Steve McGill: Great expectations
Charlie Thomas and Rachel Dalton speak to Steve McGill, the eponymous founder of the boutique broking world’s rising star
These are strange times we find ourselves living in. Mere weeks ago, the biggest stories in our world of (re)insurance revolved around M&A – particularly within the broker sphere – and the question of whether the hardening market would continue.
At the time of writing, the world has drastically changed – all of us forced into remote working, all of us forced to watch and hear via 24-hour news about the horror of Covid-19 unfolding globally, and all of us wondering how long the new reality will last.
It’s telling that the most-streamed films on various media outlets are all disaster movies – ranging from zombie classics to apocalyptic futures, with even James Cameron’s Titanic making an appearance. The public finds comfort in convincing itself that things could be worse – the world could look like that.
I Am Legend, a novel by Richard Matheson later turned into a film starring Will Smith, is more nuanced than most horror schlock, being less about vampiric zombies and an apocalyptic world, and more about how the human being copes with isolation and loneliness.
Take these short quotes, all of which could apply to your more morose thoughts today:
“Outside, there were birds sometimes and, even lacking that, there seemed to be a sort of sound outside. Inexplicable, perhaps, but it never seemed deathly still in the open as it did inside a building.”
“From that day on he learned to accept the dungeon he existed in, neither seeking to escape with sudden derring-do nor beating his pate bloody on its walls. And, thus resigned, he returned to work.”
“Monotony was the greater obstacle, and he realised it now, understood it at long last.”
Of course, this is overdramatising the situation today. These are challenging times for sure, but they’re not without hope, without innovation. And true leaders will use this as an opportunity to shine.
A year ago, McGill and Partners announced its Warburg Pincus-backed launch to the market, amid much fanfare, huge amounts of anticipation and a hunger for a genuine specialty alternative to the big three broking houses.
But a number of questions hung around the neck of that launch: is hiring top talent enough to persuade carriers to junk their relationship with their incumbent brokers and come on board; could it compete with the lack of regional network and the data mines of its peers; and could it become a credible retail player without looking too much like a direct competitor to its wholesale peers?
Twelve months on, the big three is about to become the big two, the hardening marketplace has intensified and founder and CEO Steve McGill’s eponymous broker has its first 1 January under its belt.
His take on Covid-19 is typically stoic. “Right now, we are 100% focused on maintaining professional levels of service for our clients and protecting our staff,” McGill says.
“One lesson that can be learned from this is that it is essential for all parties to have the ability to operate remotely and digitally, and we see the event really accelerating the digitalisation of the insurance industry.
“With brokers and carrier partners forced to work remotely, this event could in fact revolutionise the way that business is conducted in the market, driving the need for greater efficiencies. In addition, this event will likely also lead to enhanced product innovation and differentiation to help address some of the risks of pandemics, and their impact on businesses.”
McGill anticipates an increase in the demand for pandemic coverage, noting that the industry will have to work with governments and businesses to develop ways to deal with this type of crisis. An increase in the modelling of these events to enable insurers and companies make better decisions on risk financing is also likely, he adds.
And while today the insurance industry will, in the main, seek to exclude large, highly correlated events such as pandemic, carriers won’t escape paying covered policies such as travel and credit insurance, the CEO continues. On top of that, it will be imperative for brokers and carriers to monitor global government mandates that might alter aspects of coverage.
“On a broader note, it is vital that companies maintain close contact with their brokers to understand coverage issues. It is also essential that they clearly communicate with their brokers and carriers on decisions they are making during this crisis that may impact coverage,” McGill notes.
“Clients need a broker that fundamentally understands their business, has deep expertise in relation to the coverage under their policy and has excellent market contacts. Open communication remains absolutely key to building workable solutions. Brokers need to have empathy for the stress that people may be under from a professional and personal point of view. Long term, deep, trusting relationships have always been forged through delivering in difficult times.”
New broker landscape
In more normal times, we might have focused on Aon’s takeover of Willis, announced days before coronavirus started to dominate the airwaves, and arguably the biggest structural change in the history of insurance broking.
