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As large brokers continue their quest for growth, the middle market is moving toward the top of their list.
Increasingly, brokers are investing in people and service platforms to go after midsize clients. Why? For one, most midsize organizations don't have dedicated risk managers or benefit managers, so they can use brokers' expertise in navigating insurance markets and controlling risk. Secondly, there are tens of thousands of such enterprises in the United States alone.
Definitions of "middle market" vary, from employee size to revenues to commissions, but in general, the risk management and benefit functions at these enterprises are handled by a senior executive, such as a chief financial officer or treasurer, observers note.
But smaller doesn't mean simpler when it comes to client needs, brokers and others point out. Complexity in serving an account isn't so much a function of size as the client's industry and type of business, they say.
While national and global brokers might appear to have an edge when it comes to understanding difficult risks, industry observers contend it's not so easy to penetrate the middle market. Many midsize businesses have long-established personal relationships with local brokers and aren't eager to switch, observers say.
Marsh Inc., the world's largest broker, is looking to increase the number of middle-market accounts it serves. Late last year, New York-based Marsh hired Mark Feuer, former head of Merrill Lynch Trust Co., to marshal the broker's global resources and develop a centralized platform tailored to midsize clients.
He concedes that "Marsh is known as a risk management organization; it's not known for middle-market business."
Marsh's general definition of the midmarket segment is organizations with revenues between $50 million and $500 million, but it serves clients on both sides of that range, Mr. Feuer said. "It's a guide, but guides aren't worth much if they aren't client-focused," he said.
"We're not assuming that a middle-market client has less sophisticated needs than a large client," he said. "Often it may have more or equally sophisticated needs."
Toward that end, Marsh has appointed middle-market leaders in local offices around the country, Mr. Feuer said.
"A local footprint is important, but we need to do a far better job of educating clients about our capabilities," Mr. Feuer said. "Many of our middle-market clients have international needs. Small, local, relationship-based brokers don't have those capabilities," he said.
"Typically, in any fragmented marketplace, it's much easier to build relationships than to build capabilities," he said. Marsh's competition in the middle market "is largely based off relationships. We need to demonstrate our expertise and ability to give clients an understanding of stability in underwriting and their total cost of risk," he said. "What we're attempting to do is build a platform that enables them to see these things."
Marsh has "a value proposition that will be difficult for others to replicate," Mr. Feuer said, citing the broker's ability to aggregate information on specific industries and businesses from the many accounts it serves.
"When it comes to the execution of our middle-market strategy, the challenge isn't in the capability, it's in the delivery," Mr. Feuer said.
Willis Group Holdings Ltd., which has offices in more than 80 countries, also is looking to serve more middle-market clients. In 2006, London-based Willis hired Eric Joost as middle-market leader to oversee that initiative. Willis defines this segment as accounts with $50 million to about $1 billion in sales or turnover.
"In general, we've used that as a guidepost and look more at the style of the buyer--does the client have a risk manager or are you selling to a CFO?" said Mr. Joost, who previously was a senior vp at Allianz Insurance Co.
Midsize clients, he said, are looking for "trust in the broker relationship and individuals who can nurture it, they want a good deal and they want ease of service." For Willis, that often means "taking a question and digging. It becomes less about insurance and more about business opportunity" for the client, Mr. Joost said.
"The global economy is changing. The types of companies that are global is different from years ago," he said. "It's very easy today to have a global insurance exposure. Companies with $50 million in sales in many cases are going to have a global exposure, especially if they're sourcing materials in Asia or elsewhere."
He cited directors and officers liability as an example of a product that is much more international in scope now. "Ten years ago, it was treated through a single policy in the U.S. Now, you need to take a much more coordinated global approach to placing this."
Both Marsh and Willis are employing information technology to give their midsize clients access to account information and better understand their risks, Messrs. Feuer and Joost said.
A global platform and expertise in serving a broad base of industries may be differentiators for the largest brokers, but industry observers say personal relationships are what really matter in the middle market.
Personal relationships are key, said J. Hyatt Brown, chairman and chief executive officer of Brown & Brown Inc. The Daytona Beach, Fla.-based company's core business comes from serving midsize customers. Mr. Brown defines that segment as retail accounts generating between $5,000 and $250,000 in commission, with the average being about $25,000.
Middle-market customers are "looking for someone they feel they can trust, who has their interest and can take care of their insurance needs," Mr. Brown said.
Brown & Brown's producers focus on building personal relationships with business owners, but customer service representatives also may have strong relationships with client contacts, he said. That helps Brown & Brown to deliver service promptly, Mr. Brown said.
He isn't greatly worried by larger brokers' interest in competing for middle-market clients. "You're either fish or fowl. If you're used to handling large accounts, that's what you do," Mr. Brown said. Middle-market clients prefer service from people close to their level, he said. "That's what we do. We are at the ambient level at the street."
Earlier this year, consulting firm Greenwich Associates in Greenwich, Conn., released a survey on middle-market brokers that examined drivers of customer satisfaction and loyalty.
Greenwich conducted interviews with about 14,000 companies with sales between $10 million and $500 million about their brokers, and focused on about 1,300 to identify 25 key satisfaction areas. Based on scores in these areas, Greenwich identified the following brokerages as national middle-market client satisfaction leaders: Arthur J. Gallagher & Co., BB&T Insurance Services, Brown & Brown, Wachovia Insurance Services, Wells Fargo Insurance Services and USI Holdings (see related story, page 30).
A page from the 1980s
David Fox, a managing director at Greenwich, sees parallels between insurance brokers' approach to the middle market and that of national banks during the 1980s.
"Major banks looked at the middle market the way that the major brokers are looking at it today," he said. "They thought, 'What we need to do is take our capabilities and package them for the local market, and then we will be able to displace the local banks."'
But that didn't happen, he said. To grow in the middle market, national banks had to acquire local operations, "and they consistently underrated the relationship aspect," Mr. Fox said.
Smaller clients based the relationship on "trust, tenure and certainty," he said. So "there's a huge benefit of the doubt that will go to the incumbent."
"Smaller brokers tend not to talk about their business as segments; they talk about individuals," Mr. Fox said. "The middle market is not a concept for them. When you think segments instead of individuals, it's a lot different."
Another challenge is that producers at large brokers tend to see large accounts as more rewarding, said Bill Bruno, senior vp at Greenwich. "In theory, you're viewed as a B player" if your focus is smaller accounts that don't generate as much in fees or commissions, he said. "You might feel like you're more important working for a smaller broker whose main business is the middle market."
Some analysts acknowledge that the middle market offers opportunities to brokers of all sizes.
"Fundamentally, a company can be more than one thing" and serve both large and smaller clients, said Meyer Shields, an analyst at Stifel Nicolaus & Co. Inc. in Baltimore. "The middle market is an enormously fragmented marketplace," so there's room for competition.
"All big brokers are looking for new ways to grow and improve profitability," said Gretchen Roetzer, associate director at Fitch Ratings in Chicago. "The tough part is a lot of their competitors in the middle market are still taking contingent commissions."
Large brokers can provide value and cross-sell services in the midmarket, she said. "The question is, can they do it profitably? There's a lot of learning to be done."