Bolt from the Blue

Building Blue Zebra has been like a three-year sprint. But Colin Fagen’s race is far from run

By John Deex

We believe we have a business that over the next five to 10 years can exceed half a billion dollars in premium,” Blue Zebra founder and Managing Director Colin Fagen says.

He concedes that may sound arrogant, but insists it’s not. It’s more about starting a project with the target in mind, so that decisions taken in the early days reflect where you’re aiming to be.

Blue Zebra began in September 2017 and was launched to the market in February 2018, led by former QBE executives Mr Fagen and Blair Nicholls, and backed by Zurich.

Three years on, chief executive Nicholls has left the business, while Zurich ended its agreement to provide security in March this year, stating that the underwriting agency’s performance was “not aligned” with its expectations.

But Mr Fagen is as confident as ever about achieving his ambitions, after signing a long-term deal with South African-owned insurer Youi that he says brings stability and opportunity.

And he’s proud of what has been achieved so far.

“The biggest thing is that we have put together a very strong and capable team of 17 staff,” he says.

“At June the rolling annual premium was a touch over $100 million. We’ve built a business very quickly to have good critical mass, and we’ve built a market-leading and broker-friendly policy administration system.

“We’re dealing with more than 350 broker firms around the country, we’ve got good relationships around the market and we’ve been able to improve our system on feedback from the brokers.

“We’re very nimble and adaptable compared to organisations that are stuck with their legacy systems – that’s the culture of our organisation and the tools that we’ve built.

“Anything that’s repetitive and continual – and big chunks of insurance are – we’ve been able to build systems to do that work so we can continue to develop, evolve and create critical mass and scalability.”

Blue Zebra’s initial aim was to bring personal lines back to brokers.

While many small business owners use a broker to arrange their business insurances, they have often become accustomed to accessing direct insurers for personal lines cover.

Mr Fagen says Blue Zebra has helped change that. “In growing our business we monitor who the previous underwriters were, and a material amount of business that we’ve been able to write with brokers was previously with direct players.”

Blue Zebra “believes in the advice model”, he says, which helps in getting the right cover in place and assistance at claims time.

“History suggests that clients that are with brokers have a lot fewer issues when it comes to underinsurance and ensuring they have the correct types of cover,” Mr Fagen says.

“In personal lines, particularly in householders and landlords, the coverages aren’t homogenous. Often the home is the biggest asset of an individual or a household. It is particularly important that clients have the right cover, and brokers meet that need.”

The majority of Blue Zebra’s business comes from clients that already have a relationship with a trusted broker but may not previously have put their personal lines policies with that broker.

“The whole idea is, how do we help the broker who may have a relationship around the small business to bring in all the associated insurances,” Mr Fagen says. “That has enabled brokers to cross-sell and build their relationships with their clients.

“There is still a much bigger opportunity there for brokers to build that up over time with their SME customers – their customers who come to them for specialised advice.”

But going through a broker doesn’t necessarily mean increasing complexity.

Mr Fagen highlights the low number of referrals – occasions when human interaction is required and the quote cannot be completed automatically – when using the Blue Zebra system.

“On the personal lines side we have always talked about minimising the number of referrals so we don’t have to touch individual accounts if possible, and brokers can operate efficiently.

“Our referrals are less than 5%. I don’t know of any other organisation in the market that would turn over more than $50 million in personal lines that would have that low a referral rate.

“We do that through external data relationships where we are bringing in data from more than a dozen different organisations. It’s about access to Big Data, bringing that into our system, pre-filling the information.”

Almost all of Blue Zebra’s premium currently comes from personal lines, but that’s changing. “Within two or three months we’ll have a number of commercial products in the market.”

A cyber pilot is already under way with about 30 brokers, and SME is “virtually ready to go”.

A fleet motor product for fleets up to 10 vehicles and a “Blue Point” offering with specialist underwriting agency Point for personal accident and sickness will launch in October.

While Youi will continue to underwrite personal lines, SME and fleet motor, other Blue Zebra products will source capital from other providers, including Lloyd’s.

Mr Fagen believes Blue Zebra’s adaptable system will come to the fore in SME, with products and platform designed with broker collaboration.

The new business package will have a single quote entry point and use Big Data to streamline and automate the process.

“A lot of the market is caught up with legacy systems in the SME area, so they’re unable to move and adapt quickly,” Mr Fagen says.

“We can change our wordings and create endorsements to wordings on the spot in real-time.