“It will have a huge impact for clients and colleagues, and significant implications for carriers,” McGill agrees.
And while the deal creates a broker with an “impressive breadth of services and capabilities for clients”, McGill believes the development is a further reinforcement of his firm’s strategy, to build a highly specialist broker led by practitioners.
“Specifically for clients, the takeover limits [their] choice, which is not great for the industry and inevitably creates potential destabilisation of client service teams,” McGill says. “For carriers, the concentration risk has increased very substantially, presenting obvious challenges.
“[And] for talent, a substantial number of employees will be in the category of synergies. From McGill and Partners’ standpoint the assets of the firm are the talent within it…this opportunity has now been massively amplified.”
On the question of whether McGill and Partners can compete with its peers on specialty placements, there were some encouraging signs at 1 January. Although the company’s treaty business wasn’t up and running, the specialty business was, and the broker is now handling some $300mn-plus premium throughput.
“Q4 going into January exceeded our expectations,” says McGill. “We now have – and bear in mind our business is building out at different paces, with reinsurance really [only coming] on stream this year – but as we sit here today, we have 104 BORs [Brokers of Record] from across a range of clients.”
That’s up significantly from the 55 McGill spoke about during Insurance Insider’s London Market Conference in November 2019.
“What I’d also say is that we focused on bringing in incredible talent that think innovatively, [and] have deal-making skills…and relationship skills,” McGill continues.
“Quite often people underestimate the importance of relationships in the market. If you work closely as an intermediary, either with clients or with carriers, there’s a lot of trust there. Those characteristics become even more important when you’re dealing with a market that’s changing, and both clients and carriers gravitate to practitioners who have that level of depth and experience.”
Top talent is certainly something McGill can boast in spades. The broker launched with a management team that included former Hyperion executive Oliver Corbett (as the broker’s CFO), former Tokio Marine Kiln COO Denise Garland (as COO) and former Aon chief innovation officer Stephen Cross (as head of strategy and innovation).
Additional senior broking expertise joined in the form of former Willis CEO Dominic Casserley – currently a senior advisor at Warburg Pincus – and Tim Wright, another Willis alumnus and director of much-fancied start-up Archipelago Analytics, taking up a non-executive directorship.
Between launch and October 2019, McGill’s team managed to recruit and on-board 131 staff, as well as negotiating a progressive deal with Marsh & McLennan, which enabled the new broker to offer clients the opportunity to work with McGill and Partners, as well as taking a cross-section of JLT talent into the firm.
“As of today, we have 149 full-time colleagues in the firm from 28 different firms. So it’s been a very broad cross-section of talent.
“We have another 67 colleagues who are serving their notices in the garden – when you bring those in you’re getting nearly up to 220 professionals. And we’re in active discussions with 26 other talented professionals,” McGill says.
While the attraction of working with McGill – a 40-year veteran of the London market, having worked at Lloyd Thompson, JLT and Aon – is certainly a big draw, many of the recruits will have been impressed by McGill and Partners’ progressive benefits package.
Employment contracts are considered “contracts of trust”, McGill says, reflecting the broker’s offer of limitless annual leave to staff, 12 months’ maternity leave at full pay, six months’ paternity leave at full pay, and carers’ leave.
All staff also naturally receive competitive pay and bonuses, as well as equity in the business.
But McGill thinks it’s the blueprint of the firm that attracts staff too. Right from the get-go, McGill and Partners decided it would not be a broad, full-service retail broker or a big London wholesaler. Instead, it would be a boutique, specialty firm – practitioner-led – that would “go narrow and deep in our capability”, and focus on the design and structure of placements for clients with special or complex needs.
The next phase is to establish a New York presence, focusing on working in partnership with strategic retail brokers to offer placement and specialty expertise, McGill explains.
“When I say in partnership, that’s helping them build their business whilst using the expertise that we bring to the table. It’s also the ability to connect with the larger corporate accounts with sophisticated risk membership and departments, and with captive insurance companies where we’d be providing reinsurance solutions.”
