Can Norwich Union succeed with Solus?

The acquisition is the latest one in a spree for Norwich Union parent Aviva after it bought vehicle provenance firm HPI in a £120m deal with Phoenix Equity Partners last year as well as adding car retailer Oneswoop.com and the RAC to its portfolio. Solus and Norwich Union have been in partnership since 1997, operating in the London area. A spokesman for Norwich Union could not confirm the acquisition price but described the move as “a logical step” given the eight-year association between the two companies. He said: “Solus represented a sizeable fruit of business and we were looking to expand. Our past working relationship made this much smoother and we were looking to provide our customers with additional service.” Nevertheless, history does not offer encouraging precedents of insurers trying to run their own repair centres. In the eighties, Guardian Royal Exchange failed to make a success of its network when it found customers reluctant to use insurer-owned bodyshops. More recently Direct Line and Eagle Star have gone down the same route only to find themselves in a cul-de-sac. Direct Line's attempt at running its own bodyshops ended with one of them — in Chadwell Heath — not even opening. It had been built and equipped but never repaired a vehicle. According to Malcolm Tagg, director general of the Vehicle Builders and Repairers Association, the relative lack of success experienced by insurers entering into bodyshop ownership should act as a warning for Norwich Union. “It's a business that you either have to be in seriously or be out of it,” said Tagg. In response to the suggestion that the move was a gamble, Norwich Union said it felt it was equipped to avoid the pitfalls. “In order to see the advantage of this move, you need to have a lot of business,” the spokesman said. “We say that our strong history with Solus makes our acquisition different and we believe we can avoid the pitfalls that have swallowed up those travelling this same path.” Ray Holloway, RMI director for independent garages, fuel, and bodyshops said that given the lengthy existing relationship between Norwich Union and Solus, the impact on the sector would be limited and he did not see a lot of business being taken away from the independent sector. He said: “I see Norwich Union as taking advantage of dealing with the capacity problems that the industry is experiencing at the moment. I also think it's looking to use Solus's strong system and products infrastructure.” For Holloway, the question is whether a large insurer can be efficient in running its own repairer network and be able to make a success of it. He said: “An emotional point is always the labour costs and how they are being degenerated. Just as easily the insurer could suffer from increased costs as a result of the takeover. So it's certainly a voyage of discovery for Norwich Union.” Another question is how well the news sits with independent repairers who have in the past complained of an unfair advantage enjoyed by insurers who divert business to establishments that they either own outright or where they have struck special deals. According to Tagg, it is hardly panic stations yet as increased competition between repairers is inevitable. “In terms of the quality and standards of repairs that independents produce, there is little to separate them from approved networks so we can compete on that level,” he said. He added that independent businesses struggled, however, due to their inability to exert the same kind of pressure on customers as insurers in influencing where to have work undertaken. Tagg said insurers already had a real stranglehold on prices charged by independents, many of whom relied on insurance companies for around 70 per cent of their business. “It would be unfair to begrudge them however as they are simply doing their best to provide good customer service and keep their premiums to a competitive level,” he said. MVRA chief executive Mike Monaghan described the purchase as Norwich Union moving towards a cradle to the grave strategy where it insures the vehicle, recovers it and has a bodyshop network to repair it. As for the effect the buyout would have on other bodyshops, Monaghan did not expect to see other big insurers following suit and said the impact on other repairers would be minimal. He said: “This modus operandi obviously suits Norwich Union's size and its future business plans and I don't expect to see many other insurers jumping on the bandwagon.” According to Tagg, the one positive for independents was the capacity problems that insurers still tended to suffer as a result of their repairers being unable to handle all the work coming their way. “This has always been a strong potential source of revenue for independents,” he said. “What we as independents want is that overflow of work which the approved shops can't handle to filter through as it can make up a significant portion of our work.”