Cat among the pigeons

Brokers are not enjoying a great time currently, with questions raised again about conflicts of interest, inadequate transparency and the value that mega groups bring to the table for customers. Steve McGill has launched London-based international specialty broker McGill and Partners and vows to break the mould, especially in the larger corporate space. Commercial Risk Europe editorial director Adrian Ladbury asks Mr McGill why he feels the world needs another broker and why risk managers should sit up and take notice.

Risk and insurance managers across Europe have been telling Commercial Risk Europe since our launch in February 2010 that there are a small number of things they really want from their broker and which they find frustratingly difficult to find in one firm.

These are:

• A dedicated and personal approach based on a long-term relationship with a senior and expert individual who does not move on after just establishing the relationship, or pass the ongoing job to a team of juniors
• A broker that has the knowledge and expertise required to really understand their business and that can come up with real bespoke solutions, not just off-the-shelf products
• A willingness and ability to work with carriers to deliver the best solutions, whether provided by the carrier or the broker or a mix of the two, and bring the insurer and its claims people to the table
• Honesty and transparency over remuneration and a top service when the claims ultimately arrive, to make sure they are agreed and settled in a mature, efficient and painless manner
• Sufficient reach to help build complex cross-border programmes that can genuinely be serviced in a consistent manner on the ground and ensure compliance.

Interestingly, what they do not say they want is an all-singing, all-dancing broker that can offer them every service imaginable. Yes, it is a fact that the recent acquisitions of employee benefits and HR specialist firms by the big brokers are proving useful to the many risk managers that are finding themselves increasingly involved with benefits and looking to find consistencies and efficiencies by adding them to their global programmes.

Top-class service

But what risk managers interviewed by Commercial Risk Europe during the past decade have said they really want is a broker that takes the time and effort to help solve their problems in an innovative manner and is willing and able to follow through with top-class, consistent and lasting service.

It should have come as no surprise to anyone in the market then that the acquisition of JLT by Marsh last year, and the planned acquisition of Willis Towers Watson by Aon in the first half of next year, were not welcomed by the European risk and insurance management community with open arms.

A reduction in choice and competition in an already concentrated broking market comes at a time when we have seen a number of similar deals within the carrier market, such as the ‘loss’ of XL to AXA and Endurance to Sompo. Apart from the obvious reduction in choice such mega deals bring, it also inevitably distracts senior management from the main reason for existing – serving the customer – and means that senior brokers spend as much time protecting their jobs as focusing on their customers’ ever-more complex needs.

And, to compound matters, this flurry of M&A activity came about just as the European and global insurance and reinsurance market finally started to harden. Add to all of this the rise of the Covid-19 pandemic and the conflicting need for rapid innovative solutions for a much-changed risk landscape, as well as extreme pressure on budgets and cashflows, and it is clear why risk managers are not too comfortable with the competitive landscape out there currently.

Viable alternative

Despite the huge economic and financial challenges that we all face as we struggle to battle through the pandemic, this actually looks like a very good time for an intelligent broker to offer a viable alternative to the established listed global players. Surely what is needed at this point in time is an experienced, dynamic and expert team of brokers, a solid financial base to build from and, above all, a razor-sharp focus on customer needs in this highly volatile and ever-changing environment.

This is according to Steve McGill, founder and CEO of McGill and Partners, the independent London-based specialty broker launched last May with $250m of backing from Warburg Pincus, and describes exactly what the firm has to offer and exactly why it has grown so quickly and made such an impact already.

Mr McGill does not profess to hold a crystal ball that would have told him the market would suddenly start hardening for the first time in years just after he launched, that Aon would announce its bid for WTW after Marsh had just finished gobbling up JLT, and that the world would have been thrown into economic turmoil by the pandemic crisis, thus sparking a thirst for a fresh approach from insurance and reinsurance buyers.

Fresh approach

But he says the demand for the fresh approach offered by McGill and Partners was already building. He spent the best part of two years talking to risk managers with major global companies to find out exactly what they wanted and needed from their broker, and came up with more or less the same answers as our own risk manager interviews have provided in recent years.