“We have strong relationships and understanding of the commercial market. The bulk of the team has already worked in the commercial area around the country and have those relationships and understanding of what is required on the ground.”

Mr Fagen says his company’s commercial products will have a broad risk appetite, “starting with businesses least affected by COVID-19 and continually expanded”.

But despite launching new commercial lines, personal lines will remain Blue Zebra’s bread and butter.

“If we write half a billion we would anticipate more than 60% of that being personal lines,” Mr Fagen says.

The switch from Zurich, which backed Blue Zebra for more than two years, led to a period of “calibration”, Mr Fagen says. But he believes it will result in a stronger and more stable business ultimately.

Youi’s expertise in pricing personal lines has been a huge help, he says, while it shares Blue Zebra’s focus on modern systems and the use of external data.

“It has been interesting working with Youi; they are a very advanced organisation and have different models.

“They have a lot of deep-seated expertise in the personal lines markets and the rating models behind that.

“Their knowledge in pricing personal lines has given us more depth to the information we are using in our underwriting and our pricing.”

Youi’s lack of experience in the intermediary market is not a problem either, Mr Fagen says.

He believes Youi is “in it for the long term”.

“We are their vehicle to the intermediary market,” he says.

“I believe that Youi’s strategy isn’t necessarily to go out and purchase companies that work in the broker market. It is to work with us to grow organically.

“They very much want to grow their presence in the intermediary market, to achieve channel diversification over time. I don’t see it as being any different to the three or four major players.”

Mr Fagen accepts Zurich’s veiled criticism of Blue Zebra’s loss ratio as “fair”.

“The loss ratio wasn’t where we would have liked, but equally it was a very big [catastrophe] year,” he says. “I don’t think you’d find too many organisations who write personal lines in the Australian market who were happy with the loss ratio last year.”

The changeover of underwriters has slowed growth, due to Youi’s different approach. The South African-based insurer has a different risk appetite and exposure experience.

“We need to continue to work with our brokers on being clear on our risk appetite. We know this is a 12-month period where we are working on bringing through a different rating model.”

Blue Zebra’s changing risk appetite comes in train with renewal retention “dropping a little bit”, he says.

“New business is picking up because [Youi has] different areas where they’re very comfortable writing, and we are able to access the intermediary market very widely.

“We are back to writing the $6 million a month premiums that we were previously, and building that up. That churns into a stable renewal portfolio early next year, so that’s when we will start to see the growth curve kick in.

“We fully expect to move back to renewal retention in the vicinity of 80-90%. We are at a plateauing stage on the premium, and we are very comfortable that it is a short dip.”

Mr Fagen stresses the importance of a strong claims service to the intermediary market, and says some fine-tuning has taken place following the spate of catastrophe claims last summer.

“It was one of those periods where demand exceeded supply for the whole market in respect of the number of claims. We’re very comfortable that’s in a good position now.”

A new partnership with claims management specialist Procare will assist with commercial claims, while the relationship with Insurx/Claim Central continues for personal lines claims management.

Mr Fagen says Blue Zebra’s modern technology and nimble culture stood it in good stead when the COVID-19 pandemic hit. In fact, he says, the switch to remote working accelerated some projects.

“The premium turnover has met expectations [and] the system has held up. In a number of areas we were able to speed up and deliver new products more quickly than otherwise, with people working from home and being focused.

“In the right situation the ability to do some of those medium-term projects can actually be accelerated in an out-of-the-office environment. In the office we sometimes get short-term distractions.”

Mr Fagen says most staff have started returning to the company’s office two days a week, but it’s “pretty optional”.

“If they wish to stay working from home we are comfortable with that as well. We have had no issues in respect of delivery.

“Previously the trend towards people working from home was changing slowly over time, but it has probably jumped forward 10-15 years.

“Organisations are a lot more comfortable with their teams working from home. The productivity is there.

“One of the things that underpinned it for us is that we have a lot of people with very strong, long term relationships in the market, so the interactions didn’t falter when not being able to meet face-to-face.”

He says neither the switch in underwriter nor the pandemic has derailed Blue Zebra’s original ambition to reach that half-billion dollar target.

“It might sound ambitious, but we believe in the statement that you start with the end in mind.

“In thinking of having premium turnover of that size, we are ensuring that we are building for that level of scalability. That means you make different decisions in your initial build.

Most of us come from larger organisations and we are used to dealing with premium pools much bigger than that, so the number doesn’t frighten us.

“Half a billion dollars doesn’t create any fear with us. It’s just about how we do it.”

insuranceNEWS October/November 2020