Derek Coles, CEO of Ryan Direct Group, interviewed in Post Magazine

Certus client Derek Coles was interviewed by Callum Brodie for Post Magazine's 23 June edition:

Derek Coles: Out of the shadows

Ryan Direct Group CEO Derek Coles is ready to come out from under the radar at a company that has grown from 45 people to 475 under his stewardship.

For a company celebrating its 25th anniversary this year, it is perhaps surprising that Derek Coles’s Ryan Direct Group is still seen as something of an enigma by the wider insurance industry. Depending on who you are talking to, RDG has been defined as everything from a broker, to a third-party administrator, to a claims company.

For the record, the Doncaster-based insurance outsourcer provides a dual offering of distribution services and claims management, which equates to approximately 60% and 40% of the business respectively in terms of group revenue – with more rapid growth on the distribution side occurring amid a benign claims environment.

Describing his firm’s divergent approach and the fact that the business as a whole flies under the radar – to a certain extent – as “a fairly deliberate strategy”, Coles, who has served as CEO at RDG since 2006, nevertheless intends to mark the passing of the quarter century milestone by continuing to make the company more visible.

He says: “[The business] is still seen as something of a mystery even now to some extent; we’re still quietly building. From a perspective of making ourselves clearer to our people, the market and the regulator, we’ve made great strides in the last two years.

“We take the fact that we’re a regulated entity very seriously – in a sentence, what we do is provide services and put products back into carriers, brokers, corporates and affinities.

“If you look at the bigger outsourcers in our industry, such as Capita or Xchanging, we provide a lot of the services in an end-to-end value chain of a carrier or of a broker.

“But whereas Capita might take 200 seats out of an organisation and provide a full outsource, we’re much more happy targeting 10, 15 or 20 seats and taking a function or part of a process out, which gives an efficiency gain and is, therefore, revenue enhancing and not a cost play but does change the cost model from fixed to variable.” 


Adding commercial to the mix


It is this niche as a mini business process outsourcer of twin disciplines that Coles believes sets RDG apart as a proposition where direct competition is difficult to identify; however, he is unwilling to rest on his laurels and is pushing ahead with plans to introduce more commercial business to a mix that is currently weighted 90% in favour of personal lines.

He explains: “The last acquisition we made was the SME book from Am Trust [in October last year] so we now have an SME product line under the RDG banner. Redressing the balance is on the agenda, we’re a 90% personal line shop and, although I’ve got no target in mind, balancing that up just as I have the portfolio is important.

“The six writers I’ve inherited from Am Trust are working out of the Gracechurch Street office and we’re working out how that goes to market at the moment. That’s all broker distributed, we’ve got no aspirations to be direct or become the next Simply Business or anything like that.”

An added incentive to take the plunge into commercial lines has come in the form of the recent Financial Conduct Authority review, which found that claims handling for small businesses is consistently not working. Coles is confident the damning results of the investigation presents an ideal opportunity for his forward-thinking firm to take advantage.

He adds: “From a perspective of just actual business classes, the more commercial we’re in the better – and with the regulators saying [SME] is not run very well currently that gives me heart that we’re entering a market that is reasonably over-crowded, currently distressed and probably needs new thinking.”

Let nature take its course

While further acquisitions designed to bolster the company’s burgeoning commercial lines presence have not been ruled out, organic growth remains key for Coles.

“If you look at the type of business we want to acquire, we want management teams that want to continue to grow their side of whatever it is we buy,” he says.

“We want people that will stay with the business and grow it out – maybe they want the next level of investment or maybe they need people who can bring the next level of intellectual property who can help them grow. That is the way we will continue to grow our business moving forward.”

It is no coincidence that heightened optimism around growth has come against a backdrop of stability following the introduction of Aon founder Pat Ryan in November 2012.

Having led a management buy-out from his former employer Barclays Private Equity of what was then Direct Group in 2007, Coles was initially approached by Ryan with a view to acquiring the management's majority stake in the business – only for the industry icon to be rebuffed and forced to jet back to the US empty-handed.

Not a man to be so easily dissuaded from pursuing what he saw as a lucrative investment opportunity, Ryan soon returned to the negotiating table - this time with both management and Lloyds Development Capital – and a deal was struck that has ultimately resulted in the American’s Ryan Specialty Group controlling 87% of the share capital, with 13% remaining with management.

Reminiscing about the deal, Coles says: “Pat took the LDC element out, although he initially approached us off the market and we turned him down. He got on his jet and flew back home – that was when he initially wanted to buy the company and then he came back with the idea about taking LDC out and that management would stay.

“I wasn’t ready to sell the business and I still believe to this day that we’re building something for the future and I want to continue to do that until my energy runs out – maybe that’s what appealed to Pat.”

With Ryan turning 80 in a couple of years time, it would seem reasonable to question whether his appetite is what it was when he founded Aon all those years ago.

