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IN 1960 SOUTH AFRICAN BROKER PATRICK ENTHOVEN HAD A PROBLEM. THE COUNTRY’S UNDERWRITERS WEREN’T INTERESTED IN HANDLING SOME OF HIS CORPORATE CLIENTS’RISKS, BUT PATRICK WAS FOCUSED ON SOLUTIONS AND WASN’T ABOUT TO LET A BIT OF INSURER APATHY GET IN HIS WAY. WHICH IS WHY HE FORMED HIS OWN INSURANCE COMPANY.
“They say that all the best businesses grow out of a particular need,” he says today, sitting in the boardroom of Hollard
Insurance high above Sydney’s Hyde Park. “We bought a dormant licence for 200,000 rand, whichwould have been about $30,000 in Australian dollars. Even by the terms of those days, it was a paltry sum.”
He called the new company Hollard Insurance because the Johannesburg stock exchange was in Hollard Street. “We thought it added just a little bit of respectability.” Patrick’s brokerage was established by his father Robert, and had grown into one of South Africa’s largest. This year he passed on to his son Richard a much larger legacy – the chairmanship of the Hollard Group, a global company with strong ties in some unexpected places.
Hollard is the largest independent insurer in South Africa, and also has operations and investments in a number of other African countries as well as Australia, India, Pakistan, China, the United Kingdom and the United States. It provides insurance products and services to more than 6.5 million customers globally, employs more than 1500 people and holds assets exceeding $1.7 billion. And while Hollard keeps on growing, it does most of its business so quietly that many people don’t realise just what an insurance powerhouse it is.
Yet since it set up in Australia in 1999, it has invested in 12 underwriting agencies and 22 insurance brokerages, provides life insurance products to three major companies and runs its own direct insurance brands, Real Insurance and Pay As You Drive. So in the Australian risk insurance space, Hollard can’t be ignored. Patrick Enthoven built a global company using what the company’s publicity blurb describes as “a strong spirit of innovation, unyielding integrity and a passion for developing long-term, mutually rewarding relationships”. His son Richard is one of three children; his two sisters don’t work in the company. Richard has worked for AIG in South America as well undertaking project management roles for two US insurance companies. He moved to Australia in 1999. While he and his family live in Sydney and have become Australian citizens and Patrick has lived in California for the past 25 years, the Enthoven family’s roots in South Africa are still deep. The South African business has 6 million policyholders and more than 1000 employees, and Richard spends a month every year overseeing the extensive Hollard operations there.
By any measure Hollard is a huge success story. Yet the company’s approach to the business of business is entirely of its own making. “We came here very quietly in 1999 and set up an agency business,” says Richard. “In 2000 we got a licence, and then we spent five or six years with a licence just testing things out – trying different things and finding where there were some opportunities to play. “It was only really when we got a degree of confidence in about 2005/06 and we had a team in place, we knew the lay of the land and we started to invest some quite significant money into this market.”
Hollard’s Australian focus is based on a “partnership model” supporting insurance entrepreneurs it believes can demonstrate a sustainable competitive advantage, specialist underwriting skills, solid distribution, brand awareness or operational excellence. And they’re not afraid to have a go with start-up businesses. Patrick Enthoven says people tend to think of international insurance companies as large European or American corporations “with head offices in Germany or London or New York and then a bunch of satellite companies doing what they’re told. We have conscientiously decided not to do that, and we have no holding company structure of any substance.
“Each company manager runs an independent business leveraging off our capital and expertise and people and clients – but really tailored to the local market “Our view is you need to find the best people and management that you can. You need to share a vision and a set of values with them, and then back them.” The company has been following this partnership model for more than 20 years. But with understanding comes opportunity. In Australia Hollard provides its partners with equity funding and working capital, as well as support in critical areas such as product development, pricing, reinsurance optimisation, actuarial analysis, management reporting, accounting, finance, marketing, legal, compliance, information technology, and exposure to Hollard’s international business network.
As the company literature explains it: “We have found that our greatest successes come from focused, owner-managed insurance businesses with niche underwriting skills, which offer tailor-made solutions and superior claims service.”
