Keychoice Underwriting could face up to 10 redundancies

Keychoice Underwriting’s decision to outsource its underwriting function to Towergate could result in up to 10 redundancies at the MGA.

Keychoice Underwriting managing director Jonathan Davey said the exact number of staff that would remain at the MGA after the deal was uncertain, as the agreement is still to be finalised, but he added: “I think there will be around 10 redundancies.”

He said that one member of the Keychoice Underwriting staff had already been redeployed to parent company SSP, a broker technology firm, and others had been offered positions within the Keychoice group. He added that others could join Towergate.

However, he stressed that the MGA would retain employees and that it will continue as an independent FSA-regulated entity. “We are not selling Keychoice Underwriting. We’re not closing Keychoice Underwriting. It is a strategic outsourcing,” he said.

Under the outsourcing deal, Towergate Underwriting will assume responsibility for the underwriting, pricing, administration and claims handling of Keychoice Underwriting’s book of business. Keychoice Underwriting  will retain responsibility for relationship management, sales and marketing for the business, which will continue to be written under the Keychoice brand.

The Towergate deal is the result of a strategic review of Keychoice Underwriting that commenced in January this year. Keychoice settled on the Towergate deal after considering several options, including selling the whole company, selling just the business portfolio, and joint-venture partnerships.

“We had a number of very interested parties that wanted to do business with us,” Davey said. He added that the arrangement with Towergate “felt like the right kind of relationship, the right kind of deal. I think it will work very well for Towergate. I think it will work exceptionally well for our brokers. And I think it was the best of the options available to us.”

Davey confirmed that Keychoice Underwriting is losing around £70,000 a month, excluding profit commissions that are due but not yet collected. If the expected profit commissions are included, the loss per month falls to about half the £70,000 figure, he added.

But Davey stressed that the Towergate deal had not been driven by financial considerations, saying that the losses are “perfectly acceptable in terms of how we were growing our business”.

Rather, the deal was struck to give Keychoice’s broker members access to a wider array of products, which Keychoice Underwriting would have struggled to develop quickly enough on its own given current soft market conditions.

“The rationale for this deal is not losing money in KCU,” Davey said. “The rationale for this deal is that it gives our members access to more products and it gives us the ability to grow our business more quickly with a strategic partner than we could on our own.”