The Towergate boss has done a lot in this first year but much remains to be done

Mark Hodges Towergate

Towergate chief executive Mark Hodges has achieved a lot in his first year at the helm. He has overhauled the consolidator’s management team and installed some big hitters, including former Brit finance director Scott Egan.

He has also grown the company’s earnings before interest, tax, depreciation and amortisation (EBITDA) in the first half of 2012, following a reduction in this key metric in 2011.

However, much as the first-half numbers showed improvement, they also highlighted that much remains to be done. The improvements were mainly the result of cost-cutting, and the company continues to suffer from economic and competitive pressures.

Here, Insurance Times examines five key items on Hodges’ to do list.

1. Acquisitions

With economic and competitive pressures stunting organic growth opportunities, Towergate will need to continue to buy smaller brokers to keep growing its top line, keep on top of interest payments, and fund further growth. On the plus side, there should be plenty of opportunities, as the tough conditions make selling up a more attractive proposition for the smaller, weaker broking houses. However, not everything up for sale is worth buying. Hodges’ challenge will be separating the wheat from the chaff, and choose brokers that can help Towergate grow without adding too much additional cost and effort.

2. Getting paid

Towergate succeeded in growing the gross written premium it places with insurers by 8%, yet its revenues were flat. This suggests that the company is struggling to get paid for its work. This is a particularly thorny problem: in the current economic climate, Towergate’s SME clients don’t want to pay more for their coverage and insurers are clamouring for lower commissions, which is squeezing the compnay on both sides. If Towergate gives away too much ground to insurers, it risks losing precious clients. Ignoring the wishes of insurers, however, could also push them away, meaning there are fewer places for Towergate to place its clients’ business. Hodges and his team will need to play this one carefully.

3. Tackling the network division

Towergate’s network division, which comprises Broker Network and Countrywide, has seen further deterioration in performance at the half-year stage. This was driven in part by the economic environment, but was not helped by Aviva deciding it no longer wanted to be a partner insurer for Broker Network. The network division is Towergate’s smallest by revenue but is strategically important, and so cannot simply be discarded. Hodges says he is confident of future growth here, but will have to back up his words with action in the coming quarters.

4. Fixing the mix

Hodges says that one of Towergate’s strengths is that it is diversified - if certain divisions are shrinking, growth in the others will offset this. This is true to a point. Strong performance in Towergate’s underwriting and Paymentshield divisions have helped counteract the slumps in the retail and network businesses to a degree. However, the net result is that Towergate’s revenue is flatlining. This is mainly because the retail book makes up  59% of revenues, and so will have a large influence over the group as a whole regardless of performance in other divisions. It will take time, but Hodges will want to increase the relative contributions of the non-retail areas so they provide more of an antidote to slowdowns in the retail book.

5. Instilling stability

Towergate has been through a period of great change over the past 18 months with the refinancing, the changing of the guard and structural adjustments. The company has lost some key people, the most recent example being Broker Network managing director Nick Houghton. Towergate now needs a period of calm to settle down and show what it is truly capable of in its new state. This may be tricky to achieve for a company looking to grow through acquisition, where persistent change is a given. However, the Hodges’ more staid corporate style, compared with the more entrepreneurial, start-up-style spirit instilled by predecessor Andy Homer, should be an advantage.