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View from the Top: Michael R. Pesch, Arthur J. Gallagher & Co.

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View from the Top: Michael R. Pesch, Arthur J. Gallagher & Co.

Michael R. Pesch is president of U.S. retail property/casualty brokerage operations at Arthur J. Gallagher & Co. He first joined the brokerage as an intern in 1991 and then full-time after graduating college. In his current role, he manages the day-to-day operations of Gallagher’s retail brokerage business in the United States. He recently spoke with Business Insurance Editor Gavin Souter about Gallagher’s growth over the past year, its strategy for the future and conditions in the property/casualty market. Edited excerpts follow.

Q: Gallagher saw some robust organic growth last year. How is 2018 shaping up?

A: We were really proud of our organic growth last year and how we finished up 2017. As far as 2018 is concerned, we’re pretty excited about the momentum that we have and some of the investments that we made in 2017. We’re now starting to see the fruits of our labor take shape in 2018 — reinvesting in our value proposition, reinvesting in some strategic offerings to the customer that we think add value when we compete.

Q: What sorts of investments have you made?

A: We’ve done a couple of things regarding insurtech. We hired a chief digital officer and built a team around him that has given us a lot of capability in terms of not only understanding our existing book of business and where the opportunities to grow it lie, but also to help our producers and ultimately help our customers make better decisions through the use of data and information that we have internally on our book of business. We’ve invested in areas like cyber, which is a very big growth trend for us and a key area for a lot of customers.

We also made some strategic hires in risk control, which is claim advocacy and loss control. We have several hundred of those individuals scattered throughout the U.S., but we built in some organizational structure around it and now we’re going back and reinvesting in areas where we think there’s opportunity to add value.

Q: What have been some of the strongest areas since you took on the role in 2016?

A: Our industry focus has always been an area of growth for us over the years, but I think as we’ve become bigger, and we’ve become more mature in many of those industry areas, we’re seeing some significant growth.

Just a few that I’ll highlight — construction, real estate and transportation. Those are three areas growing in the macro economy, and we’re capitalizing on it because we have some very strong leadership in each of those key areas.

The other thing that we’re seeing, if you look at our history over the last five to 10 years, we’ve invested outside the U.S. and so those multinational accounts where we can leverage the power of Gallagher and maybe wouldn’t have had an audience in the past, we are now getting an audience. For us, that’s very meaningful because we know we have a great story to tell and we know we have the experts internally to add value to that customer experience but now we have multinational capabilities.

Q: So what about the future? Where are you looking to expand?

A: When you look at some of the industries I mentioned, where we saw growth in 2017 and are already starting to see more growth in 2018, I think those areas will continue to see some positive momentum. Construction in terms of the infrastructure reinvestments that are going on in the U.S. right now. Transportation — companies like Amazon changed the way that we purchase things, but it will continue to be a growth area, and we recently completed an acquisition of a firm in Texas that specializes in transportation to add to what we’re already doing.

And real estate as well, maybe not so much in the retail space, but we’re certainly seeing it in hospitality and commercial real estate.

Some other areas would be life sciences and health care. As the demographics in the U.S. continue to change, those two areas are going to be very important, and we have some really solid expertise in both life sciences and health care.

I mentioned cyber, but we’ve got some very specific internal strategies to help our clients understand the risks they’re facing. A lot more of our clients are interested in risk transfer mechanisms as it relates to cyber, and so we’ve built some additional expertise around that to help our producers understand the exposure and we’re building in some unique capabilities to make it not so burdensome to actually purchase the coverage. In the past, you had 15 to 17 pages of applications and we’ve got several areas where we narrowed that focus down to just a handful of questions to procure coverage for our customers.

Q: Gallagher has a long history of growing through acquisitions. How is the market for broker acquisitions?

A: Our pipeline right now is bigger than it’s ever been. And we added some more firepower behind that — we hired five individuals across the U.S. whose sole purpose is to go out and build relationships with local firms, and for us that’s where it all starts. We’ve got to have the right people building relationships with the principles of these agencies. It’s part of everyone’s job who runs a branch or a business for us, but having some committed leadership focused on building those relationships has been impactful to that pipeline.

Q: There have been some rate increases over the past few months. Do you think those are sustainable?

A: What we’re seeing is really some realistic rating structures. Any client that has exposure in cat-prone areas and also has had some losses is seeing rate increases. We’re still seeing auto being a difficult line of coverage for a lot of our carriers, and so there’s still some firming in that area. But then you look at workers compensation, and we still see that there’s plenty of capacity out there.

It’s really just about navigating our clients through their specific scenario and helping them understand what’s realistic and what’s not.

Experts are predicting this will be another active hurricane season in 2018 and, if that’s the case, you’re going to see clients with that exposure having some realistic rates applied to the exposure. And again, we’re prepared to help them manage through that process.

 

 

 

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