Backing Boadicea

By Fiona Rotherham

Saturday 1st March 2003

Striding briskly through the office, Club Life chief executive Naomi Ballantyne is calling her troops to a staff meeting. She jokes with one employee, asks another about their weekend, gently chides another to get a move on. In this informal way, the 26 staff are gathered in the small insurance startup's roomy cafeteria within minutes. Ballantyne doesn't even need to raise her voice to get her staff's instant attention. I thought only teachers could do that.

Ballantyne earned a reputation as a communicator and team leader in the school of big corporates, spending 12 years as chief operating officer of the country's largest insurer, Sovereign. After she quit the job two years ago to start Club Life, forgoing a salary package of around $400,000 a year, many of her former colleagues also left to join her.

When she quit she had no backers and no business plan for her new venture. But the 38-year-old was undaunted. She risked her family's life savings on a startup company in an industry renowned worldwide for being hierarchical, bureaucratic and male-dominated. And where even the big players are struggling to make money. "People laughed at us and a lot of experts are waiting for us to fail. I say, 'you keep telling me that,'" Ballantyne says stubbornly.

Club Life opened in July 2001, with investment company Hellaby Holdings as the major backer and overseas reinsurers taking most of the risk. Ballantyne has attracted experienced staff to work for her and convinced a number of independent brokers to do business with her and to become company shareholders. And she's dared to run Club Life differently to the traditional big life insurers.

The Boadicea of insurance? Maybe.

At the staff meeting she's dressed in her trademark bright colours - on this day lime-green and orange. Hardly the traditional garb of life insurance chief executives. Born and raised in a typical New Zealand family on Auckland's North Shore, Ballantyne has always been a tomboy. What do you expect when you're the only girl smack in the middle of four boys?

At school she was never a "girly girl" and even today her idea of makeup is simply putting on lipstick.

Her corporate image used to drive her boss at Sovereign crazy; so much so she once visited an image consultant. "He had a view on what women in the business market should look like - short skirts, high-powered suits, lots of jewellery and plenty of makeup. I just never managed it for him," she shrugs.

Taking the brave leap into setting up her own company is paying off so far. After one year, Club Life had snatched 3% of the risk insurance market (policies without a savings component). Club Life is focused on that market, which amounts to $178 million of new business premium each year. The startup is on track for a 6% share by the end of year two this June. Okay, its small beer compared to Sovereign's 52% share of that market niche but not bad for a new entrant. Club Life's goal is to hit 10% by year five.

Although Club Life lost nearly $600,000 in the year ending June 2002, that's par for the course with insurance startups. The net present value of the company is worked out by an independent appraisal based on the total amount of premiums collected from the business to a date way out in the future, less the number of claims and lapsed policies you expect, and then calculated back to today's value. Hellaby has already gained on its $5.2 million investment to date through this appraisal, with its 69% stake now valued on its books at $6.75 million, or $1.40 a share.

Club Life financial controller Ian Shaw is in no doubt the startup will succeed. He left Sovereign after 10 years to work with Ballantyne again. "I've always had respect for Naomi and her ability and was happy to go with her. She has tremendous drive and energy and very clear goals."

Losing sovereignty

Ballantyne is acknowledged even by her detractors as one of three key people - with entrepreneurial founders Chris Coon and Ian Hendry - responsible for Sovereign's success. "We had some really great new products but the administration side is just so important. I doubt without Naomi we would have had that success. Her attitude to everything is 'can do'," Coon says.

Ballantyne fell into insurance aged just 19. She had just quit marine biology at university because she wanted to earn some money to get married. These days the closest she comes to marine life is diving off the family boat.

The first job she saw advertised in the local paper was for a clerk with Guardian Royal Exchange. She took it, and later worked for New Zealand Insurance and Fidelity. Ironically, just before Sovereign hired her, she had decided to stop underwriting and leave the industry because she felt customers' expectations of the policies they were sold were not being met. A recruitment agency sent her to the Sovereign job interview anyway. Within five minutes she wanted to work for Hendry and Coon because of their passion and innovative thinking. The feeling was mutual. At the tender age of 24 she was hired to run Sovereign's operational side.