The time is ripe for change in the broking market, not least as it struggles to deal with its ‘bloated’ cost base and often conflicted interests in London in particular, as Stephen Catlin, who recently founded specialty carrier Convex, is so keen to point out. Risk managers are also currently looking for help to construct innovative and cost-effective deals. They do not want to be cross-sold to as the big brokers seek to fund their ever-expanding and diverse operations.

Armed with a strong and fresh balance sheet, no legacy complications and costs, cutting-edge cloud-based technology (which seriously helps when homeworking becomes the new normal) and of course an ambitious and fast-growing team of seasoned professionals and experts keen to break away from the ever-growing global giants, it looks like Mr McGill may have timed his launch perfectly and surely has the experience, knowledge and contacts to make it work.

“It has been both fortunate and quite astounding how smooth our growth path has been since launch. We already have 230 people and have not even celebrated our first year. We have built a highly focused, specialist boutique business that is practitioner-led, offering design, structuring and placement capabilities for clients with complex and/or specialist needs. We started with a clean balance sheet and invested heavily in cloud-based technology and talent. This is incredibly important in the current environment because we have the expert and experienced people who can do the job from home on platforms that work. I am not suggesting that the other brokers are struggling but there are many that underinvested in IT, are still reliant on legacy systems and only really paid lip service to digital placements,” he explains.

Before digging into what qualities McGill and Partners brings to the table that would persuade risk managers to use them rather than the established global brands, Mr McGill is asked how long he believes the firm can continue to operate on this pandemic-induced homeworking basis and whether this way of working can really deliver the kind of complex, multijurisdictional programme that customers really need.

“How long can we operate in this environment? As long as it takes. I am incredibly proud of what my colleagues have done. Just recently we completed a huge and highly complex placement on Whitespace, the digital (re)insurance platform. This was the biggest and most challenging placement executed on the platform to date and covered 40 market reform contracts for an Australian client. If we have to work remotely for six months or even two years, we have the technology and people to do it. Our talent value proposition is also unique in the industry and based on a contract of trust – we have always had fully flexible working hours and no fixed annual leave. This meant that by default our teams were familiar to home working. I do not think that the way we transact business will be the same after Covid-19 is over. Personal relationships are still hugely important in this industry but there will have to be a better balance with technology and flexibility of working,” he explains.

Launch Principles

So, what was the original plan for McGill and Partners before the pandemic changed the world and why would the launch principles, objectives and strategy behind the formation of the new broker make risk managers sit up and take notice?

“The traditional approach in this sector has been to acquire firms and build that way, and a number of groups have done this successfully. But we decided on a different path. We decided to acquire talent, people with strong expertise and relationships in both insurance and reinsurance. I believed there was a significant gap in the market for such an approach, especially given the major M&A activity,” says Mr McGill.

“The focus had to be on dealmaking and placement. This was based on the response I received from senior executives and risk managers with larger corporates. Dealmaking was the key requirement. I spoke to a lot of clients over a two-year period and found that what customers are really interested in is also a channel to the carrier, to bring them much closer to the client in a more efficient manner. I also looked closely at the investment banking market. Some 20 to 30 years ago, it was dominated by a small group of major players – JPMorgan, Chase, Goldman Sachs, Morgan Stanley – but then a number of high-quality boutiques emerged like Evercore and Moelis with a narrow and deep focus.

These firms now have 36% of the market. There is a need like that in the insurance broking world – there is a need for boutique specialists,” he adds.

Mr McGill says the big global brokers have clearly done incredibly well during the last 20 to 30 years to build such impressive broking houses with genuinely global capabilities spread across many lines and sectors. But, despite his clear determination not to directly criticise the competition, he obviously thinks they may have overstretched themselves and lost some focus on the core needs of the customer, the people that really matter in all of this.

