Is there a future role for the small specialist service provider? - 2008-06-25
The 2006 UK “non-life” run-off survey prepared for the Association of Run-off Companies Ltd by KPMG records that the UK run–off market is shrinking - although when viewed over a five year period total liabilities at 31/12/2006 of £32.7 Billion remain at 85% of the 31/12/2002 figure of £38.7 Billion in spite of all liabilities concluded during the intervening period whilst the total liabilities of the active UK non-life market was shown as a further £153 Billion. It would therefore appear that there is still much left to do.
Perhaps the more noticeable change over the same period is the consolidation among larger service providers and their absorption of many of the smaller specialist units as they seek to turn themselves into one stop shopping malls with an “all singing/all dancing” set of services!
The other dynamic change which keeps occurring is the regular release from employment of skilled individuals who respond by joining the ranks of the independent consultants. This is healthy as it encourages competition and partly offsets the natural wastage and loss of key skills which impact the whole market.
The consolidation/gearing up is however just one more temporary stage of development in a dynamically maturing run-off market and merely echoes what has already happened when these larger service providers were smaller units.
In that earlier 1990s phase, contractors started by taking on run-off and then looked to increase their income by providing other services – e.g. IT, investment, inspection and audit.
Gradually those units realised that times would still arise when they needed to employ outside specialists – for example because they needed an inspection unit fluent in a foreign language or one possessing particular skills and experience which they lacked. In addition, market disputes produced situations where the various players preferred not to use each others’ in house teams. Such an opportunity arose for Dudley re with the House of Lords appeal in AXA –v- Field.
As the volume of work ran down, those earlier-stage contractors realised that in-house specialist teams were expensive to maintain and difficult to subcontract out. Getting on a panel is one thing – getting work is quite another!
Usually the medium size contractor tended to make the rational choice and either downsized or closed the unit, often returning instead to the small specialists they had used previously! Many of the newly consolidated larger service providers contain units and senior management who have already been through this process!
In the active market, companies normally have people who are perfectly capable of carrying out reviews but this has never prevented them from using an independent outside specialist when circumstances so required e.g. other priorities, time constraints, a need to demonstrate impartiality or concerns over litigation.
The advantage of being a small service provider is the lack of any need for large regular volumes of business to provide the ongoing income streams needed to feed an army of employees. Quite the reverse, you can enjoy the fun! Market evolution is not a dead end unless one chooses to fail to adjust and evolve!
More important is the need to remain focussed on the axiom that being bigger is not the same as being better. Dudley re was selected to carry out the inspection/discovery work in the RTY case involving the largest % loss making syndicate in the Lloyd’s litigation and again for the House of Lords appeal over ‘event’ in AXA –v- Field. This has remained the position ever since.
I do not view the larger Service Providers as a threat to obtaining work which is not administered by them - quite the reverse in fact - I consider them as a potential source of new business as their plan and model change.
The main restraints I do suffer are self imposed. I will not inspect a company I have previously worked for because I consider this to be the only ethical approach. More importantly over 50% of appointments disappear because the instruction tends to kick-start dialogue and often leads to resolution and agreement without a document being inspected.
New business will come from the usual three sources, repeat business, word of mouth recommendation and inspectees who have had the opportunity to observe what has been achieved when audited.
Opportunities arise from my particular niche activities
- reinsurance inspection of records,
- discovery,
- inspection of a client’s own records,
- due diligence audits,
- binding authority reviews,
- preparation of expert reports,
- clients own account quarterly reviews and
- a potentially endless seam of one-off situations.
There is probably a position of neutrality between the players since an overseas company may not necessarily rule out a large service provider simply because it has control of run-off accounts in the UK. That said I consider it beneficial to maintain a base in France and Spain.
About the AuthorAuthor: Chris Dudley (Dudley Reinsurance Services)
Chris has run Dudley Reinsurance Services since 1993 and has a wealth of market experience. For more information on Chris and the Company go to the Dudley Re website
%20(Custom).jpg){kind=logo}
%20(Custom).JPG)
%20(Custom)%20(Custom).jpg)
.JPG)
%20(Custom).JPG)