Just how good she was became evident when she took maternity leave in 1990. Hendry begged her to come back and help after performance slipped dramatically. The way Ballantyne tells it, after just five months without her the company was taking three weeks to issue policies instead of just days and had twice as many staff, all working overtime. After whipping things back into shape, Ballantyne accepted her bosses' offer to double her wage to return permanently.

So just what made Ballantyne's contribution so important? For a start, Sovereign revolutionised the local industry by focusing on a service culture to its key customers, the independent brokers, who had been largely ignored by its competitors. That culture was regarded as Ballantyne's work. She was the custodian of Sovereign's culture, says business management guru Dr Ian Brooks in Reality is Crazy, a book on Sovereign's history. "She worked tirelessly to create an organisation that was customer-driven, efficient, innovative, team-based and a fun place to work," he writes. Brooks also describes Ballantyne as political and ambitious after she became embroiled in office politics. She had a long-running conflict with corporate planning manager David Anderson during his five years with Sovereign. The way to survive office politics, Ballantyne later tells an Auckland businesswomen's conference, is to not play the game and be very good at your job.

Ballantyne was clearly well up the corporate ladder when the rungs were suddenly pulled out from under her. Earmarked as Hendry's successor as managing director, Ballantyne says she would still be working at Sovereign today if Coon and Hendry owned it. "Over the years she had been given challenge after challenge to handle and she had always performed well, to the point that she was known as Sovereign's trouble-shooter," Brooks says.

But when the ASB Bank bought Sovereign in 1999, Ballantyne says it was made clear she wasn't going to get the top job. The memory still rankles. "Most bankers are male and there is an element of sexism. Maybe I rocked the boat too many times. Maybe there were middle managers in the bank that saw bits of the empire I had under my control that they wanted, who knows?"

The ASB Bank obviously didn't think she would leave the company or they would have slapped a restraint of trade on her. Certainly Sovereign staff and, in particular, Hendry, were shocked at her departure as the company was already grappling with the merger with the industry's number two player, Colonial. Ballantyne had been appointed merger manager but felt she was being completely cut out of the process even though Sovereign staff were relying on her to protect their interests. For the highly ethical and honest Ballantyne, this was tantamount to lying to the staff. She had three options: keep fighting when she wasn't going to win, keep taking the money and not worry, or leave. "The first two are not me, they're just not me."

ASB Bank's former chief executive Ralph Norris, now head of Air New Zealand, says reports that he was personally affronted by her departure are an overstatement. "The major concern of the board and Sovereign senior management was the risk of losing key staff to her startup. In fact, we did not lose any." He believes Ballantyne was disappointed in not being designated Hendry's successor and therefore saw the ASB's involvement negatively. But he's quick to reject any allegations that she didn't get the job because of sexism within the bank. "I judge people on their competence and have worked with a lot of very good females. In reality, Naomi was not up to the job at the time. She was too young and headstrong and clearly didn't welcome advice."

The bank was keen to have someone who would introduce more discipline into the entrepreneurial management processes that prevailed at Sovereign.

Coon, who consults to Sovereign, says drily he doesn't think the outspoken Ballantyne would have ever "fitted in with the bank attitude".

Ballantyne says resigning from Sovereign is the gutsiest decision she ever made but was the right thing to do as the organisation's values no longer matched hers. "I was shaking when I made the decision, just shaking. It was the right decision whether Club Life works or not because I look in the mirror and I like myself."

Ballantyne wasn't on her own for long. Also involved in the startup's early planning was the retired Ernie Uganecz, former Sovereign broker development manager, and Ballantyne's youngest brother, Peter Lassen, also ex-Sovereign. Uganecz recently retired again after playing an active role with brokers for the first two years at Club Life. He remains a director and the second largest shareholder with a 10% stake.

The biggest problem was where to go for funding for such a capital-intensive venture (Club Life ended up with $5.5 million of the $10 million originally sought). Coon and Hendry couldn't help because of their restraint of trade after selling Sovereign, and ASB wasn't interested.

Luck kicked in after Ballantyne wrote an industry article suggesting there was a gap for an insurance startup. Others thought so, too. German-based reinsurer Gerling Global, whose bosses knew Ballantyne from her Sovereign days, read the article and rang to say it was keen to become lead reinsurer if she got a new venture off the ground. Club Life has the same reinsurance arrangements that allowed Sovereign to grow rapidly, with the reinsurers taking 90% of the claim risk.

