To make money, you’ve got to spend money, and that’s what The Ardonagh Group has been doing over the past few years.
After Autonet, Chase Templeton, Direct Group, Price Forbes, and Towergate came together to form the Group in 2017 – with Healthy Pets, Carole Nash, Mastercover, and most recently Swinton joining the company later on – the firm is now ready to look forward.
During a media call to address results for the first half of 2019, Ardonagh’s CEO David Ross called this “a seismic moment in time” for the company.
“Six weeks and three years ago, we set off on a 12-quarter plan – or three years in layman’s terms – which was effectively a plan that was going to cost an awful lot of money to renovate what we described as the worst house on the best street, which was Towergate,” he said, adding that shortly after he took on the CEO role, an investment banker referred to Towergate as an “unfixable business.”
Yet, when the financial crisis hit, Towergate was one of the few middle-market, privately-held companies to come out the other side. The fact that its balance sheet and internal systems were a mess didn’t bother Ross, and neither did the losses (including a £44.5 million loss in H1) that the company experienced as it was ‘renovating’ its business.
“If you can imagine owning the worst house on the best street and you buy the house for a million [pounds], and for a period of three years, you spend a million [pounds] renovating it – for every month that you renovate that house, you’re probably losing money because of the amount of money you’re going to pump into it,” explained the CEO. “At the end of a three-year renovation program, when you basically hand the keys to someone, you have a house that’s actually worth an extraordinary sum of money. All of the money that we have spent, which has been more than we’ve been making for the last three years, is all money we choose to spend because it’s all about enhancing the value of the asset.”
The best house on the best street
Now that Ardonagh has finished a complex turnaround plan, and did so on schedule at the end of June, it has ended up with what Ross believes to be “one of the best houses on the best street.” With peers like JLT being acquired, that street also has fewer houses, which likewise enhances the value of Ardonagh.
“Every segment we’ve got is a vibrant segment and a market leader in its own right. And nobody has the assembled asset base that we’ve got,” said Ross. “Being able to take somebody who gets out of bed in the morning, where you insure their house, you insure the car they drive to work in, you insure the helicopter they get on to take them to an oil rig, you insure the oil rig, you insure the delivery of the oil – we do all that, and when it goes wrong, we put it all back together again.”
Looking to the future, data is king for the Group, which wants to learn everything about its clients, and know more than the markets do, because that will make it a better broker and advisor. The money being directed into collecting data and creating a central view of the Ardonagh customer will also help the company consolidate its premium base into fewer strategic markets. In a few years’ time, Ross expects that half of the company’s premium will be placed with five to 10 insurance companies, which will be good news for its strategic partners and clientele.
“If you look at our billions and billions of premium, it’s currently with something like 984 different carriers and/or intermediaries, which is utterly idiotic. It’s like having 300 different Starbucks and allowing every Starbucks owner to buy their own coffee. The reality is, if you have one coffee bar, you get a better deal for the customer and you spend a lot less on your coffee,” he said.
Brokers remain indispensable
As for the broking business, which Ross referred to as the key to Ardonagh’s financial success following the 2018 results, it isn’t going anywhere but up.
“What is happening within Towergate and our other brands is we’ve just got this relentless focus on the client now,” said Rob Worrell, CEO of insurance broking for Ardonagh. “And it has seen an uptick in our sales conversions and an increase in our client retention, along with some wonderful other metrics about reductions in complaints [and] reductions in professional indemnity, so the actual qualitative features of our business are getting better and better […] We are succeeding at the moment, but my theory is that our best years are ahead of us.”
Brokers aren’t going anywhere, chimed in Ross, stating that you can’t disrupt the broking business. Taking into account the regulatory framework of the insurance industry as well as the ways that risks are changing, it’s difficult for the internet to give advice to clients about threats they don’t know about.
“Rob’s business is the most indispensable part of Ardonagh because it’s the one talking to the customer and actually advising them on what they should be worried about. The reason brokers are becoming more valuable is you simply can’t replace them,” said Ross.
The road ahead
After coming to the end of its transformation programme, Ardonagh is committed to independence.
“There is no plan for this business to be sold. We are continuously evaluating our liquidity options because we are continuously being offered routes through which the company can grow,” said Ross. “I think the fact that our shareholders and everybody else has realised that this has become an incredibly valuable business doesn’t mean that they’re ready to sell.”
The leadership team has its eye on growing the business, and conquering the world from here on out, so the plan is to stick along for the ride. While Ross added that speculating about liquidity options for the company is not an unfair point since the management team is always considering its options, “a lot of it depends on actually what opportunities we see, [and] what we think the company needs.”
Moreover, if the Group can accomplish this much in a few years, imagine what it’s capable of in the next three, added Ross.
“I think we can comfortably take this business into a very significant scale, and I would say within three years, we should be able to double this business without even breaking a sweat. If you look at what we’ve created now, it’s considerably bigger, broader, better, and stronger,” he said, adding that considering Brexit, the focus will be on international business.
“Being exposed to one economy is something we have to look at and go, ‘Is that something we want to have to deal with?’ When actually one-third of our premium is international, non-Sterling premium, we’re actually quite an international business – we just look very UK. I think we will make more of a push on basically saying that in the next three to five years, more and more of our strategic gaze will actually leave the UK and look at how we can make the home-based business better by doing deals outside of the UK, whether it’s in the Asia-Pacific market, the African market, Latin American market, US, Canada – we’re looking at all of it.”