Recession is not a word that features in motor insurance business vocabulary. “As a compulsory purchase, you have to buy car insurance even in a recession,” says UK auto insurer Admiral Group’s finance director Kevin Chidwick. In a global business environment characterised by caution and cash conservation, Admiral Group is bucking the trend by continuing its short and long-term strategy of global expansion.

The company has a profile which punches above its 7% domestic market share, having grown steadily to become a household name since its inception in 1993. Although the company’s UK business grew by 15% last year and with plenty more domestic market growth potential, overseas expansion presents even more opportunity, says Mr Chidwick.

The decision to expand overseas was made a few years ago when the company evaluated whether to launch internationally or expand its insurance product range for its home market. “We chose the international expansion option because motor insurance represents a much bigger market opportunity and we know we are good at it so we decided to take our core business elsewhere,” says Mr Chidwick.

Gradual expansion

Admiral launched in Spain two years ago, in Germany 18 months ago and in Italy last year; the company is about to start its first US operations between the end of this year and early next year. All businesses offer car insurance directly via the internet, following the blueprint established by the UK company based in Cardiff and Swansea which employs 2800 staff.

The Spanish office is the largest overseas site with 210 employees based in Seville. Germany has 130 employees and Italy has 90. “Each office runs pretty much autonomously with its own marketing functions, for example,” says Mr Chidwick. The company launches a new office first by recruiting a highly talented local individual in each location to lead the local business. The individual hired in Spain was seconded initially to Admiral headquarters in Wales. “We ‘sheepdipped’ her in the Admiral way for six months then she went back to Spain to recruit the rest of her team from the local area,” says Mr Chidwick.

The new-business launch process includes a strong relationship with re-insurer Munich Re, which provides about two-thirds of the capital needed to launch the company’s overseas businesses. “We have a reinsurance partner to significantly reduce our capital risk when we launch a business, which means we give up potential profit but we don’t mind that if we are de-risking some of the initial activity; with caution we will realise a decent sized business in five to 10 years,” says Mr Chidwick.

Admiral’s business model of selling directly to the customer through the internet rather than through a broker or branches has proved timely: in the UK two-thirds of car insurance is now sold over the internet. In the US and Europe, the percentage is a lot lower. “It is our rationale that because of our UK success over the internet, we can take that knowledge and ability and hopefully do well in these countries as well,” says Mr Chidwick.

Stateside launch

The company’s stateside launch will also be based on internet sales. “As that distribution grows, as we think it will over the next 10 years, we think it will be a big opportunity for us,” says Mr Chidwick.

The company hired a US national who has already spent time at the Admiral headquarters in Wales, and is now working with a small team of new hires in the US on building the operation from an office in Richmond, Virginia. “A direct flight from Bristol to Richmond makes the location decision sensible from a logistics point of view but that doesn’t mean the states we launch in will be on the east coast,” says Mr Chidwick; the company is yet to announce which states it will be launching the business in to start with.

Regulation is a big issue in the US for the company because each state has its own separate regulation, effectively creating 50 different car insurance markets. “US regulators are a worry because they are more active than in the UK,” he says. Mr Chidwick says a US-based workforce of between 100 to 200 people is realistic by the end of next year.

The critical factor behind Admiral’s success in the UK is effective pricing of its motor insurance product and this will be true of all markets. “Our business is all about risk, so you hope that you are going to be correct more often than not about the price you choose to charge – that’s quite a dark art with more than 100 different

rating factors,” says Mr Chidwick. Some companies get it more right than others. “Getting it wrong can lose you a lot of money and that’s true in the UK as it is everywhere else,” he says.

Regional differences

That does not mean regional differences do not occur. For example, these include a greater propensity for lower value claims in Spain compared with the UK. “The way you operate your business is therefore different – you need a bigger claims department for instance – as well as the way you price your business,” says Mr Chidwick. Germany is more like the UK in terms of customer behaviours, except that in Germany all customers renew their car insurance on January 1. “You sell like crazy in December then you don’t sell much for the rest of the year – so that again poses some interesting challenges when launching a new business,” he says.

No matter which market the company enters, expansion always takes a measured approach. Each overseas launch has comprised an initial investment of less than £1m, which is low in relation to the size of the overall organisation. “It is like nurturing a nursery of small plants: you have to be cautious and careful and see how it goes, and we are doing that with each of our country locations,” says Mr Chidwick. “We test each one with small amounts of spend until we have something that works, then we will spend a bit more.”

That way, Mr Chidwick expects the company’s overseas businesses to become significant in the long term. “Looking forward ten years I would hope that the business would be spread evenly across a number of countries and be truly international,” he says.

COMPANY PROFILE

Admiral Group

Headquarters

Cardiff, Wales2007 revenue

£824.9m (€879.3m)Group turnover at June 2008

£472.5m (€503.7m)Employees worldwide

3230Number of vehicles insured

1.5 million