Ballantyne got another unsolicited call, this time from investment company Hellaby Holdings. It wanted to get into life insurance and had read her article. Managing director David Houldsworth initially planned to pick Ballantyne's brains but within half an hour of their meeting, decided backing her was a better option. "Naomi had superior vision, skills, drive and the customers." Hellaby has contracted Ballantyne (who holds an 8% stake in Club Life) to stay for at least five years.

The new way

To get a sense of just how different Club Life is from other insurance players, visit the headquarters in the heart of industrial Albany in Auckland. An unassuming two-storied functional building, it stands in marked contrast to the ostentatious inner-city glass towers favoured by its bigger rivals. No wood-panelled boardroom and corridors with sepia-coloured photos of the founding fathers here - just easy parking and cheap rent. Cannily, Ballantyne has sub-let unused space to a few independent insurance brokers in the hope proximity may sway them towards Club Life products.

That's just the start. Ballantyne is unafraid to run the company in an alternative way to her competitors. Marketing, human resources and IT are outsourced to control costs. And she's pretty ruthless. If you don't fit the culture and are not prepared to put in the effort, you're quickly out the door. On the other hand, family is extremely important to her and that's reflected in the way she treats employees, letting them work flexible hours where necessary. Unlike most chief executives, Ballantyne engenders staff loyalty by giving people confidence to make big decisions, says friend and former Sovereign colleage Lynne Walsh. The result is people work harder and above the level they thought they were capable of.

And the upfront Ballantyne tells staff daily what decisions are made and why. "That's why there have been no hiccups in the planning because people know exactly what is going on," says operations manager Lassen. She's really driven though, he grins. "There is no resting."

The main agenda item at today's staff meeting is Ballantyne thanking employees for spending all day Saturday at a voluntary strategic planning session (only two didn't attend). The planning sessions are taped by an outside party and other key decisions analysed and recorded on a staff induction CD. The rationale: if the chief executive disappears, others will understand the culture and thinking behind decisions made.

At one end of the open-plan office sits the chief executive's desk, though it looks no different to any other. Ballantyne has an "open desk" for staff and brokers alike. She answers her own phone. Brokers say she always makes time to listen, unlike the chief executives of other insurers where it can take weeks to get an appointment.

The internal culture is reflected externally, too. Key to the startup's success is how well it services the independent advisers - another trick she learnt at Sovereign. Brokers were asked what they and their clients wanted before Club Life's product range was developed. The flagship trauma and income protection products in particular have subtle differences to competitors' products that should mean claimants get what they expect, Ballantyne says.

And brokers were offered Club Life shares, as they were with Sovereign in the early days. Around 200 brokers took up the offer, investing $1 milllion in an equity-raising late in 2001.

Competitors, such as AIA's former general manager, David Whyte, says there is a conflict of interest with so-called independent brokers owning a stake in the insurer. Ballantyne argues it is more transparent than the hidden incentives other insurers use to retain brokers' loyalty - from business development loans to overseas trips.

Whatever the complaints, it seems to be working for Club Life. The new company has signed up 400 advisers and claims around 250 regularly send business its way. Only one or two use Club Life as their "lead carrier" (the company they place most business with) but it always expected to only be an alternative carrier rather than lead. Most support has come from Sovereign's foundation brokers who know Ballantyne and Uganecz well. Overall sales forecasts are on track, although monthly targets have fallen short a few times. Advisers sell predominantly on price but Ballantyne deliberately set out to not be the cheapest insurer because you can't then add value.

All this adds up to a burning ambition: to become not the biggest insurer, but the most profitable. The key driver to profitability for an insurer is "persistency", industry parlance for how long premiums keep getting paid. This is because high upfront commissions - anywhere up to 200% of the first year's premium - are paid to brokers to sign up their clients and the insurer doesn't make any money off the policy for around seven years. Therefore, the more often the policy is renewed, the more likely the insurance company will make money. Working against this is the fact brokers make more commission by switching clients to another insurer than for renewals with the same insurer.

To avoid this trap, Club Life tried a new tack. It targeted financial advisers with good persistency rates and set up a commission structure that pays between 20% and 50% less than its competitors for upfront commission on new policies but pays more overall as long as the business stays on the books.

