5 Tips from Henry Engelhardt for Finding a Niche in a Mature Industry:
1. Go where they're not - don't fight superior competition directly on day one
2. Don't spend money if you can help it
3. Employ people with intellect and great attitudes over those with lots of experience
4. Learn your business by doig not from reading reports
5. Always take lunch.
Henry is founder and CEO of Admiral Group, a car insurer sells coverage over its phone and Internet since 1993. Following is the story from WSJ. (Shhhhh...)
Managing: How Admiral Group built lucrative niche --- U.K. insurer targets specific consumers with fleet of brands
By Ian McDonald
10 September 2007
(Copyright (c) 2007, Dow Jones & Company, Inc.)
Henry Engelhardt's speech pattern -- part Chicago, part Cardiff, Wales -- is as distinctive as his approach to car insurance.
Mr. Engelhardt, an American who attended business school in France and has long worked outside the U.S., is chief executive of Admiral Group PLC. He co-founded the Cardiff-based car insurer, which sells coverage over the phone and the Internet, in 1993.
Mr. Engelhardt borrows ideas from consumer marketers selling cosmetics or shampoo -- targeting specific customers with a fleet of brands. Entering a crowded, competitive market dominated by brokers, Admiral focused on selling directly to customers others shunned: young, urban drivers. Now, Admiral has brands focused on women, commercial vehicles, low-claims drivers and online buyers.
The company employs a different financial strategy from most peers, passing off much of its policies' risks to deep-pocketed reinsurers. This allows Admiral to sell ample numbers of policies without keeping heaps of money in the bank to back them up.
For the first half, Admiral reported profit rose 25%, to GBP 60.2 million ($122.1 million). Revenue after reinsurance costs totaled about GBP 178 million. The company's shares, about 15% of which are owned by Mr. Engelhardt, are up more than 24% over the past 12 months.
How did this executive who stays up late to watch the Chicago Cubs on television carve out a lucrative niche in a mature business? Excerpts of an interview with him follow:
WSJ: What was your initial impression of the the U.K. car-insurance business?
Mr. Engelhardt: At first I thought, "Car insurance? How boring." Then I found out the U.K. insurance market is fascinating and one where counterintuitive thinking pays off. Customers are generally very rational and willing to consider new ideas, but many companies stick with the status quo.
In the U.K., 70% of consumers shop for motor insurance every year. That figure is 20% or less in the U.S. and most other big insurance markets. That creates a big opportunity for someone who is willing to take a fresh look at the business.
WSJ: What have you done differently?
Mr. Engelhardt: There have been a lot of basic things we've done that were totally new in the U.K. One was a free phone line. There were other little things, like comment forms. We asked customers what they thought. All of that seemed pretty standard to us, but it wasn't happening in U.K. motor insurance.
WSJ: How did you start picking market niches?
Mr. Engelhardt: When we started in 1993, the other phone-based companies had gone for the good-driver market. We knew we couldn't compete there. We had to go where they weren't, and that was younger drivers. Brokers were getting about 15% in commissions. So, a premium of GBP 1,000 a year meant paying GBP 150 to the broker. We saw that if we could select good risks among those customers without paying brokers, we could have a big cost advantage.
WSJ: That led to other targeted brands?
Mr. Engelhardt: Yes, and that targeting started because we weren't car-insurance people. We started out with Admiral for younger people in 1993. We added Diamond in 1997, focusing on women, who really responded to that. And we launched Elephant.co.uk in 2000 for people who wanted to use the Internet.
If you said to the people at L'Oreal or Procter & Gamble that we do multibranding, they'd yawn. Look at shampoos in [U.K. pharmacy chain] Boots and you'll see yards of different types. But look at the back and they're all from P&G and Unilever.
WSJ: Every car insurer has decades of accident data. How can you get an edge at underwriting?
Mr. Engelhardt: We ask about 30 questions, compared with about 22 or 23 for our competitors. That might not sound like much, but it actually makes a huge difference. You need that extra information if you want to be better at risk selection. Some of these extra questions have to do with second drivers, for instance. We might sort second drivers by gender, occupation and years they've held a license.
WSJ: You're expanding in Europe. How is that going?
Mr. Engelhardt: Our business [in Spain] started last year and is a telephone and Internet business. We have more than 16,000 customers now. Germany is a work in progress. We hope to launch late this year or early next year. It will be Italy next, in 2008 sometime.
WSJ: How do you choose your markets?
Mr. Engelhardt: Our international expansion is based on a simple premise: The Internet is an unstoppable force. The 21-year-old in [Peoria, Illinois] and the 21-year-old in Bonn are both using the Internet for virtually everything. We know a lot about it and we know how to do it.
WSJ: Do you think you'll be in the U.S. in five years?
Mr. Engelhardt: I hope so, yes. In 2009 we are looking at opening in France or the U.S. The upside of the U.S. market is that it's huge. The downside is that it's 50 different markets [due to state-by-state regulation]. But it does give us the opportunity to pick and choose among states if we like.
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