Inward Investment in Wales

Written evidence submitted by Admiral

Introduction

Admiral is the UK’s second largest car insurer, selling car insurance almost exclusively via the internet, under a number of different brand names.

We came to Cardiff as a brand new company in August 1992 and started trading in January 1993, with around 50 employees on day one. We now employ just over 4,000 people in Cardiff, Swansea and Newport. Cardiff is the headquarters for the UK and for our wider international operations (Spain, Italy, France, India, Canada and the U.S.). Everything we do, we do in South Wales - from entry level customer service, through highly trained technical insurance sales, specialist I.T. and marketing functions, to the senior management of the company. Our current annual wage bill is in the order of £70 million, and we will award staff in South Wales shares to a (current) value of circa £30 million during 2011.

Location Criteria

Generally, car insurance is a much commoditised, low margin, business and success requires tight expense control. In that context, the availability of a substantial pool of relatively affordable staff and relatively cheap office space were important criteria.

The management team, who were based within, or within commuting distance of, London, realised this would require some or all of them to relocate given the cost of any operation within or around the M25.

The parent company, Hayter Brockbank, itself headquartered in the City, were keen that the operation chose a cost-effective location, but were also insistent that the operation should be within 2 hours travel time from London. They stipulated this constraint in order to reduce the time burden on their management team supervising this new, majority-owned subsidiary.

As well as the two key criteria of cost-efficiency and 2 hour proximity to London, the management team were also interested in the potential for grant support from candidate locations. Hayter Brockbank was not a large operation and had very rationally structured the financing of Admiral in such a way that it could afford to close down the operation early, without major loss, if results proved disappointing.

The management team was sensitive to the appeal of grant support, not as a material contributor to the long-term health of the operation, but as a possible way of giving ourselves a cushion to adapt the model in the event of early disappointment; of essentially buying a second roll of the dice. With these criteria in mind, we went to the economic development departments of a number of cities which were within 2 hours of London and which were likely to be competitive on cost. The cities contacted included, amongst others, Folkestone, Brighton, Corby, Leeds and of course, Cardiff. We explained that we were a financial services start-up, hoping to employ 50 staff initially, rising according to our business plan to circa 250 at the end of three years. We asked if they could tell us why we should locate in their city.

Selling Admiral On Cardiff

From the outset of the process, Cardiff stood out in terms of their enthusiasm to secure Admiral as an inward investor. Almost all the cities approached wrote to us with generic reasons to choose them and invited us to visit their city. Only one came to us in South London and presented to us, Paul Gorin from the economic development section of South Glamorgan Council. He then invited us to come to Cardiff – the first of 5 or 6 visits before we committed to Cardiff – and he arranged introductions to a number of public and private sector bodies able to help answer questions and provide support. All were positive and enthusiastic advocates of Cardiff and South Wales.

By the end of this process Cardiff had become our preferred location because of its cost competitiveness, its approach as a pleasant place to live, the immediate availability of affordable office space, and, perhaps most importantly at that stage, because of the offer of £1 million grant support. However, there was a major obstacle – the lack of a local pool of skilled senior technical insurance managers to recruit; notably the lack of a car insurance underwriter, a key initial appointment. A candidate had been identified, willing to commit to an inevitably risky start-up, but he was unwilling to relocate to South Wales from the South Coast of England (an area in which a number of car insurers are based). This meant that we had to regretfully tell Paul Gorin that we wouldn’t be based in Wales, but rather in Brighton, and that therefore, incidentally, we couldn’t accept his invitation to hospitality at Royal Ascot. Paul persuaded us to come to Ascot anyway and to bring the car insurance underwriter too – on which occasion he successfully sold the underwriter on the merits of Cardiff, and we were able to revert to Cardiff.

Admiral did look at other locations in South Wales as well as Cardiff. We visited possible sites in Merthyr and Blackwood. These sites were much less attractive for a number of reasons – smaller labour pools, fewer and more restrictive office space options and, sadly, the fact that they were markedly less attractive places to work and live than Cardiff. The extra travel time from London was also an issue for our parent company.

Possible Lessons

We would hesitate to draw definitive conclusions from what was only one company’s experience, but below are a few possible "lessons" in terms of how best to attract worthwhile inward investment to Wales.

a) Attract businesses that are willing to locate lock, stock and barrel in Wales.

Operations that base their headquarters and senior management in Wales are ultimately potentially more valuable than off-shoots of big companies based elsewhere, fulfilling only a subset of servicing/processing functions for a business where real decision-making power lies elsewhere. Businesses with their hearts and brains in Wales are more likely to offer higher quality, better paid jobs, which last longer. Businesses with only "muscle" in Wales are more likely to withdraw in hard times or if cheaper location options emerge.

b) Attract early stage or start-up business to Wales.

Practically speaking, it’s hard for large and long-established businesses to re-locate in their entirety, so it possibly makes sense to seek to attract start-up or early stage operations. An advantage of this is that potentially small financial inducements in absolute financial terms can be very influential on the decisions of small, early stage businesses.

A policy of attracting early stage business is, of course, a long game and would require political courage. It would lack the headline grabbing appeal of a big name investment in a big facility, with hundreds of jobs from day one. There’ll also inevitably be some failures along the way – start-ups that receive support and subsequently fold.

c) Recognise the importance of financial incentives to locate to Wales.

Although there are many very good reasons to come to Wales and it has proved fertile ground for Admiral, there are real barriers to choosing Wales. Cash support is valuable in overcoming these barriers.

d) Provide a competent, motivated, and entrepreneurial team devoted to persuading companies to come to Wales.

Without the competence, salesmanship, and determination of Paul Gorin and his colleagues, we would now be located in Brighton. Creating an effective team requires a budget, a degree of autonomy and a certain culture – best defined by what it isn’t, namely bureaucratic, risk averse, slow to take decisions.

e) Recognise the important role of the quality of infrastructure in attracting inward investment.

Good infrastructure and a good environment in which to live and work are important in attracting inward investment and in helping existing Welsh companies to flourish.

Admiral partly came to Cardiff because it was reasonably accessible from London for our funders. Since we came to Cardiff, travel to London times have increased by 10-15 minutes, while a number of competitor cities have seen travel to London times reduce over the period. Cardiff will fall further behind if high speed train investments bring the Midlands and North West of England relatively "closer" to London.

Admiral now operates in six countries beyond the UK. The problems of convenient access are heightened once a Cardiff-based business begins to operate on an international scale. The bulk of our international travel is conducted through Bristol or Heathrow, given the limited services operating through Cardiff.

June 2011