Soft market methods by rival insurers have created ‘abysmal’ market, says Davey

Keychoice Underwriting managing director Jonathan Davey has lashed out at the “stupid” soft market practices of rival insurers, as he disclosed that there could be up to 10 job cuts at his managing general agency.

Davey revealed he was outsourcing key functions of Keychoice Underwriting to Towergate Underwriting.

Keychoice started trading in September 2010, but Davey said that the soft commercial market had hit revenues, stunting the company’s ability to invest in new products.

Keychoice Underwriting, owned by software house SSP, is losing around £70,000 a month.

“The market has changed from when we launched the business,” Davey said. “The original plan was to have access to a whole range of additional products.

“Launching those new products is quite a costly exercise and, given the softness in the market at the moment, we weren’t able to release products as quickly as we would have liked.”

“The market is absolutely abysmal at the moment,” Davey added. “There are some insurers out there doing stupid things with leveraging renewal books against new business.

“There is business that is currently being quoted at 65 points less than the technical price. There is a lot of chief executive rhetoric about: ‘we must have price hardening in commercial lines’. Frankly it is nothing more than rhetoric.”

But Davey stressed that the Towergate deal had not been driven by financial considerations, describing the losses as “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.

“The rationale for this deal is not losing money in KCU,” he said. “The rationale 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.”

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 continue to handle relationship management, sales and marketing for the business, which will continue to be written under the Keychoice brand.

Davey said “around 10” Keychoice Underwriting staff faced redundancy, but the number was still uncertain because the deal had yet to be signed. One member of staff has already taken up a job at parent company SSP, and others had been offered positions within the Keychoice group.

Talking points …

● Even in good times, could Keychoice Underwriting have been expected to launch the number of products its brokers were apparently demanding in so short a space of time?
● How much more pain will it take before insurers start charging adequate commercial rates?
● Could the economic climate prompt similar deals as MGAs struggle to hit premium targets?

Pass notes: Keychoice Underwriting

What are the deal terms?
Towergate will pay Keychoice an initial consideration for the access to the business from its broker members, plus a commission based on the volume of business that the member brokers place with the MGA. Keychoice’s managing director Jonathan Davey declined to disclose the amounts as the deal had not yet been signed.

Who are Keychoice Underwriting’s clients and insurers?
The list of capacity providers includes ACE, DAS, HSB, Inter Hannover, MMA Insurance and Zurich. The company says it has developed relationships with more than 270 agents.

How did Keychoice Underwriting perform?
In its first period of operation, the 16 months to 31 March 2011, Keychoice Underwriting reported a net loss of £1.6m, as its small initial revenue of £58,000 failed to cover its administrative expenses.