CompaniesSep 4 2014

Firing Line: Paul Osborn

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When Paul Osborn took over as chief executive of Foresters Friendly Society in November 2012, he had lots of ob­­stacles to overcome. The former chartered accountant and finance director with the Southampton-based mutual, was tasked with overseeing the implementation of a new gov­ernance structure in a period when its future was in the balance.

According to Mr Osborn, in 2012 the mutual had a rocky relationship with the regulators and “was on the brink of closing down to new business” because of its governance structure. Comparing the situation there to the high-profile issues at the Co-op, he said that the moment arrived when serious changes had to be introduced to save the 180-year-old friendly society from extinction.

He added: “Foresters had similar issues in its governance to what Co-op has. We had members on the board. Two years ago, we changed that. Our board was professionalised with industry people. We had a good hard look at our business model and went from the brink of closing to being healthy again. We had to get the right skills on board, and to satisfy the regulator and members.”

Since that worrying period, the society has gone from strength to strength, with Paul Myners’ report on the Co-op reassuring everyone involved with Foresters that the tough changes were the right ones. Keeping both the regulators and members satisfied, Mr Osborn said, is one of the biggest challenges in the mutual sector.

The mutual had a rocky relationship with the regulators and “was on the brink of closing down to new business” because of its governance structure

As friendlies cannot compete with large Plcs on scale and cost, Foresters’ chief executive said it was pivotal to “differentiate the proposition” by offering strong customer service and member support, and identified four main areas in which Foresters and its rivals faced “significant” challenges.

He identified scale, keeping costs to a minimum, having enough capital to offer riskier products, ageing membership and being relevant to young people as the main obstacles. In terms of scale, Mr Osborn said the plan was to reach 100,000 members, which is not too far away considering it already has 63,172 and expects to add 25,000 once its acquisition of the Post Office Insurance Society goes through.

An ageing membership, however, poses a bigger challenge, given that Foresters’ average member is in his 60s. When Mr Osborn started as chief executive, he said he was keen to make sure branches were “relevant for the 21st century member”, but confirmed that for now the mutual’s target market will continue to be the over-50s.

Many societies, he added, had sought to reverse trends of ageing memberships by investing in the child trust sector and Junior Isas, though the fact remains that most savers and investors are older. Furthermore, whereas many competitors also offered mortgages, Foresters had stopped offering them. He said: “Some friendlies do Junior Isas to attract younger people, but from Foresters’ per-spective we consider our target market to be over 50.

“We have considered how to attract younger members and offer hardship grants and discretion-ary propositions for younger people. But most of our products are in investments and savings, which older people tend to go for. However, 50 per cent of our sales come via the internet, and younger people have shown interest in our ethical products.”

Also, eliminating expense overruns and generating enough capital to develop and grow the firm was pinpointed as a huge and fundamental challenge for the sector. With the added costs from Sol-vency II, Mr Osborn said it was important to live within one’s means, while having the financial backing to offer the riskier assets members required.

And while Foresters Friendly has the capital to offer such products – at the end of 2013 it quoted total assets of £184.9m, £19.3m surplus capital and a free asset ratio of 28.7 per cent – he warned that the smaller, non-directive friendly societies may struggle with the added pressures of Solvency II and getting professionals on board. He said: “They will find that costs will outstrip the robustness of their business models. They will be very vulnerable and struggle to sustain their business models.

“The current adage is that if you take risk you must put capital aside, which benefits the stronger-capitalised societies. The weaker ones cannot take risk and their members may look elsewhere.”

He also claimed that Foresters Friendly offered a range of other benefits that only one other competitor was still able to deliver. As part of its branch model, which sees members from different postcodes attend subsidised social events and meet in pubs and community centres three to four times a year, there are a number of additional discretionary benefits to help entice members.

Aside from charity fundraising events, the mutual offers members access to a 24/7 GP help-line, counselling service, will-writing support and hardship grants. According to Mr Osborn, these extra services meant it spent £853,000 on its members last year, and £894,000 in 2012.

As a friendly society with strong capital behind it, Mr Osborn said it listens to product requests from its members. By attending Foresters’ AGMs and regional meetings, its members rallied for a lower premium investment product, which is due to be launched at the end of 2014.

On the importance of listening to members, Mr Osborn added: “Our benchmark is to satisfy current members before we go out in the market. Our members are very forward in their views. And it is their society; we are just looking after it for them.”

After turning the corner on a couple of difficult years, Mr Osborn is looking forward to an exciting future. With further acquisitions on the cards and ambitious plans to grow its membership, his current goal is to get the almost 180-year-old mutual in great shape for future centuries.

Daniel Liberto is features writer at Financial Adviser

Career Ladder

November 2012 - present: Chief executive, Foresters Friendly Society

June 2006 - October 2012: Finance director, Foresters Friendly Society

January 1996 - May 2006: Investment administration manager, Teachers Provident Society Finance

September 1986 - December 1995: Chartered accountant, Knox Cropper Chartered Accountants

1982 - 1986: University of Portsmouth: BA: Accounting.