Also, in an industry first, it offers "club" membership benefits regardless of what policy customers take out. The benefits include free access (four times) to external professional services such as marriage guidance, stress counselling or weight-loss programmes. The hope is to reduce claims. The risk is Club Life pays upfront for these services with no guarantee the policyholder will renew each year. "We have been prepared to say we have to do something different to what the industry has done before because if you keep doing the same thing, you get the same results," Ballantyne says.

Sovereign mark II?

Will all these differences make Club Life succeed?

The consensus among brokers, even those that don't do business with Club Life, is that if anyone can make a go of it, Ballantyne can. She's found doubters easy to ignore after seeing many of the established companies that said Sovereign would fold within two years either disappear themselves or struggle to survive. "A lot of these people have never done it themselves so they're not in a position to know, and most of them are weak people who have never taken risks, so why should it matter what they think?"

As you'd expect, Norris is dismissive of the new operation. "Insurance is a difficult business and one in which there have been many, many failures - and high-profile failures."

He says you won't be able to tell whether Club Life is successful or not for many years until claim rates start showing through - probably as much as 10 years out.

More worrying is the view of Ballantyne's mentors, Sovereign's two founders, that Club Life won't match their success because the timing now is not as good as when they started.

"The quality of the team at Sovereign was stronger than the team she has at Club Life. And Naomi is not Ian Hendry or Chris Coon," Hendry says.

Maybe Hendry sees something others can't because Club Life's board is packed with commercial horsepower, including Hellaby's Houldsworth and its chairman Bill Falconer. Club Life chairman Peter Fitzsimmons has years of insurance industry experience, including working closely with Ballantyne when MetLife merged with Sovereign. He's impressed with her competence and service ethic and says she's learned to listen to advice.

Like Sovereign in its early days, Club Life has been hurt by rumours spread by competitors that it may have inadequate capital. Some brokers have been reluctant to sign up business as a result, wanting to make sure the fledgling company will be around to meet future claims. Houldsworth is adamant his company has the necessary funds and commitment - although the more successful Club Life is, the more voracious its need for capital.

An initial public offering is planned after five years. Houldsworth is cagier about whether the investment company will then look to exit. The entrepreneurial Ballantyne is also envisaging a future rollout of Club Life's concepts offshore, to Britain and the US rather than Australia.

At home Club Life is still the market minnow, accounting for just under 1% of the overall new premium market last year.

Market leader Sovereign's managing director, Simon Swanson, is relaxed about the threat, saying competition is always good. Pivotal to Club Life's growth is how well Sovereign continues to look after the independent brokers who are notoriously difficult to persuade to shift their loyalty.

"Some brokers don't like going outside their comfort zone and learning new products. It's only when they start losing business to other brokers who are introducing new products they get a wakeup call," says Wellington broker Brian Klee.

Some brokers complain Sovereign's service has dropped as it has grown bigger. The nimble Club Life turns claims and proposals around within two days compared to the two weeks typically taken by bigger companies. Yet Swanson says Sovereign is writing more new business than ever.

In a recent survey by Australian-based WA Taylor & Associates, brokers rated Club Life second overall - behind Sovereign. It performed best in service and communication and, as you'd expect for a new company, less well in product range, strength and brand recognition.

Ballantyne's supporters say she is doing all the right things. It's simply a matter of plugging away over time and Ballantyne has plenty of that on her side. Uganecz says one of her biggest points of difference, and therefore Club Life's, is her fairness. "She cares about people and about having honesty and integrity in her dealings with clients. That's not always been the case in the history of insurance in New Zealand.

Naomi Ballantyne's top five startup tips

1. Know your market: "You have to know what the opportunity is, why there is a gap and why the market will accept you filling that gap. If you don't know what your customers want, you'll only hit it right by luck."

2. Have absolute belief in yourself: "You get knocked all the time and if you let it get to you, you're never going to get anywhere. A lot of people with great ideas have failed because they were knocked back."

3. Get the right people around you: "It makes a huge difference having people, even one or two, who complement your skills so they cover the gaps you're not good at and share your vision and level of drive."

4. Have sufficient resources: "It's difficult knowing where to get funds from and harder still selling people on why to choose you and not someone else. I had to work out how to give people the return on their money they want in an industry that is struggling."

5. Get lucky: "You have to have all the other ingredients right but luck plays a huge part in your success. What you can't control comes down to luck. But you will never have any luck if you don't have the drive and determination to try something."

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