It is a question that is instantly swatted away by Coles, who nonetheless admits that at 55 he feels like one of the youngsters at RDG.

“He’s a huge part of the business. I speak to Pat regularly, he is still a 5am riser and the first thing he does is look at his numbers. He’s a guy who’s genuinely interested in all of his businesses and spends time with all of his management. He still has a thirst for business and a love of insurance.”

However, when quizzed on whether Ryan is a difficult man to work under, Coles is more considered in his response: “If you look at Pat’s history from Aon onwards, he is a grower and not a person that sells businesses and strips them out. His ambition is for us to grow and that is why he has lent us his name – he hasn’t done that with all his businesses.

“Pat is no different from any stakeholder or investor – he expects a return, expects you to be on your numbers, expects you to know your market and to grow. If I were to compare working under Pat with my 13 years at Barclays, the challenges would be similar.”

Optimistic over acquisition

Coles’s time spent at the coal face of private equity gives him a unique perspective of the current status quo in terms of PE interest in insurance – specifically the broking sector.

High-profile deals involving the likes of Anacap and Calera Capital have fuelled speculation that further investment and subsequent consolidation on the broker market will ensue.

While certain industry insiders have countered such predictions by suggesting that targets for acquisition are becoming thin on the ground, Coles is far more optimistic in his assessment.

He says: “In our sector there are some fantastic businesses and from a private equity point of view the hardest thing to do is find a quality asset. They get presented with tons of opportunities, which are not all good, and it’s about finding diamonds to invest in – in insurance there are a good number of those.”

He adds: “There are huge opportunities out there, I could reel off a whole raft of companies. There are lots of well-run businesses and it comes as no surprise that there is significant interest in our sector. There is lots of capital right now looking for the relevant investment return – we as a country having just returned this government to power and having ultimately given the next five years stability meant there will be a further inflow of investment.

“While Towergate and Gallagher – which have previously been very big on acquisitions – might be currently sat there, you’ve got [Peter] Cullum and [Andy] Homer [joining Global Risk Partners], you’ve got [Chris] Giles and [Brendan] McManus [reuniting at PIB], you’ve got Anacap – so you’ve got a whole range of people coming into the market who are going to rip it up.”

Coles looks back fondly on his 13 years in PE, where he enjoyed stints working in New York, Sydney and Singapore. However, he also spent three seminal years in loss adjusting – a period he refers to as “the final piece of the jigsaw”.

Commenting on his time at GAB Robins, where he served as managing director from 2003 until 2006, Coles says: “Having done the intermediary piece and having done the front end piece, the marketing and administration element of getting into claims in some detail was quite interesting.

“I would say I managed some of the best human capital I’ve ever managed [at GAB]. Those individuals in that sector are all professionals, they’re either engineers, accountants, surveyors – they’re all specialists in their own field, be it environmental or high net worth.

“There is huge talent in that adjusting sector – albeit it needs to be remodelled – so that was a big challenge to manage the motivations of people who were very interested in the claim outcome but not so interested in the commercial outcome.

“I enjoyed it and had some real battles with [Ian] Muress [CEO of EMEA and Asia Pacific at Crawford & Company] and Benedict [Burke] [head of global markets at Crawford] and the like. It was a great sense of community, which has been lost a little bit as they have been broken up.”

Loss adjusting needs to change

Yet despite his warm recollections of his three years at GAB, which has since merged with Crawford – a move Coles describes as “a good solution for both businesses”, the RDG boss maintains some strong reservations about how the loss adjusting sector has fared in recent times.

He explains: “All of them could do more, none of them have really changed their model even from the time I was in the industry. You need to be reacting to the changing demands of the market and then respond.”

When asked for his take on remarks made by Burke at Post’s quarterly Claims club event, in which the Crawford boss claimed that falling demand for ‘business as usual’ loss adjusting services has left the industry unable to service claims at the peak of a surge, Coles is unyielding in his response.

“That’s a traditional loss adjusting argument and that’s the problem with that sector that it needs to think outside of the box,” he says. “From their perspective thinking about that and not thinking about the customer is probably where that whole sector is in demise.

“By the customer I’m talking about the consumer not their insurer customers. If you look at buying behaviour and the way things are changing in the digital era, we’re seeing peril by peril dissection which is feeding back into the underwriting dynamics.”

Evidently a man unafraid to speak his mind, Coles fully intends to walk the walk as well as talk the talk when it comes to his long-term future at a company in which he has overseen a nine-year expansion from a headcount of 45 to a business employing 475 people in four locations.

He concludes: “I enjoy what I do every day and if I didn’t I wouldn’t be doing it. We no longer have a time horizon in the way we did years ago. I’m convinced we will see people work longer than ever before. At the risk of my wife’s wrath I will probably work for as long as Mr Ryan.”