-quality service. They know that they won’t get this, on the whole, from the traditional large brokers.”
Having hired some well-regarded producing brokers, the company is now looking to build its client service team.
Dickson says: “Salesmen are one thing, but we need to have the same quality of investment in our second row – account support and account handling staff.
“That is where the big brokers, in my not inconsiderable experience, have failed miserably. They have significantly failed to invest in high quality account support resources.”
The focus on client service has helped win over insurers as well as brokers, say Dickson and Pearson. They have 45 active agencies, which they were able to pick up in relatively short order. The panel includes AIG, Allianz, Aviva, AXA, RSA and Zurich.
They believe they got agencies so quickly because insurers have grown weary of brokers with a consolidation strategy of trying to coax ever-higher commissions from them. Pearson says:
“We were amazed at how straightforward it was to get all of our agencies. We got really strong support from a senior level in most of the insurers.”
Dickson adds:”They are tripping over themselves to have a relationship with us because they are begging us to herald in the new world where things are a bit more in balance and the insurers don’t feel they are being held over a barrel.”
As well as client and insurer support, the company also received £2m of venture capital funding from Albion Ventures in return for a 30% stake in the company.
Albion’s involvement helped Innovation secure two of its recent hires, Russell Sessions from Stackhouse Poland and Ryan Sherer from Arthur J Gallagher, amid stiff competition for talented broking staff.
The minority ownership means Innovation can offer equity stakes in the business as part of an incentive for new senior staff – something that the larger listed brokers or those 100% owned by private equity would be unable to offer.
Dickson says: “They are very attractive hires for us. Being able to offer them a more interesting package with equity participation enabled us to hire them.”
For its next steps, Innovation Broking will continue hiring individuals and teams. As well as account handlers, the company will also be recruiting high net worth brokers. The company wants to be able to arrange insurance for the directors of its clients, but also pursue high net worth business outside its existing client base.
The company is also keen on ensuring it builds for the future, and will be well managed when Dickson and Pearson finally decide to call it a day.
Dickson says: “I am conscious of ensuring that we have proper leadership succession. Some of the new hires really tick that box. We are employing people in their 20s, 30s and 40s. We are creating the right strata of skill in the business.”
Not that the pair plan on going anywhere just yet. Dickson has returned to running his own company after seven years in the corporate world. Pearson says: “I can’t see Paul ever stopping. It’s in his blood.” Pearson himself seems equally willing to stick around.
Innovation Broking may be a new name, but if all goes according to plan it will be around for a while yet.
By Ben Dyson in Insurance Times