Richard Enthoven says underwriting agency Mecon is a good example of the Hollard approach. “Early in our development here we met Glenn Ross, who is a phenomenal underwriter in the construction and engineering space, and truly an exceptional talent. He was looking for someone to back him into becoming a shareholder in a business.
“We don’t see ourselves as construction people, of course – we see ourselves as in the people business. So when we find people with that kind of talent we say, ‘Let us help you build a business around yourself’. And that’s what we did.
“We really incubated Mecon, and today it has branched out. It’s very much its own entity, it’s out of our offices, it’s off our systems, and it has a fabulous footprint in the market. “That’s the game we’re in. Where we can find exceptionally talented people who genuinely have a competitive advantage in their chosen niche, we can put the money, the systems and the people behind them to help them become entrepreneurs. “Underwriting agencies, for us, aren’t really hugely exciting, but building great people into successful businesses – that is.”
Glenn Ross’ perspective on the Hollard experience is equally positive. “I’d been pushed around a bit trying to set up Mecon with various parties dictating terms to me and stonewalling, but then Richard gave me a call,” he told Insurance News. “The negotiation itself was trouble-free, and then they said ‘Just do it and we’ll provide you with what you need’ – and they did. “We worked initially from their offices, and from the start it was a true business partnership. There was real mutual respect, and they never tried to push us around.”
Hollard also has ambitions in the broker market. It has 22 broker partners at present, and wants to grow that number to about 50. As with underwriting agencies, it’s looking for owner-managers who know their businesses inside out. Membership of a cluster group is no obstacle. “We provide a lot of support to their businesses and we work very closely with them to give them the tools to compete effectively,” says Richard. “We’re trying to identify across Australia 50 brokers who we can work really closely with.We make sure they know who their clients are, and we try to align our interests wherever we can and work really closely with them.”
Under the broker model, Hollard puts its selected brokers in control of key insurance functions. “By empowering brokers to make policy and claims decisions and handle critical administrative responsibilities, we’re able to minimise red tape, improve risk selection, reduce loss ratios, improve claims handling and generally operate more efficiently. “This in turn minimises expenses, which helps us keep our premiums competitive, and also allows us to properly remunerate brokers for administering policies and claims on our behalf.”
Hollard isn’t looking for flow-on business, however. Richard Enthoven says he’s “not suggesting that they don’t do business with anybody else. In fact, we normally don’t hold more than 10% of any broker’s book. What we would rather do is get 10% of 50 brokers rather than 1% of 500.” The company is also offering its broker partners access to a nonadvice life insurance sales platform. Richard says some brokers “are getting quite effective cross-selling rates. It’s an opportunity to develop a sort of passive income for brokers with their core clients that they previously may not have taken advantage of.”
The investment in the Australian market has been “very successful”. “We’re going to report the Hollard Group in Australia profit of just under $30 million this year and second only to South Africa, where we’re going to report about $150 million,” says Richard. “This is a country mile ahead of any other foreign market we’re in. “We’ve got a significant footprint here and we’ve got some areas where you could fairly say we’re market leaders.” And Hollard is in a mood to expand in Australia and in Africa. “In terms of growth we have identified through a reasonably rigorous process a handful of key areas that we’re going to focus on,” he says.
“The first is extending our Africa footprint, so we want to become a pan-African insurer. We’d like to have the capacity to serve clients in every major African market.” Its Indian business is a life insurance distribution joint venture which now has 250,000 clients. “We think that’s probably the next market that we’ll make a big investment in.” He describes the company’s entry into China as being “as much about hope as it is about anything else”. “Anyone who’s been in China just can’t help but feel overwhelmed with what you see,” he says. “We sort of had the feeling that we had to be there. We’ve formed a joint venture with a retailer and set up a third-party administrator and a brokerage with that retailer to sell mobile phone insurance. We’re selling 6000 policies a month now, so we’ve got a toehold, and we’ve got a team of people and we’re learning the game.”
