Towergate Underwriting: 21st century MGA

Paul Dilley never meant to end up at Towergate.

When he met with Towergate chief executive David Ross, during his brief tenure as global (re)insurer Arch’s head of property underwriting in Europe, he was expecting to be asked for capacity. Instead, he was offered a job to head up Towergate’s underwriting agency, Towergate Underwriting.

On discussing the matter with his wife, Dilley decided the sensible option was to remain at Arch, which he describes as “a fantastic role”.

But the next morning he phoned his wife to say: “I’ve just resigned. I’m going to Towergate.”

He explains: “I thought if I didn’t accept the challenge I’d always regret it.”

When Insurance Times catches up with Dilley on 11 October – roughly seven months into the role – he seems to be thoroughly enjoying himself. He’s all smiles and jokes, and says he is very happy with his decision.

He says: “I have no regrets. For me personally it was a fantastic move.”

While he is pleased with his decision, he is not complacent about the challenge he faces. Towergate Underwriting today is, by Dilley’s own admission, a “curate’s egg”. Despite its strong points, is showing signs of wear and neglect.

It was the worst performing of the legacy Towergate units in the first half of 2017, with falling revenue and profit.

There will be no quick and easy fix, which is why Dilley has something big planned. Towergate Underwriting is to be renamed and overhauled over the next 12 months in a bid to transform it into, as Dilley puts it, a “21st Century MGA”.

Here, Dilley gives a candid account of the problems he found when arriving at Towergate Underwriting, and how he plans to tackle them.

Back to the future

Dilley has been here before. Towergate Underwriting is based in parent group Ardonagh’s London office on the second floor of 55 Bishopsgate, which is where Dilley worked for 10 years when he was with Lloyd’s insurer Brit. While at Brit he worked alongside John Murphy, who is now playing a key role in Towergate’s new London market underwriting business, which falls under Dilley’s remit.

Dilley jokes: “It’s like Groundhog Day when we come in every morning. Same building, same window.”

But while the surroundings and some of the people may be familiar, the task Dilley now faces could not be more different. Firstly, rather than being a head of underwriting, he is the chief executive of an entire business, which means he has to have an eye on all that division’s activities, not just its underwriting concerns. He also now works for an underwriting agency rather than a Lloyd’s insurer.

He says: “This is a real personal challenge as well as a professional challenge.”

More importantly, not only is he now a chief executive, Dilley is also undertaking a big turnaround. Towergate Underwriting will be renamed Geo Underwriting Group and will be split off into its own new regulated entity over the next 12 months.

Towergate Underwriting’s UK businesses will become Geo UK, and will sit alongside the new Geo Specialty London market business and Geo Europe business within the Geo Underwriting group.

The overhaul is not just about renaming and reorganisation of companies and business. It will also involve a complete overhaul of culture, products, pricing and systems.

Dilley says: “There is not one document or one system that will be untouched within this organisation. That gives you an idea of how big the task is.”

‘Years of underinvestment’

The change needs to be so big because of the problems that had taken root in Towergate Underwriting as Towergate’s attentions were pulled elsewhere.

When Dilley arrived he found many positives, such as brokers’ and employees’ loyalty to the company, the sheer breadth of the organisation and the level of underwriting expertise in the business. Dilley says: “The depth of talent was a pleasant surprise.”

But he admits that taken as a whole, Towergate Underwriting was “sub-optimal”. The business was confusing to deal with because of its multiple brands and vast array of products. Dilley says that the company has 211 commercial products, of which 29 are for contractors’ cover alone. He adds: “We don’t need 29 products. It just confuses brokers.”

The specialisms it had become known for, while still there, had become lost in the mix, diminishing Towergate Underwriting’s unique selling point in the market. The culture of the business had come to more closely resemble that of a broker than an underwriting business. Pricing models had not been updated for several years in some cases, meaning underwriters had to work around this by applying price discounts or weightings, adding to the time it took to make decisions.

He says: “It has had years of under-investment. It was always 12 months away from a sale at some point, so why would you invest long-term? Now we need to sit down and work through that.”

What Dilley found on his arrival was mirrored by comments from capacity providers and brokers in a survey about the business. While praising the close and long term relationships they had had with Towergate Underwriting, there was also damning criticism of customer service and difficulty in doing business with the firm.

One respondent said: “Towergate Underwriting was guilty of just wanting to negotiate higher commissions if I’m being polite.”

Another respondent criticised the company’s “Poor service levels and lack of quality MI [management information]”.

Another said: “They engage with us well on planning improvements but when they come to implementation they fail.”

Perhaps the most cutting comment was: “Finding your way around Towergate Underwriting is more difficult than getting out of a maze.”

Cutting commissions

Dilley hopes the restructuring will make the new Geo Underwriting much easier to deal with. Combining the UK units into Geo UK will give brokers a single point of access, meaning they will no longer need to worry about whether they are dealing with Fusion, Arista or Towergate Commercial Underwriting.

The product set will be simplified and improved. The pricing of the products and commission structures will also be overhauled to ensure they work for all involved – insurer, broker, MGA and client.

Dilley says: “Some of our combined operating ratios are too high to be sustainable in the long term, and we need to look at those.

“Some of that is either driven by loss ratios and/or the commissions we take are too high. We are planning to gradually reduce those commissions down to sustainable levels.”

The company plans to tackle culture by focusing on more MGA-like performance metrics.

Dilley says: “We don’t always act like an underwriting business. You can imagine I have been universally loved with comments like that.

“That shouldn’t be construed to mean we are making bad underwriting decisions, but if you look at some of the metrics we measure ourselves against, we should be talking about premiums, loss ratios and rate movements. They are there but they are not at the forefront. They need to come more to the front.

“We have to deliver EBITDA but we have to deliver strong underwriting performance for our partners. To do that we need to have the right metrics at the forefront of the business.”

To address inefficiency and poor management information, the company is overhauling its systems. Dilley says that the company is spending £3m on a new system for the agricultural business, which will go live in 2018.

Towergate Underwriting has faced criticism in the past for using capacity from unrated insurers in some instances, most notably Liechtenstein-based Gable, which is now in the process of being liquidated. This will no longer happen at the new Geo Underwriting, Dilley insists.

He says: “We should be using A-rated capacity. To be a 21st Century MGA we have got to be sustainable. Sustainable delivers profitable growth. Is unrated capacity sustainable? I don’t think it is.”

Actions vs words

The changes to the underwriting business will be implemented throughout 2018. The task is big and difficult.

But there are several things that give Dilley confidence. One is that the company is capable of getting things done quickly and effectively when it puts its mind to it.

Dilley points to the set-up speed for the new London market and European MGA businesses, both launched in August this year. He says: “One of the things that surprised me was speed of execution.”

Another is the Ardonagh Group management team, including chief executive David Ross, chief operating officer Adrian Brown, chief financial officer Mark Mugge and broking head Janice Deakin. Dilley says: “The strength of the leadership is incredible. If anyone can do what they say they are going to do it is that leadership team.”

Also, the Ardonagh Group is committed to get the underwriting business right, and is willing to spend money doing so.

As well as the £3m being spent on the new agriculture underwriting systems for the UK business, the company has had to spend on systems infrastructure and people to underpin the new London market and European MGA units, both of which it is looking to expand.

Dilley says: “Actions are definitely speaking louder than words because they are putting their hands in their pockets, which is great.”

Dilley may not have originally planned on joining Towergate, but he looks set for an exciting few years now he’s there.