Business Insurance Lifetime Achievement Award: J. Patrick Gallagher Jr.Posted On: Nov. 2, 2022 12:00 AM CST
After 50 years in the insurance business, J. Patrick Gallagher Jr. has seen a lot of change in both the sector and at the company that bears his family name.
Joining the market when it was common for large corporations to buy first dollar coverage, Mr. Gallagher participated in and later led Arthur J. Gallagher & Co.’s drive to provide a more sophisticated approach to insurance purchasing for its commercial clients.
The evolution also included the growth of claims administration services for buyers, which the firm first developed in the 1960s.
Mr. Gallagher also led one of the most successful expansions ever of an insurance brokerage, helping as a producer and later as an executive grow the company from a largely Midwestern middle-market broker into a multinational risk management and professional services organization.
In 1972, when Mr. Gallagher joined the firm as an intern, it reported $3.5 million in revenue and had 141 employees, according to Business Insurance’s directory of insurance agents and brokers, and it did not make the ranking of the 20 largest brokers in the United States. In 1995, when he was named CEO, Gallagher was the 8th largest broker in the world, with $412 million in revenue and 3,739 employees. Last year, Gallagher reported nearly $7 billion in brokerage revenue — more than $8 billion for the whole company — and ranks as the world’s 4th largest broker, with about 40,000 employees, over half of whom are based outside the United States.
In recognition of his achievements at Gallagher and his leadership position in the industry, Mr. Gallagher was presented with the Business Insurance Lifetime Achievement Award during the U.S. Insurance Awards event in New York in late September.
Mr. Gallagher puts his start in the insurance sector down to good fortune.
“Our industry, in general, is an industry where people either fall into the business or they’re born into it. However you get here, you’re lucky,” he said. “I look back and I go, ‘How lucky was I?’ I got born into a business that my grandfather absolutely loved.”
His grandfather, Arthur Gallagher, worked as a bookkeeper for a larger agency, before setting up his own shop in Chicago in 1927 selling insurance for the Hartford. His three sons all went into the business and developed the company into a commercial brokerage.
One of the pivotal moments in the company’s history came in 1962 when it established its third-party administrator Gallagher Bassett Inc. and developed a pioneering self-insurance program for Beatrice Foods Co., a client it had won from a much bigger broker five years earlier.
Mr. Gallagher first worked at the brokerage at age 14 during his summer vacation in 1966 as a file boy, traveling into the office in Chicago with his father; he immediately liked the working environment and the people he worked with.
Later, he attended Cornell University, where he majored in political science and government, and returned to the brokerage as an intern in 1972.
In 1974, he graduated, got married and started at the company full time as a commercial lines producer, focusing mainly on middle market business. He was assigned a small book of business, which covered his salary, and set about building it up.
“It was tough, but I began to get traction,” he said. “It’s a story that remains today: you have to put in your dues, you learn your craft, learn how to qualify prospects and understand what the prospect actually needs instead of just trying to sell them a product.”
In 1977, Mr. Gallagher returned to Cornell in his professional capacity and won the university’s account. He still has the line slip on his office wall, he said.
“I’d gone back to Cornell and had a chance to call on their treasury department. They were buying all their coverage first dollar — it was kind of crazy — and we were successful at showing them how to use retentions, which in those days were still kind of modern thinking, and utilize a TPA,” he said.
Forty-five years later, the university is still a client with a multiline retention and Gallagher Bassett as the third-party administrator.
The TPA continued to evolve and in the 1980s it developed into a company that offered its services on a standalone basis, beyond its core base of Gallagher brokerage clients.
In addition to developing large retention business, during the 1970s Gallagher developed expertise in nonprofit, public sector and religious institutions business, which it maintains today, and enjoyed rapid organic growth.
Mr. Gallagher also progressed, becoming a unit manager with a handful of producers under him before he was named branch manager of Gallagher’s Chicago operation. He held that position when Gallagher went public in 1984.
At the time of the initial public offering, the broker had $63 million in revenue and the offering raised about $13 million. The capital allowed the company to pay out some long-term equity holders who were retiring and start its now long-standing acquisition strategy.
“The driving force was to give those who had contributed to our growth their due and to give us a currency to grow the company with acquisitions,” he said.
Since the IPO, Gallagher has made more than 500 acquisitions. While the deals have included some large companies, hundreds were tuck-in deals involving small brokers.
“We were growing pretty quickly with acquisitions, and we were plugging people into positions that many of us weren’t necessarily trained and ready for. It was learning on the job: learn how to do acquisitions, learn how to manage them,” he said.
Mr. Gallagher took on increasing levels of executive responsibility after the IPO. In 1986, he was made vice president of operations. In 1990, he was promoted to president and chief operating officer and took over from his uncle Bob Gallagher as CEO of the company five years later.
The acquisition strategy was and remains simple, Mr. Gallagher said. “Let’s go out and find people that run really good businesses in our industry and, if we like them, let’s try to convince them to sell to us and nobody else. That’s it,” he said.
The company has always been focused on culture — the 25 tenets of “the Gallagher Way” outline the company’s approach to business ethics — and attracting the right firms into the culture has always been key, he said.
“We have to recognize that an entrepreneur that’s built a $10 million business is damn good at what he or she is doing, and for them to want to join us I try to call every one of them to thank them for picking us,” he said.
In more recent years, the acquisition strategy has seen the company grow a significant international business.
Gallagher began its international operations in London in 1974, and about 10 years ago it began targeting some big companies in other English-speaking countries. Among other deals, in 2013 and 2014 Gallagher bought Australian conglomerate Wesfarmers Ltd.’s insurance brokerage operations for more than $900 million and Canadian brokerage Noraxis Capital Corp. for nearly $400 million, in addition to Giles Group of Cos. in the United Kingdom for about $360 million.
“All those markets are comprised of a lot of small trading brokers, agents. We thought we could make a good home for them and do what we’ve done in the United States there, which has proved to be true,” Mr. Gallagher said. “It was not an exercise in planting flags, it was an exercise in building out our earnings with an international component.”
It’s biggest deal to date was also international — the 2021 purchase of Willis Towers Watson PLC’s reinsurance business.
The deal transformed Gallagher’s reinsurance intermediary business from a mid-sized broker to the world’s third largest. It also assisted its retail operations, providing insights into the dynamics of the wider insurance and reinsurance markets and the capital available in the sector, Mr. Gallagher said.
Insurance brokerage remains a great business that facilitates the operation of all other businesses, he said. But it’s surprising how many companies have exited the sector, he added.
In 1985, a year after its IPO, Gallagher was the 11th largest U.S. brokerage and Marsh & McLennan Cos. Inc. was the largest. All the other firms in the top 20 have since exited or been absorbed by competitors, with several combined to form what is now Aon PLC, he noted.
“They all gave up, which is crazy. It’s the greatest business on the planet,” Mr. Gallagher said.
And there are great opportunities for young people to enter the sector, he said. Gallagher’s internship program has grown into one of the largest in the industry.
“I’m very proud of the fact that the company had 500 interns this summer; I think there’s clearly a day when we will have 1,000. We’re looking at ways to be more proactive with the community colleges, but my goodness this business is terrific,” he said.