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There's no shortage of commercial brokerage business in the U.S., and regional and smaller brokers are deploying an array of strategies to win bigger shares.
Niche expertise, strong client service offerings and acquisitions are only a few of the ways these firms look to expand their turf, industry sources say.
For midsize and small brokers, “it's all about growth,” said Ken Crerar, president and CEO of the Council of Insurance Agents and Brokers in Washington.
The fragmented U.S. brokerage industry provides plenty of growth opportunities. Beyond top-tier brokers with more than $500 million in annual revenues, the market as of year-end 2012 included 919 regional brokers with revenues between $5 million and $500 million and 3,570 local firms with revenues of $1.25 million to $5 million, according to Atlanta-based Reagan Consulting Inc. Despite ongoing industry consolidation, the number of regional and local brokers actually increased by 29 and 270, respectively, between 2010 and 2012, Reagan reported.
“The story on this topic hasn't changed,” said Bruce Ballentine, vice president and senior credit officer with Moody's Investors Service Inc. in New York. “There's plenty of business to go around for global players and mid-market players.”
One road to growth for many brokers is developing niche specialties targeting a specific industry, line of coverage or geographical area, said Cathy Seifert, an equity analyst with Standard & Poor's Corp. in New York.
At Bellevue, Washington-based broker Parker, Smith & Feek Inc., for example, four industry specialties — real estate, construction, food processing and health care and human services — account for 60% of revenues, said CEO Greg Collins.
Mr. Collins said he views the firm as a risk consultant rather than as a seller of insurance, which has meant building staff expertise and technological capabilities in loss control, claims management, employee benefits and other services. Among other things, the firm provides secure websites for clients to manage policy and claims information, Web-based safety and risk management tools, and benefit program analysis for Patient Protection and Affordable Care Act and other cost issues.
Clients increasingly require expertise and demand accountability, noted Bruce S. Denson, CEO of Birmingham, Alabama-based Cobbs, Allen & Hall Inc. Cobbs Allen — which similarly focuses on industry specialties while offering a range of risk management, benefit and human resource consulting services — gives its clients quarterly stewardship reports outlining the firm's performance, Mr. Denson said.
Building client relationships is important, but “a lot of it has to do with delivery of what you promised,” he said.
Niche expertise and value-added consulting resources are key drivers of broker growth, a 2012 Reagan Consulting study of 100 brokers found. Brokers with either industry-specific or product-specific practice groups reported compound annual organic growth rates of 2.8% and 3.5%, respectively, between 2008 and 2011 vs. growth rates of 1.1% and 1.5%, respectively, for those without.
Brokers offering value-added property/casualty resources such as claims management reported 2.6% growth vs. 1.3% growth for those with no such services, the Reagan survey found.
Winning and retaining business has long depended on a combination of good client relationships and technical expertise, but “that's probably gradually shifted to the expertise side,” Mr. Ballentine noted.
Risk managers and business owners confirm that their long-term broker relationships are built on confidence in the brokers' technical skill and service capability. Red Gold Inc., an Elwood, Indiana-based tomato processor, has found that its broker of more than 20 years — MJ Insurance Inc. of Indianapolis — consistently secures competitively priced coverage and provides superior services, said Bob Savage, the Red Gold's director of risk management. This included handling a complex $2 million boiler and machinery claim, which included costs of lost sales, after an accident temporarily shut down one of Red Gold's facilities in 2000, he said.
“It's good to have somebody who knows your business,” Mr. Savage said.
Gil Shapiro, founder of New York-based retail chain Urban Archaeology, said he has been able to rely on longtime broker Cook Maran & Associates of East Hampton, New York, for coverage and claims management, freeing him to focus on running his business. The broker has also been proactive, coming to him to discuss the ACA's potential effects months before any coverage decisions had to be made, Mr. Shapiro said.
Meanwhile, without the far-flung office networks of global brokers, regional and smaller brokers also compete by joining correspondent networks. These include Columbus, Ohio-based Assurex Global; Menlo Park, California-based RiskProNet International; and specialist groups such as TechAssure Association Inc. of Austin, Texas, whose broker members focus on technology risks.
Red Gold recently sought to place a line of coverage in the London market and went to a top-tier broker with a London office for a quote, but found that MJ Insurance — working through an Assurex London partner — was able to get a better price, Mr. Savage said.
Broker networks can offer more than geographical diversity: Assurex Global last year launched a private health insurance exchange for members to offer clients.
Meanwhile, some brokers are taking a long-established path to growth: acquisitions. The first six months of 2014 saw 165 announced broker mergers in North America, the most active first half and second most active six-month period since 2008, Chicago-based investment banking and consulting firm Optis Partners L.L.C. said. While top-tier brokers were among the most aggressive buyers, several smaller brokers also made two to five acquisitions apiece, Optis said.
Reagan Consulting described the regional and local brokerage market as “a target-rich environment,” with 4,489 potentially acquirable firms producing $18.4 billion in 2012 revenues.
In the merger context, a broker's success developing niche expertise and value-added services can be a double-edged sword, S&P's Ms. Seifert said.
“If they stand out in the marketplace, they also stand out to potential acquirers,” she said. “There's probably a bull's-eye target on the back of those smaller firms.”
While many brokerages see retaining employees as a priority, some say they could put more effort into attracting talented workers.