“The big brokers have grown over the last 20 to 30 years from largely insurance- and reinsurance-focused broking firms to global professional services firms with an incredible array of services and capabilities, which is very impressive. But for clients, this arguably presents a challenge because what many really want is a highly focused service and expertise around insurance and reinsurance placement,” he said.

Then there is all the smoke and mystery that clouds the international insurance and reinsurance market and can be difficult for risk and insurance managers to fathom.

It is a simple fact that when the topic of Lloyd’s and the London market is raised with European risk managers during our annual Risk Frontiers survey, only one national group seems to really get the system: UK risk managers. Risk managers in continental Europe generally seem to find the market quite confusing, opaque, expensive, annoying and difficult to navigate when it really matters – when the complex claim emerges. If at all possible, they would much rather deal with a national carrier and broker.

Cost-effective

The fact is that this is not always possible because London and other international markets such as Bermuda offer capacity that most national markets just cannot provide. Mr McGill understands this frustration and says his new firm offers a service to navigate the customer through this complex chain in a transparent manner and deliver cost-effective solutions. This can be a strong selling point in today’s market, when options are dwindling and terms and conditions are tightening as the carriers seek to protect their solvency by carefully allocating risk capital more than ever before.

“Many sophisticated clients do not have a good appreciation of the complexities of the value chain from client to broker, then to the commercial insurance world, then into the reinsurance market and onto retrocession and alternative capital markets. This is something they all know about but do not necessarily understand fully or are used to. For the client this appears to drive up complexity and cost. If you can work with an independent broker to navigate your way through this chain in a transparent and unconflicted manner, then that is very valuable,” says Mr McGill.

The desire among risk and insurance managers and the carriers to communicate more directly has become more and more obvious during the past decade. In the old world, brokers really did not want their customers to talk to the carriers because, on the surface, it devalued their role. The prolonged soft market until last year intensified this quandary as both brokers and insurers sought to bolster revenues by adding ‘services’ in competition with each other. The ‘below the line’ competition between insurers and brokers became frenzied as more and more brokers launched facilities to dominate the distribution chain as the soft market dragged on and the battle for margin became more intense.

As the new kid on the block, McGill and Partners has a fresh approach to this whole question by challenging the norm and offering to actually bring customers and carriers to the table to help thrash out the best deal possible. Its matchmaking and problem-solving skills will presumably be adequately rewarded to ensure that it does not need to expand into bolt-on services that compete with the carriers, damage relationships and potentially foster conflicts of interest.

“The bigger brokers offer a lot of services and the bigger insurers also have a very strong range of services and expertise. However, it is about deploying capital as efficiently as possible and recognising the value offered by both deep underwriting capability and specialist distribution skills. This is an opportunity for us because we do not have the legacy and can connect with insurers and reinsurers to achieve results for the client in a very focused way,” says Mr McGill.

At the end of the day, however, based on the ongoing research carried out by Commercial Risk Europe during the past decade, what will really matter is what the customer really wants and needs, to deliver real solutions. It is not about what the broker needs to feed its cost base and offer the woman or man in charge of the account for the time being the opportunity to swiftly move on to pastures new.

It seems that Mr McGill is aware of this basic need among corporate risk and insurance managers and is prepared to invest in a new model that will deliver that. “We are the first broker to be deeply focused on larger, more complex transactions that have highly specialist needs. We are working with large corporates, Lloyd’s syndicates and insurance companies, managing general agencies and retail brokers that all need different, bespoke solutions – and we deliver these. Our corporate client value proposition is utterly unique in the industry,” concludes Mr McGill.

By the numbers

• Seven specialty teams
• 230 colleagues hired
• 50% of colleagues are millennials
• Four offices (Lloyd’s, Leadenhall, New York and Miami)
• $300m anticipated premium into the market
• More than 120 clients
• $250m committed funds affiliated with Warburg Pincus
• 12 months’ full-pay maternity and adoption leave
• Fully flexible working hours; no limits to annual leave
• Six months’ full-pay paternity leave
• Group of colleagues across five workplace generations