Help

BI’s Article search uses Boolean search capabilities. If you are not familiar with these principles, here are some quick tips.

To search specifically for more than one word, put the search term in quotation marks. For example, “workers compensation”. This will limit your search to that combination of words.

To search for a combination of terms, use quotations and the & symbol. For example, “hurricane” & “loss”.

Login Register Subscribe

Employee benefits and other growth opportunities abound for brokers in 2014

Reprints

Opportunities abound for insurance brokerages to achieve growth goals in 2014, brokers, analysts and consultants say.

Perhaps the biggest potential growth area for brokerages to exploit is employee benefits, particularly given the Patient Protection and Affordable Care Act's creation of uncertainty in the benefits area. But more traditional avenues of growth — an emphasis on expertise in a particular industry or market, or growing by acquisition — also hold the promise of rewards for brokers that approach them effectively, experts say.

Undergirding the opportunities is an uptick in the overall economy, they say.

“The generally improving economy should help middle-market brokers” because of the effect on their commissions, said Mark Dwelle, an insurance analyst at RBC Capital Markets, a unit of RBC Securities Inc. in Richmond, Va.

“The easiest source of growth is going to be from the fact that the economy appears to be growing slightly more quickly than it has for the past few years. If you have more stuff being insured, that increases premium volumes, and that increases commissions,” said Meyer Shields, Baltimore-based managing director of equity research for property/casualty insurance at Keefe, Bruyette & Woods Inc.

%%BREAK%%

Employee benefits is “an incredibly complicated endeavor right now, and that's no surprise because of the developing and sometimes changing regulatory environment,” Mr. Shields said. The result is a combination of organic growth as big brokers pick up business from smaller competitors that can't keep up with changes and from smaller employee benefits brokers looking to sell to monetize the relationships they have, he said.

While Arthur J. Gallagher & Co. President, Chairman and CEO J. Patrick Gallagher Jr. has criticized the health care reform law as poor public policy, he also said the law is “the greatest thing that's happened to us. No client can understand it. The compliance issues are astronomical.”

“We see people focusing their attention on the larger-group business” in life and health products, said Bobby Reagan, president and CEO of Reagan Consulting Inc. in Atlanta.

“We see good opportunities there, particularly for those firms that are on top of health care reform,” Mr. Reagan said. Some employers will reduce the benefits they provide employees, which will give rise to opportunities to sell voluntary benefits such as disability, life and dental coverage, he said.

Brokers that have adopted a consultative role on the employee benefits side in navigating health care reform are seeing new business opportunities as well as opportunities to generate fees from delivering these value-added services, said Timothy J. Cunningham, managing director of Chicago-based investment banking and consulting firm Optis Partners L.L.C.

%%BREAK%%

Lockton Cos L.L.C. expects its core health care business to grow in the 12% to 14% range this year, said Glenn Spencer, U.S. chief operating officer of the Kansas City, Mo.-based broker. Given the uncertainty surrounding health care reform, companies want to know what strategic issues they should be considering, he said.

“We see greater opportunities in advising companies on how to navigate this changing environment,” said Jonathan Crystal, executive vice president and chief financial officer of Crystal & Company in New York.

“A lot of our clients are in industries where there's genuinely a war for talent,” said Charles Williamson, a Crystal executive vice president. Crystal helps them design benefits packages to help attract and retain top talent, he said.

While the health care reform law has helped focus attention on benefits as a growth area for brokers, more traditional avenues have not lost their luster.

For Crystal, “a much more aggressive geographic expansion” is part of the company's strategy, Mr. Williamson said.

The brokerage has offices in nine cities, but its business is concentrated in greater New York, he said.

“Most of our clients are middle-market and upper middle-market,” he said. “From a macro point of view that is where a lot of businesses fall; it's a great growth area.”

%%BREAK%%

That includes pursuing niche markets such as financial institutions, construction and hospitality, he said.

Serving niche markets allows a broker to distinguish itself from competitors, yet only 32% of agencies recently surveyed by Marsh, Berry & Co. Inc. target niche areas, said John Wepler, president of the Willoughby, Ohio-based merger and acquisition firm.

A particularly underserved niche is the high-net-worth market, but other potential niches include ethnic groups, age groups and high-growth industries, Mr. Wepler said.

Brokers that have adopted a specialization or niche strategy are the ones that are probably going to generate the most organic growth, Mr. Cunningham said.

“Growth opportunity is everywhere you look,” Mr. Gallagher said. “We're very focused on niches that we happen to be very, very good at. We've developed expertise; we're not just here to broker you insurance, we believe we can help you grow your business.”

Brokers can continue to grow through mergers and acquisitions, Mr. Reagan said. For example, there will be opportunities to merge multiple firms should an agency want to enter a new market.

Last year was slow for deals, with little activity early in the year, Mr. Wepler said. “But going into 2014, there's a robust pipeline for the first and second quarters, and buyer demand has never been so strong,” he said.