From fine art to hurricanes, venerable insurance firm Hiscox has underwritten them all. Here Steve Langan – managing director for UK and Europe – explains how “Goldilocks weather” and “advancing to the sound of gunfire” steers the business along…
In the middle of Hiscox’s Square Mile lobby, a Jeff Koons Murano glass sculpture sits on full display. Few businesses would flaunt an artwork by the world’s most expensive artist in a place where butterfingered workmen or nervous job interviewees could send it shattering into thousands of splinters. But it’s fair to say Hiscox, the Lloyd’s of London specialist insurers who have sold cover for everything from typhoons to terrorism, know exactly what the consequences of such clumsiness could entail.
The Koons sculpture, not to mention the Damien Hirst skull by the ninth-floor boardroom or the second-floor ‘squirrel-stuffed-in-a-champagne-glass’ neatly enshrines the art-loving ethos and unconventionality of ex-chairman and City grandee Robert Hiscox, who stepped down in 2013 after 43 years at the helm. “We’re unapologetic about the challenging nature of our art,” says Steve Langan, managing director, UK and Europe. “We’ve always been a company that makes people sit up and think.”
There’s one lobby brushwork which guests can’t ignore. Keith Tyson’s The Combustion of Icarus is a fiery-as-Hades riot of blood-red crimsons and coruscating flames, possibly warning visiting clients, that should they, like the titular wax-winged Greek, get too close to danger, ruinous things can happen. In the tempestuous world of insurance, natural catastrophes have an inflammable effect. Hiscox recorded a £165m net loss after the hurricane-strewn year of 2005, while a litany of disasters in 2010 and 2011 (Deepwater Horizon, Christchurch earthquake and Japanese tsunami) saw the FTSE 250 insurer’s profits tumble from £211m to £17m.
“One of Robert’s mantras was, ‘always advance to the sound of gunfire’,” says Langan. “Whenever there’s a crisis, we’re in there sniffing out the next opportunity… We man the guns better than anybody else.” Bullish talk, maybe, but Robert Hiscox (fond of a military metaphor – his father was a Spitfire pilot) and current CEO, Bronek Masojada, invoked another proverb: “Feast follows famine”, hinting at the opportunities which can follow such hardships. Langan: “When you’re paying out claims, prices harden, [it] puts pricing back into the market.” Sure enough, last year Hiscox wrote gross premiums of £1,756m, posting pre-tax profits of £231.1m. The “Goldilocks weather” of 2015 (“not too hot, not too cold”) also augured well for the firm.
Feast and famine
Robert Hiscox may have left (he remains in an advisory role) but his ethos continues to characterise his erstwhile firm. “Robert shaped the culture of the company,” explains Langan. “For many decades, he put the customer first. It’s unusual in many companies, certainly in the City.” In 1970, the death of his father meant 27-year-old Hiscox found himself thrust into the role of chairman of insurance firm Roberts & Hiscox. Presiding over a ten-strong staff at a time when underwriting was calculated using mental arithmetic, Hiscox ousted co-founder Anthony Roberts in a “bloodless coup” and over the next three decades steered his eponymous company to becoming a City mainstay. A decision to expand outside the London market in 1989 presaged Hiscox floating on the London Stock Exchange (1997) and acquiring its first insurance company (Economic Insurance Company, 1996), which enabled the insurer to underwrite in both Lloyd’s and company markets.
However, 9/11 was, according to Langan, “as near a near-death experience a company could have… the worst catastrophe that could be imagined (for insurers) was two jumbo jets crashing over Manhattan.” After “borrowing money to build the business” and a mindset which saw them “running into risk, rather than away from it”, feast did indeed follow famine. In 2005, with 42 per cent of business in North America, Hiscox relocated its country of domicile to Bermuda – to take advantage of the “lighter touch regulatory regime”. International expansion has continued apace: today it operates in 14 countries, with Hiscox becoming the first insurer for US small businesses and launching online insurance platform DirectAsia in 2014. It’s also broadened its remit, insuring people and businesses against the cancellation of events such as the Olympics and Wimbledon.
Hiscox may insure 10 out of 12 European crown heads, yet over the past decade, the emphasis has shifted from insuring high-net worth individuals; today, 65 per cent of Hiscox’s British business comes from commercial business, and the majority SMEs, with over 268,000 SME customers worldwide (160,000 in the UK), bolstered in 2009 when it set up schemes for pest-controllers, museums and electrical contractors.
“There’s an assumption we don’t do down-and-dirty,” says Langan. “But when this plan came along, Robert said, ‘Rat-catchers! I love it! We’re hunters, out there hunting…” The biggest risk to SMEs, reckons Langan, goes further than damaged property. “We’re seeing a massive growth in cyber attacks,” he says. “Most businesses seldom talk about it, despite being utterly dependent on their IT systems. A lot of them are malicious and driven by foreign government involvement. If the lights go off on that, then the lights go off on the economy.”
