Ritchie’s solid geometry

As one provider exits the group risk market, so another joins. Ellipse may not yet be writing business with every consultancy in the sector right now, but it is setting itself a bold target for growth amongst those firms that embrace modern business methods. “We have got a very long term plan, but the one target we are talking about publicly is to be the leading insurer of all business which is on an employee benefits platform in five years from now. That is a distinct segment of the market that we want to target,” says Ritchie.

For Ritchie, who has had a privileged view of the group risk market in his time as head of group risk at Munich Re – a job that he left for internal exile on the Ellipse project back in April 2008 – it is all about targeting those businesses that both want and are able to interface with the new provider’s technological approach.

“The bit of the market that we are purposefully focusing on is modernised schemes. If there is a multi-subsidiary death in service benefit are we going to be brilliant and be competitive to take that off one of the incumbent insurers? No. We are looking to design our business to be an excellent supplier to modern platforms consultancies. We are going to invest in data links to their platforms, and we are going to look at the way the client billing and member underwriting can be sharpened up,” says Ritchie.

He wants to operate with partners that share his view of a faster, slicker, more efficient way of writing group risk business. Critics and competitors may accuse Ellipse of cherrypicking the more straightforward business that is out there. Ritchie would argue he wants to be able to reward those prepared to make the investment in processes with a better deal.

“We want to get the data cycle faster and more precise so the cover that you have got this month, you will pay for this month. What happens now is you do data reconciliation maybe six months after the end of the period you pay for. Our research has shown us that clients are not happy with that,” he says.

“Whether you owe money or are owed depends whether your team has got bigger or smaller. In the last year it happens that we have typically seen teams get smaller and younger. But the way it is currently done is just not the way modern businesses want to work at the moment,” he adds.

Ritchie talks about offering a new approach to both employers and advisers.

“It also gives you the ability to do fantastic experience analysis so you can get your pricing cycle very quickly linked to your experiences. That is different from what others have done historically. In the past people have had a whole bunch of people doing account reconciliation. What we are saying is ‘get that work done up front, establish the data links and then run the thing, and then you get that technology efficiency’,” he says.

“We are saying to advisers: ‘Is there money, is there value in you doing administration? Do you want to be first and foremost an adviser, or a data administrator?’ And a lot of them have come to that conclusion themselves.”

Ritchie adds: “Some advisers say ‘I have a relationship with the insurer, and I know I can sort this out.’ And some people say it’s more complicated than that, because the data comes from six different subsidiaries, 15 locations, that are not all on the same payroll. That is often the reality, but employers are all moving towards one payroll platform. You can design your model to the lowest common denominator but actually that would ignore the direction employers are going.”

Ritchie believes the group risk market has a lot to learn from the pensions market. “The way employers are delivering benefits is changing very fast. It is like the domino effect of the shift from defined benefit to defined contribution pensions. Employers sponsoring benefits want employees to feel them and understand them. If they don’t, employers feel like they are wasting their money. So that whole intelligent reward movement needs intelligent suppliers, and the question is whether the group life and disability insurers are a little bit off the pace,” he says. He is frank about whether his arrival is likely to expand the market overall.

“Old model benefits were very similar to the pension formula. For example, the spouse’s death in service benefit – four times salary plus two-thirds of pensionable salary. In the new world that will switch to a core benefit expressed as a function of salary, with the ability to flex up a bit and flex down quite a lot,” says Ritchie. “The reality is that is less cover than you had in the old world when you capitalise that widow’s benefit. But strangely enough, if you put some communication in so people understand it, and you communicate it frequently enough, the employees feel they have got more and the employers feel happier because they are getting a bigger impact for their spend. So you might say does that mean the overall market is getting bigger? No, it’s slightly depressing it.”

So does Ritchie see the much talked of corporate wrap platform trend as key to Ellipse’s plans for a more unitised approach to group risk cover? “When I was in the strategic review part of this two years ago, the presentations and the plans were full of post- 2012 stuff where personal accounts could be the aggregator, and you could see lots of things being advised and sold through that space,” says Ritchie. “But I think there are quite a few ifs and buts before you get to that point. If you are taking that kind of five years hence view, that might have been one of those brilliant business ideas that there probably wouldn’t be much revenue for. What we are focusing on is the change in the big employee benefits consultancies who are all looking at what their automated platform looks like for DC medical expenses and group risk.”

