After Towergate bought out underwriting agency Fusion there were fears in the industry of losing a successful model, now both firms' executives set the record straight. Elliot Lane reports
Towergate's acquisition of Fusion was the most open secret in the broking community during the summer of 2005. But for those brokers which dealt with Fusion and were not privy to the gossip, the announcement came as a major shock.
When Insurance Times published the story back in September, Fusion's management, and in particular director Geoff Crisp, sent an email to its clients refuting the claim.
However, since the deal was made public last month, there have been criticisms of how the future structure and strategy of Fusion is shaping under its new parent.
Towergate executive chairman Peter Cullum and Fusion managing director Kevin Pallett are passionate that they can allay any fears from third party brokers that might doubt Towergate's long-term commitment to Fusion's model.
Cullum says: "The reason we wanted to talk to Fusion in the first place was because of its excellent service and product. It is renowned for its advice and quality and has a good reputation.
"Towergate's strategy is to develop a 'one stop shop' for third party brokers. Half of Towergate's current GWP is wholesale. Fusion builds on this capability," he adds.
Towergate has said it has no plans to make Fusion a 'captive underwriter' for Towergate brokers. Fusion will remain an independent and completely separate entity within Towergate.
In fact, Pallett says he was approached by various insurers and brokers once Fusion's previous owner, Lloyd's insurer SVB, made it clear it planned to sell the operation.
"Peter's offer was the best deal for us because he wanted to keep the Fusion operation intact and expand it," he says.
On rumours that certain Fusion staff are disgruntled and disillusioned by the takeover, Pallett is stoical.
"If people are unhappy they vote with their feet. We do not lock people in. From my perspective the majority of Fusion staff are very happy with the situation because there is virtually no major upheaval. The offices stay in the same regions and there are no plans to move.
"Also Towergate has established an underwriting academy and I know that three Fusion staff have already applied for places. The underwriting facilities at Towergate are excellent," he adds.
Cullum, who was recently crowned entrepeneur of the year by The Times, says that although Norwich Union (NU) had taken 100% of the Fusion capacity, a consortium of five insurers will be in place by 1 February 2006. "So far it is oversubscribed by 200%," he says.
He adds that Towergate would continue to support SVB through other parts of its business, but it would not be one of the five insurers.
Towergate says that Fusion brokers will be able to compete with NU-held business and that Fusion's servicing arrangements are entirely independent of NU. Towergate's own broker network will be "forbidden from attacking Fusion-held business", says Cullum.
Pallett says: "The heart of Fusion's deliberately different approach is that it can deliver the local service which composite competitors cannot. Using NU capacity makes absolutely no difference to this situation."
Cullum says that the "philosophy that price is everything" will not be part of the Fusion proposition.
"Our commissions will reflect the Fusion service and quality advice that is part of the product. It won't be cheap.
"But in Fusion we are offering the client the whole package including advice, risk management, claims handling, administration, servicing. It is a misnomer to judge the product as purely a standardised commission," he says.
He adds that he hopes to bolt-on much of Fusion's risk management consultancy and expertise to the Towergate underwriting protocols.
On the rumour that Towergate's next target could be the regional network Smart & Cook, Cullum would only say: "As far as I know, 3i and Geoff Cook's family are the ones who will decide if it is up for sale. I have not heard that they are yet ready to sell.
"I am a great admirer of what Paul [Meehan] has achieved and of course if the broker was officially placed on the market I would be interested to talk to them." IT
Fusion was launched in 2001 by a team of ex-Independent Insurance staff headed by Kevin Pallett and Geoff Crisp. It was formed with the backing of SVB Holdings, the parent of SVB syndicates on a five-year plan. The plan expired in December 2005 which led SVB to sell its stake for £25m to Towergate.
Towergate purchased the underwriting agency through a newly-formed subsidiary, Broomco 3881.
Fusion has offices in London, St Albans, Bristol, Glasgow, Leeds, Birmingham and Manchester. It employs 145 people. Towergate has said it will double the number of staff in 18 months.
Towergate has said it plans to double Fusion's existing £103m GWP in 18 months.