McGill’s reinsurance business will come onstream in earnest in 2020 too, with big-name hires in Guy Carpenter’s Paul Summers and Aon’s Angus Milgate coming on board.
“We are really excited to have Paul joining us in a few months’ time to lead our facultative reinsurance capabilities. We see that as a core strength of the firm, both in terms of providing services to corporate clients and also services to cedants,” McGill says.
“In addition, we have Angus joining who will be helping drive our treaty business. In the interim period, a number of colleagues, both on the facultative and the treaty side, will be joining us as well.
“We have an office that we’ve opened in Miami, just as a gateway to the Caribbean and Latin America reinsurance and that’s specifically for facultative reinsurance. And then we’re looking at similar capability in New York.”
Asked whether its private equity backing means McGill and Partners is open to jumping into the M&A fray itself, McGill is cautious. His focus has always been on an aggressive acquisition of talent, rather than firms, and the present frothy multiples for those firms left on the shelf are doing nothing to change that strategy.
“I think there are many high-quality firms out there… [but] you can debate whether the multiples are at the right levels,” he says.
And while M&A activity amongst brokers is likely to continue – including further large-scale M&A that redefines the landscape – McGill would rather sit on the outside and “take advantage of those situations” for now.
Technology as enabler
Returning to the topic of technology, McGill believes there’s a happy medium to be struck between striving for efficiencies and preserving the best of our industry’s practices.
“Face-to-face relationship skills and relationship building will never go away. Technology just amplifies everything and enables us to handle more business more efficiently [as well as enabling] us to accelerate our going-forward agenda over the long term,” he says.
“We’re not that phased about proprietary versus non-proprietary; it’s actually just that technology is a great enabler to our business and should be fully embraced.”
Embracing technology is central to Lloyd’s of London’s plans too – and McGill has been a vocal supporter of CEO John Neal and his Blueprint One vision.
“We like the fact that Lloyd’s is trying to separate out the more complex specialist insurance and reinsurance placements from the more standardised placements. And as part of that process, they’re wanting to maximise the use of technology and begin to challenge both underwriters and brokers in London to think differently about what the future holds and what the opportunities are ahead,” McGill begins.
“That manifests itself in how to reinforce leadership in the Lloyd’s market with Lloyd’s leaders, high-quality underwriters that invest in underwriting skills and technical excellence. And how you think about follow capacity or support capacity.
“On the intermediary side, how does Lloyd’s capture a bigger share of the global pie when it comes to insurance and reinsurance? And how does it do that efficiently using broker distribution, which is fundamental to Lloyd’s success?”
What McGill likes most about Neal’s approach is that he’s trying to drive the growth agenda for Lloyd’s and the London market for the long-term benefit of carriers and brokers – even if that means shaking up the model in the short term.
“The traditional wholesale model, where it has really high-quality specialist expertise, gets reinforced in this new environment. But actually just having brokers that have lifestyle businesses where business is coming into London and they’re clipping the ticket by 5 or 10 points and just placing the business with Lloyd’s underwriters – that is deteriorating the expense ratios and undermining the profitability of the business. I think that type of business is quite rightly going to be challenged.”
For all this positivity, there is one area which wasn’t discussed, and that was the impact of a global recession on a new broker.
Goldman Sachs issued among the most bearish of predictions on 20 March, as it projected a 24% fall in US GDP in Q2.
And while insurance – as a non-discretionary purchase in many verticals and classes of business – normally weathers fiscal downturns better than most areas of financial services, the reality is that many clients globally will have a reduced ability to pay for cover. The size of the client base will also fall due to insolvencies.
So here it is then, McGill’s biggest test – not, can his company thrive in a transitioning market, but can it survive in a Covid-19 market?
Given his illustrious history, you’d be wise not to bet against him – but these are unprecedented times, and even the hardiest of individuals will be pushed to their limit.
This article was first published in the Spring 2020 issue of Insider Quarterly