And is the launch of Ellipse completely Ritchie’s idea? “Personally, yes, pretty much,” he says. Ritchie is operating a controversial strategy of only dealing with a handful of selected intermediaries in the early stages of roll out.

“We are talking to 10 to 12 at the moment, and we have got seven fully signed up and doing quotes. We are saying it is agency agreement first and then quotes, which is slightly different from the market method, which is to do quotes and then set up an agency agreement,” says Ritchie. And how has that been received? “You can’t assume that all the big consulting firms have got an homogenous business model, they do not. The diversification in the business models of the distributors is interestingly wide. They are changing fast.”

Critics might say Ritchie is running a risk of alienating advisers who are not on his list. “It needs clarifying that that is in the first two or three years. By the end of the year two we will be making ourselves available to all, but in a different form. If it is a smalland medium-sized scheme it will be pretty much automated A to Z, from getting the quote right the way through,” says Ritchie.

But will the problem for the smaller firms remain that if they are pitching against bigger providers they will be able to argue that they cannot get the best rates because they don’t have access to all the companies?

“We have taken this approach because it is about sensible growth and sustainable growth. When I was at St James’s Place thousands of people were flocking to the cheapest funds from the cheapest providers, and there would be boxes filled with the props, which is not good for provider or adviser,” he argues. “We are out with a relatively small number of advisers because we want to manage the throughput. If we throw these doors open to try and quote for everything from everybody it is not manageable. Any reputation for service that you would hope to establish – you are making it tough for yourself.”

He points out that he wants to offer something new to all intermediaries as soon as it is built. “We can’t be all things to all intermediaries. So for the smaller schemes and for new growing businesses we are designing a fully automated offer through a hub where it is entirely paperless. At the moment that looks like being launched in the fourth quarter of 2010,” he says.

As a reinsurer looking at insurers and comparing them day-in, day-out, did that make Ritchie think he could do a better job?

“It might have been fairer to say that 15 years ago, when insurers used reinsurers. But when you look now at seeding ratios and see how much insurers use reinsurers – just 15 per cent of their book these days – you have got fewer bigger insurance buying less reinsurance.”

And has your previous role given you a window into your competitors? “There has been a healthy tradition of people going back and forward between reinsurance and insurance companies. I moved out of the reinsurance business in September 2008. We realised we had to have this separation for data protection. The integrity of Munich Re doing its reinsurance was crucial,” he says.

“I went into internal exile in the Plantation Place office in the general insurance section to get away from the life part. So that is roughly 12 months from approval by the group board to fully licensed quoting and writing business. We have now written our first policy, which is great,” he adds.

“So what was it like having a new business to launch 14 months ago. Back in October 2008, every Monday morning it was ‘this bank had been saved over the weekend’. It was an interesting time to be putting forward a business plan, because lots of other plans were being put on ice,” says Ritchie.

Part of Hamburger Mannheimer, an arm of Munich Re, Ellipse is regulated by the FSA for conduct of business, TCF and financial promotion rules, but from a prudential and product points of view it is regulated by BaFin, the German regulator. So does Ritchie think coming to market with a new brand will cause problems, and will he be leveraging the Munich Re name? “I think being part of a stable group matters to a corporate buyer, and it matters to the advisers as well. The group has looked at what it has done in other mature markets, such as life insurance in Germany and France and general insurance in the UK, and says we can be in all parts of this value chain,” says Ritchie.

Aside from a wider roll out of the original life cover proposition, Ritchie is planning to bring in group income protection and critical illness in the middle of 2010. “We want to be a player in flex programmes. There is a tendency for the insurers to take the set,” he adds.

Advisers will be watching the space to see whether this new play delivers on its claims, and, for those on the list at least, will be welcoming the competition that a new player is bringing to an already competitive group risk market.