Hollard is following an even longer-term softly-softly approach in China than it used in Australia. “We’ll be there for a long time before we invest any capital,” Richard says. “We’ll want to make sure that the guys on the ground have a strong business case that they have the capacity to deliver.” Interestingly, Patrick Enthoven’s first foray into a foreign market – the United States in 1984 – was a disaster. He describes it as “brave and stupid”. “We made an investment in an insurance company, [but] we didn’t really understand the market. We thought because we’d had a measure of success in South Africa that we could move that success to other environments.” Typically, he sees an upside. “It also educated us into the ways of the world outside of South Africa. “It was a fantastic lesson for a business that wants to grow beyond its borders.”
Hollard is still in the USmarket, but in an unexpected space. “If you fail as an underwriter you can still become a loss adjuster,” he says with an ironic grin. “We’ve got the third-largest loss adjusting business in the US – Frontier Adjusters – in partnership with the guy who runs the business.” While father and son live outside South Africa, the evolution of their business in that country is still very important to them. And Hollard in South Africa is not a low-profile player in the market – it has evolved to be very much part of the Rainbow Nation’s story.
“We’ve really tried very hard to foster an innovative culture,” says Richard. “What we are seeing now in South Africa is the traditional companies servicing a smaller and smaller segment of the population. “Companies like ours and other very successful companies are innovating to serve the new and emerging needs of the growing middle class. “I think philosophically there is a big desire to be in tune with contemporary South Africa. But it’s not so much a business strategy as it is a result of the culture. “I think the World Cup demonstrated that there is still a culture of ‘we can’ in South Africa, which had been lost a little bit,” says Richard. “And for us it’s very pleasing to see that culture re-emerge.”
Possibly the benign attitude the Enthovens take to their company’s development might not have been possible if it was a listed company. Yet a privately owned company is often seen as an impediment to growth. Lumley Insurance, for example, reached a point where growth was constrained by family pressures.
But Patrick Enthoven says private ownership allows a company to plan further into the future. ”We’re not governed by the next financial report, and that’s a huge advantage, particularly in the insurance industry,” he says. “I think underwriters and insurance companies make a big mistake in thinking too short-term. “We have a very exciting business here in Australia, but it’s taken 10 years to build. A listed company would have found it extremely difficult to take such long-term strategic decisions.”
Hollard’s decision to move into the direct personal lines market through Real Insurance and Pay As You Drive was a step outside the company’s normal comfort zone. Personal lines in South Africa is mainly intermediated, and despite the success of fellow South African-owned direct insurer Budget Direct in the local market, the move was cautious if inevitable. “We try to stay out of the real bar fight, which is where everybody is focusing, and focus on areas where we think we can do something different or have a unique position in,” says Richard. “Underwriting agencies are the traditional area of strength of the Hollard South Africa business, and that was our first foray here. “By and large they’ve been quite successful, some spectacularly so. But then we took a decision in 2004/05 that in order to be a player in Australia you had to have a retail personal lines capability.
So we’ve invested very heavily in building the Real Insurance business. “It is a business that requires significant scale and it does require a lot of investment in terms of brand-building and systems development. But we’ve now got 300,000 or so clients, and it’s growing 10,000 a month. So we’re very happy. “We’re particularly happy with Pay As You Drive.
It’s a concept that we’re now going to look at potentially taking to other markets, because we think we’ve developed a unique offering.” Richard Enthoven believes the battle for dominance of the personal lines market is just beginning to heat up. “When we launched Real Insurance, you basically had two large players and very few challengers. Now we’re seeing the retailers, aggregators, financial institutions… At the moment it’s game on. “You’ve got two players with nationally large market shares. It’s going to be hard for them to hang on to those shares. How do you defend a 40% market share? It’s going to be very, very interesting to see what emerges.”
Life is good for the Enthovens. Patrick says he has passed on the chairmanship to his son without regret, and Richard says excellent managers working in companies the company owns or invests in makes being chairman “pretty easy”. “I’m very happy here,” he says. “I’ve got married here, I’ve had my children here; we’ve all become Australians. “You know, we’re like millions of other immigrants to this country – unbelievably grateful for the opportunity to live here. So I have no desire or inclination to leave. You can’t rule anything out, but given how exciting our Australian operation is, something extraordinary would have to happen for me to leave here.”