This is for all you under 40s out there, who have only heard rumours of what life was like pre-internet. As it’s holiday time, this makes a relaxing look back at life when marketing was via Yellow Pages, red ink showed a loss on a book and people sold insurance face to face, or over the phone and then policy docs by first class post. Your IE looks back at an old ledger, bought from an antiques shop years ago when he repaired watches, which still has journal entries from the 70s to the early 90s.
SPARSE DATA
The thing that strikes you leafing through this leather bound office ledger is how little data there is in there. This is bare bones book-keeping, which was obviously kept by one person, with the odd hand written annotation in the margins. Things like “Peter’s wage increased” on the salary expenses, or the spend per year on local newspaper adverts, all paints a picture of a really slow pace of life back then.
There was also less regulatory compliance to do, much of what is in this book is for the Inland Revenue as it was back then, before Customs were added. There are no entries on carbon offsetting, tree planting, diversity quotas across the staff, nor any mention of a mission statement. It’s all meticulous percentages; GWP, commission paid to underwriters, advert costs, phone enquiries. All is business, profit and loss.
IMPACT OF DIRECT LINE
Within the dusty pages of this ledger there are clues as to how the insurance broker landscape changed in the mid 1980s. The brokerage opens in 1976 and in 77 it sees an increase in actual policies sold of 181%. That trend continues nicely by about 20% each year until 1985. In a footnote, the book-keeper add; “Direct Line opens 1984.”
This was a revolution in car insurance in the 80s, as most people could afford landlines in their homes by then. Direct Line with its TV red phone advertising took off and people stopped popping into a local broker’s office for a quote on car cover. From 1985-88 the policy sold data went into reverse by about 20%, with a 5% rise in 1989 as the small broker managed to win back some business.
These few figures tell a story of fundamental change in Britain at that time, the same thing would happen with the internet of the late 90s/early 2000s, as online enquiries replaced phone calls.
COMMISSION PERFORMANCE TRACKING
From 1980 the small brokerage began tracking “close” ratios on phone calls, as it was spending thousands each year on advertising in yellow pages, and local newspapers. The percentages are incredibly high compared to modern times; a low of 23% and a high of 36% in 1982-83. What’s interesting is that that peak was achieved in the recession of the early 80s with 3 million unemployed, whilst the low was in 1988-89 when times were a bit better.
When it came to commission percentages the broker was a best friend to Lloyd’s Underwriters, as they were paying anything from 14%-17% to Paladin, Leadenhall, Eclipse and others. In fact 43% of the entire broker revenues went to Lloyd’s underwriters. Meanwhile lower percentages of 10-12% went to Avon, Eagle Star, General Accident, Cornhill and Norwich Union, now known as Aviva.
Overall in the 80s the brokerage managed to pay an average of about 13.5% to underwriters.
80S ADVERTISING COSTS, MARKET CHANGES
By 1985 the brokerage was paying just under £17,000 to four local newspapers, plus about £2000 on Yellow Pages ads. But renewals that year had dropped to about 35%, down from a healthy 70-75% average throughout the late 70s and rest of the 80s. There are no GWP totals in the ledger for that year, but the mid 80s totals showed a turnover of £581,000 or so. So what went wrong in 1989?
One of the main reasons was the Big Bang of 1986 which changed the London Stock Market from paper trades and shouting, to an electronic scoreboard. The insurance sector began to gradually move towards electronic placement after that and by the late 80s brokers and underwriters were also moving away from paper placement. But the killer fact was simple; Lloyd’s almost went bust due to the Exxon Valdez oil spill and Pipe Alpha rig fire. In a nutshell rates on everything had to rise rapidly that year, things got very tough.
A new computerised claims system was introduced by Lloyd’s that year, which had to be ultimately paid for by clients of course.
THAT CHURCHILL DOG
Then there was the emergence of the Churchill dog that year, which made selling motor policies in a brokerage office that bit harder, as brokers were essentially cut out of the loop, for the first time ever. It was the beginning of the more ruthless broker market, of tighter margins, more data based decisions rather than people relationships defining risk.
In so many ways this ledger tracks the transformation of the insurance broker market from 1977-92 and the growth of IT in the UK. Gradually, computers began to replace humans in the workplace, even if it was just in the back office in most cases.
It was a fascinating look back through the pages of insurance history for me, hope you enjoyed it.
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