Platform for growth

Platform for growth

Expansion of a partnership business is a key focus for Coverforce as demand for support services grows

By Wendy Pugh

With a myriad of challenges facing brokerages in the current environment, Sydney-based brokerage Coverforce sees plenty of opportunities for a partner network that can offer strong support and add value to businesses.

Coverforce Partners, a relatively recent addition to the insurance intermediary landscape, is stepping up its expansion under a model that involves acquiring equity positions and providing access to a platform of back-office and business support services, technology and supply arrangements.

“There is growing demand from brokers to be properly supported,” Coverforce Chief Executive Jim Angelis tells Insurance News. “We see our partner offering as the solution and we are investing in that. Our investment in the platform of services is significant and continuous.”

The 2017 launch of the partnership business was a natural progression for the Coverforce group, which has grown to become Australia’s largest privately owned insurance broker.

Businesses within Coverforce also include its own general insurance broking operation, the Quanta underwriting agency and group life insurance.

“From inception we were focused on building a company that would scale efficiently,” Mr Angelis says. “The aim was to have centralised back-office teams that were well coordinated to service all entities in the group.

“Growth by joint venture best preserves the business and relationships we are investing in – so it made good financial sense.”

Mr Angelis says the insurance industry is rapidly changing. Regulators are imposing tighter requirements as they aim to protect clients’ interests, and smaller independent brokers are increasingly looking for services that can help them in running their businesses.

Coverforce Partners will generally take about 30- 50% equity, while income divisions typically see about 25% of revenues charged as a fee for services provided.

“We are building a model where the bulk of the revenue goes to the partner, and through scale we are able to make that a viable business model and continue to invest in that platform of services to continuously improve those for the benefit of the partner,” he says.

The network had 26 partners as of early March, generating about $230 million in gross written premium (GWP). Those joining are typically growing at a minimum 13-15%.

Having established the foundations, the group is now raising its profile and welcoming more participants. A pipeline of around 400 prospects has been identified and the business is actively talking to potential partners.

“We needed to prove the model first, and we have done that, so now we have got significant interest and quite a bit of momentum,” Mr Angelis says.

Feedback from existing and potential partners suggests many competitors promise a laundry list of services, but when it comes down to it they sometimes “simply clip the ticket for the use of their Australian Financial Services Licence”, he says.

“We never want to be accused of doing that,” he says. “Coverforce Partners’ mission is to be the best partner in the world to an insurance brokerage.”

Mr Angelis made the move into insurance after starting in the construction industry, working with Lend Lease early in his career and later running his own business in that sector. Coverforce began in 1994 when Mr Angelis took up an opportunity to provide group life insurance, mainly to blue collar workers.

The enterprise entered general insurance broking in 2006 after acquiring Crown Insurance Services, Swissco Insurance brokers and Bookers, with the life side continuing as a small part of the overall group.

“In the years that followed we continued to grow organically and through successful acquisitions, joint ventures, and partnerships,” Mr Angelis says. “The one metric I am most proud of is our client retention rate. It has remained above 95% every year. It confirms we are delivering quality outcomes for clients.”

Investing in partnerships: Jim Angelis

Coverforce will achieve around $600 million in GWP this financial year and Mr Angelis says GWP has been consistently growing at an average rate of 22% per year.

Currently Coverforce’s leadership is “quite happy” maintaining the flexibility of being an independent privately owned insurance broker rather than pursuing the path of a stock exchange listing.

Mr Angelis says the ownership structure of a business is less important than having a strong commitment to a purpose and the ability to capitalise on opportunities as and when they arise without unnecessary delay, as well as common beliefs and values.

The pitfalls of not having alignment among key shareholders were highlighted during recent clashes with Coverforce’s private equity investors.

In 2012 South African-owned Pemba Capital Partners acquired a stake in Coverforce, ultimately leading to a court battle over shareholder agreements and whether the private equity firm had the right to push through a sale of the entire company to AUB Group.

The matter, which also involved the Resilium authorised representative network spun-off from Suncorp, has since been resolved following a series of transactions.

Coverforce management shareholders now have full ownership of their company after acquiring Pemba’s 49% stake in a deal that was completed on December 24. Coverforce and Resilium have gone their separate ways.

“If I had my time again, I wouldn’t have proceeded in bringing in a private equity investor,” Mr Angelis says. “It wasn’t a great experience for us.

“Private equity by nature needs to exit the business at some point in time, and we had no such desires. We wanted to keep growing and building the business, so it was really that misalignment that led to the position where it needed to be resolved one way or the other.”

Mr Angelis says the final arrangements have meant Pemba has achieved its exit, while management shareholders are pleased that they have been able to buy the shares.

“The only regret I have around the Resilium transaction is we had big plans for their AR network and we are a little disappointed that we weren’t able to demonstrate to that network what we could do for them,” he says.

“Having said that, not every deal goes the way you want it to go, so I guess all the parties just need to move on.”

Looking ahead, the Coverforce team sees plenty of opportunities for brokerages to demonstrate their worth and grow their businesses. Clients are facing the hardest insurance market for many years, and with no sign of softening anytime soon the ability to source suitable cover is being highly valued.

“Brokers can leverage this environment to enhance their skills and build stronger relationships with clients and insurers,” Mr Angelis says.

“We have seen many examples of this at Coverforce. Two that come to mind are the facilities we established to insure building certifiers and financial planners. We are very proud that we could provide a solution for these important professions.”

Coverforce acquired underwriting agency Quanta when it bought Crown Insurance Services, and has built its capacity and secured specialist binders as it has expanded in construction sector liability and professional indemnity.

“Some very difficult-to-place covers are being handled by that agency,” Mr Angelis says. “We also see it as a facility within Coverforce that adds to our platform of services that we offer and harness.”

He says the amount of regulatory change underway should not be taken lightly but, rather than a negative, is an opportunity for brokers to showcase the way in which they look after clients’ interests.

A raft of new government regulations will take effect this year, while challenges ahead include a review recommended by the Hayne royal commission that will consider if a general insurance exemption to a ban on conflicted remuneration remains justified.

The issue of commissions will be closely examined, but Mr Angelis says general insurance broker remuneration does not feature the controversial payments that have triggered concerns elsewhere.

Excessive upfront commissions and trail commissions that continue for years without any additional advice to clients under long-term arrangements have been particularly criticised in other financial intermediary areas.

“A general insurance broker conversely does work for their client every single year to renew their policies, where they go out and test the market, review what that business does and how that business has changed,” he says.

I take the view that there is nothing inappropriate with reasonable levels of remuneration, whether they are fee or commission-based.

Broking has also proved resilient despite speculation the smaller end of the commercial insurance market may increasingly bypass intermediaries as direct market providers leverage technological advancements and wider community enthusiasm for online transactions.

Mr Angelis says brokers are benefitting from technologies that automate administration processes and free up time they can better spend with clients servicing their requirements, and Coverforce has seen no loss of SME clients to direct insurers.

“Having a dedicated account manager, the ability to source multiple quotes from multiple providers, having dedicated claims management and providing professional advice in relation to uninsured risks are key to demonstrating capability,” he says.

Mr Angelis says Coverforce Partners understands the challenges brokers face and the company will work tirelessly to help improve businesses that are part of the expanding network.

“While any brokerage can benefit from joining Coverforce Partners, our ideal partners are established brokerages with a goal,” Mr Angelis says. “Whether it is accelerated growth, completing an acquisition, or planning for succession, the more you want to achieve, the more you will get from our model.”