Even though protecting clients means dealing with unusual cases such as the time a client’s Aston Martin DB9 was part-eaten by a horse (true story), Hiscox’s retail arm gives it a strong competitive edge. But Langan frets that the big problem facing Hiscox isn’t competition, but “the surplus of capital looking for a home. The Canadian Pension Fund drops a gazillion dollars into the marketplace and doesn’t even know its share… Reinsurance returns, which are traditionally high double-digit in a one per cent world, are massively attractive to pension funds, so they moved in. But for the reinsurance world, where they’re used to triple-digit margins, it’s a big wake-up call. You either evolve or die.”
Evolving is something Hiscox seems particularly adept at. Ten years ago the firm was “hugely well-known within the City but nobody had heard of us.” So Langan, whose CV has included senior marketing roles at Coca-Cola and Diageo Ireland (he helped promote the £100,000 of Guinness given to pregnant women by the Irish health service every year), was drafted in. Despite Hiscox’s marketing inexperience (“they’d never made an ad before, let alone a TV campaign”), Masojada told Langan, “Here’s £10m, go build a brand.” The memorable ‘As Good As Our Word’ campaign followed. Not only did it help allay long-held public mistrust in insurers, but Langan noted the strapline has a “secondary benefit – it holds a pencil to the back of employees to be as good as their word when meeting clients.” The campaign came at a time when there was a glut of adverts for price comparison websites. “Comparison websites always underestimate a brand’s importance. They get their IT or customer service right or do a jazzy jingle, then struggle.” As Hiscox’s Brand Book puts it, “If you buy a policy from a meerkat or a fat opera singer, you know what to expect.”
Despite capricious Mother Nature throwing up Hurricane Sandy in 2012, Hiscox emerged unscathed. With Somali pirates having “gone back to fishing” and the company not paying “massive claims” during 2014’s Ebola and Ukraine crises, coffers are healthy. Today, Hiscox regularly insures businesses working in kidnap-prone areas of the world. “Occasionally we find employees we insure are caught up in those circumstances,” points out Langan. “But the stat I love is, you’re ten times more likely to come out of those situations with Hiscox than our competitors.”
The element of risk seeps through Hiscox, extending to managers’ personal lives, such as driving to Mongolia (Langan), family holidays in North Korea (Masojada) and controversially, big-game hunting (Hiscox). “This ain’t a mannequin company,” points out Langan. “What we like are people with individualistic points of view doing their own thing – there’s a countercultural thread here.”
This also manifests itself in the art-festooned décor of Hiscox offices – for which they employ a full-time curator. The company is one of the world’s leading insurers of fine art, while Robert Hiscox, a long-time champion of young British artists, owns an art collection so vast, he built a warehouse to store it.
When Hiscox departed in 2013, in defiance of corporate governance sticklers, he named an insider, chief underwriting officer Robert Childs, as successor. Indeed, over-regulation of the insurance industry is a particular bugbear with Langan viewing it as “a significant threat to this industry… It’s becoming more difficult to run a company here.” With the government raising Insurance Premium Tax, he adds, “The government likes to tax the insurance industry under the guise of better governance – it’s nothing of the sort. We’re at the sexier end of the business, but people won’t join because of the perceived regulatory burden. It’s anti-competitive, not a healthy eco-system at all.”
Because of this, Langan believes insurance is “ripe for disruption because it’s relatively slow and unsophisticated. Why anybody in their right mind would even come into this industry with the amount of red tape, I don’t know…”
With forecasting central to their business – the company is keen to point out this is based on statistics rather than gut instinct) – Langan foresees monumental disruption. “The digital convergence with things like Uber feels like the early days of the internet. It’s destroying existing business models overnight. We’re spending a lot of time understanding that, [as] a combination of something like Uber and driverless vehicles will completely transform things like haulage and transport companies… This stuff will affect us all. You either get ahead of it or get disrupted.”
Still, with their credo to “reinvent ourselves every year” and an upstart-like stance to rival any rumbustious Brit artist, Hiscox is in a good place right now. As Langan says, “We ain’t becoming grey and dull anytime soon.”
Pre-tax Profit £231.1m
Staff Over 2,000 people across 14 countries
High point 2014, when it posted pre-tax profits of £231.1m.
Low point The <annus horribilis> of 2005, when the insurance world took a battering from US hurricanes, with disasters that year creating an estimated $83bn insured damage. Hiscox subsequently recorded a £165m net loss.
Did you know? Robert Hiscox is currently involved with a plan to turn Swindon into a cultural hub by supporting a £20m art gallery. “If by the time I die, Swindon makes people think of culture instead of ugliness, I will be a happy man,” he says.