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SERVICE IS KEY FOR SMALL BROKERS PUTTING CLIENT FIRST PAYS: CEO

Posted On: Mar. 16, 1997 12:00 AM CST

SAN FRANCISCO-The success of smaller brokers is largely dependent on how well they develop their unique capabilities to deliver customer service, executives say.

"Our results are better when we put the client first and benefit them first," said Thomas W. Corbett, chairman and chief executive officer of San Diego-based Robert F. Driver Inc., whose specialities include program business for public entities.

Mr. Corbett was among the brokers speaking on a panel on client service during the national insurance symposium leadership conference sponsored by San Francisco-based Russell Miller Inc. earlier this month.

Mr. Corbett noted that program business, which is done primarily on behalf of its Robert F. Driver public entity division, accounts for just

$10 million, or 35%, of Robert F. Driver's $37.5 million in annual revenues, but accounts for two-thirds of its profit. The company intends to continue to focus on this segment, said Mr. Corbett.

Among the reasons it is so profitable is the stability of the client base. When you "build a better mousetrap, the clients tend to stay," he said.

Among the reasons these programs are so successful, said Mr. Corbett, is that the company tends to build client/broker-based programs rather than market- or underwriter-controlled programs.

The brokerage likes to build the program first and approach the market second, said Mr. Corbett, who noted the entire process generally takes six to nine months. Driver thinks it needs at least $1 million to $2 million in premium volume to bring a potential new program to insurers, he said.

Driver also must perceive that it can also offer improved coverage to program participants. In addition, if it cannot get at least a 25% improvement in rates for its clients, it is unlikely to pursue a potential program, said Mr. Corbett.

The agency also relies on association or buyer support. Mr. Corbett noted that as the broker for 500 public entities, it is virtually an association in its own right.

To start a program, it must also have an established or quantifiable marketing and distribution program, he said. It is also willing to leverage its volume to build an "unfair advantage" over its competitors, he said.

Another important factor for Driver is exclusivity, which makes it difficult for underwriters to add clients to its program without going through the brokerage.

Driver intends to build and acquire more program business, said Mr. Corbett, who noted its goal is to have program business increase in five years to as much as 70% of its total revenues from its current 35%.

The company plans to double its size through mergers and acquisitions as well as triple its profitability, he said.

The company's goals also include becoming more involved in other types of risk-transfer vehicles, such as captives or risk retention groups, said Mr. Corbett.

Sophisticated advice and solutions to buyers' problems, stability and depth of professional staff, and close working relationships are among the benefits Wortham aims to give its clients, said Fred C. Burns, managing partner at Houston-based John L. Wortham & Son L.L.P., the 19th largest U.S. broker based on estimates of 1995 commercial retail brokerage revenues from U.S. offices.

Wortham has only one office but is the largest retail broker in Houston, said Mr. Burns. The brokerage has 57 partners with an average tenure of more than 20 years, said Mr. Burns.

He noted that the brokerage's revenues per employee increased to $145,456 in 1995 from $118,808 in 1991. Compensation and benefits total 83% of its expenses, compared with the more typical 50% at competitors, he noted.

Wortham seeks employees who have a work ethic, appreciate the value of work, are capable of accomplishing multiple tasks with a sense of urgency, and have common sense, above-average intelligence and "unquestioned integrity," said Mr. Burns, who noted that "integrity does not come in degrees."

James R. Riedman, president of Rochester, N.Y.-based Riedman Corp., said his firm is a privately held brokerage that operates in "middle market" communities and has about $48 million in estimated 1997 revenues.

The brokerage's strategic challenges include developing core growth in a continuing soft market and increasing market share in an environment of extreme overcapacity.

Riedman, founded in 1938, focuses on relatively small communities, such as Ocala, Fla.; Bismarck, N.D.; and Fort Collins, Colo.

Riedman, for instance, has nine offices in Colorado but none in downtown Denver. If it did, Marsh & McLennan Cos. Inc. would "hand our heads to us," quipped Mr. Riedman.

Mr. Riedman noted the agency typically makes eight to 10 acquisitions a year, though for a large brokerage, this could be the equivalent of adding one producer. Last year, he said, the company also added 13 salespeople, though it meant adding $1 million to its expenses. "We continue to invest in what we think is the lifeblood of our organization," said Mr. Riedman.

Technical resources Riedman Corp. bring to bear include a new employee benefits practice and a special risk unit, he said.

Discussing the company's growth, Mr. Riedman said it increased to $36 million in commission income in 1996, based on just under $290 million in premium volume, from $16 million in commission income in 1992 on a premium base of $124 million. That is an annual compound growth rate of more than 17%.