The American Association of Managing General Agents is gearing up a diversity and inclusiveness initiative to help its membership respond to the shifting demographic profile of insurance buyers. The U.S. Census Bureau projects that what we now call minority groups will become the majority of the U.S. population by 2042.
The AAMGA’s first step in establishing the program was to publish a diversity mission statement acknowledging that the insurance industry and its customer base are increasingly diverse. It urged all AAMGA members to treat all people equally, with dignity and respect.
The AAMGA backed up its words by extending reciprocal membership to leaders of ethnically and culturally diverse insurance associations including the Latin American Association of Insurance Agencies, the Chinese American Insurance Association, the National African American Insurance Association and others.
Delegates at the AAMGA’s May annual meeting were scheduled to make plans to educate the broader AAMGA membership base about the role diversity plays in business today.
“This is a working statement. It isn’t a business plan that sits on a desk that nobody looks at,” said Roger Ware, the incoming president of the AAMGA and CEO of Genesee General, who is making the diversity program a top priority of his presidency.
“Whatever your ethnicity, religion or location, as long as you have good business ethics, we want you in our association … it helps perpetuate the industry.”
An insurance association rooted in Latin American culture was one of the first organizations targeted.
Javier Naranjo, president of the Latin American Association of Insurance Agencies, said his association expanded its scope beyond the original mission of opening doors for Latino agents in the 1960s and 1970s. Today, agents and insurance companies of all backgrounds look to the LAAIA for guidance on how to appeal to buyers of different cultural backgrounds and to tailor products to meet their needs.
Naranjo, a principal with Security Underwriting in Miami, said that working with the AAMGA underscores the importance of diverse business practices and agent associations to the independent agent system and business model. In fact, he sees diversity as a business imperative.
“The stronger we become, the stronger the business model becomes. Diversity helps protect against other companies coming into the insurance space. We’re looking to protect and strengthen our business model,” said Naranjo, who noted the trend of increased competition from other sectors including the banking industry.
The LAAIA, which is established in Florida and other parts of the South, hopes to leverage the AAMGA’s national footprint to establish new chapters in AAMGA markets with strong Latin communities.
As an example of what the AAMGA hopes to achieve with its diversity efforts, Executive Director Bernie Heinze points to its successful track record of bringing students and younger insurance professionals into the fold.
“Our demographics show that 57 percent of AAMGA members are under the age of 40,” said Heinze.
“Ten years ago it was the exact opposite. We are so encouraged.”
The AAMGA’s Under 40 Organization boasts about 400 active members and its college outreach program is engaged with universities, professors and students at risk management programs throughout the U.S. A six-year-old insurance white paper contest for college students received more than 60 entries this year, and the winning student authors are awarded scholarships and VIP passes to the AAMGA’s annual meeting.
The students are paired with a senior member of AAMGA to mentor them during the conference, and these introductions often result in job offers for the students.
Heinze identified the expansion of diverse hiring practices and industry education as two important pillars of the AAMGA’s inclusiveness efforts.
“We want to educate our members about the benefits to be gained by employing a more diverse workforce, including better business ideas,” said Heinze.
“We’ll also focus on wholesale insurance education. It’s an opportunity to introduce those insurance agents with a unique constituency on how to access our solutions. What do diverse communities require to access the wholesale market? And how do we help them become wholesalers?”
Heinze said that clients today want to do business with people who are more like them and that business referrals are likely to come from a church or a rotary meeting or among other groups where individuals of the same background or culture already have an established trust.
The AAMGA doesn’t view diversity as something based just on race, gender or sexual orientation. Heinze said that it also means challenging its membership to embrace more progressive and diverse business ideas that will make the industry more successful.
He said the organization has also increased its efforts to recruit more women members as AAMGA leaders and officers with the ultimate goal of electing women presidents.
Naranjo said that while many larger insurance companies might have the resources to cultivate in-house diversity initiatives, smaller agencies with other focuses will look for partners to help them integrate diversity into their business models and form deeper connections with the communities they serve.
“I tip my hat off to the AAMGA for initiating the conversation and I think it’s very progressive in terms of thinking long-term and bringing value to the AAMGA membership,” said Naranjo.
With its initial round of planning and outreach complete, AAMGA members can expect more communication about diversity during the coming year as concrete programs and educational opportunities take shape.
“The insurance industry has got to be there for all people who have risks,” said Heinze.
Pros and Cons of Specialty Consolidation
Merger and acquisition activity is rife in the insurance space and in the specialty brokering market in particular. According to M&A advisory firm MarshBerry, there were 220 acquisitions in the U.S. broker sector in 2014, and 49 of them involved wholesale brokers and managing general agents and underwriters (MGAs and MGUs).
“Making this surprising is that specialty distributors are significantly outnumbered by retail insurance agencies,” the firm said, noting that there are approximately 1,250 specialty distributors in the U.S. compared to 25,000 retail agencies. In other words, specialty M&A accounted for 22 percent of all broker M&As despite specialty players being outnumbered 20 to 1.
According to Julie Herman, associate director of financial services ratings at Standard & Poor’s, consolidation in the specialty brokering space mirrors M&A activity among insurers, many of whom have been buying specialty teams as a way of managing their underwriting cycle in a low rate environment.
“Brokers follow the trends of insurers, so it makes sense they would follow them into specialty,” she said.
“Cheap debt, low interest rates and private equity capital entering the space, combined with competition driving up multiples, makes a plentiful M&A environment. And there are so many opportunities out there, especially in the U.S. broker markets — there are thousands of brokers and the market is very fragmented.”
Herman added that insurers are increasingly focusing on streamlining the number of distribution partners they do business with, exacerbating the broker consolidation trend.
“It is becoming harder for small brokers to compete against bigger players in a softening market in which there is a need to be more sophisticated. Most small players don’t have the resources to invest in big data and technology, so it often makes sense to sell,” she said.
“The losers are the specialty wholesalers who don’t want to sell but might not to be able to adapt to the marketplace and get left behind.”
RIMS board director Gordon Adams is chief risk officer for Tri-Marine International, a fishing company with specialty marine risks. He said he’s seen little evidence of contraction in the marine broking space, but in other areas such as credit insurance there are very few specialist brokers and there is consolidation.
“That is a concern as there are less competitors and therefore we have less ability to do an RFP. Insurance is a personal relationships industry. Companies may miss out on developing personal relationships with boutique brokers in favor of using the big brokers. The larger brokers try to be all things to all people, and that’s certainly not always successful.”
In September 2014, JLT — the world’s largest specialty brokerage — began a concerted push into the U.S. According to Doug Turk, chief marketing officer for JLT Specialty in the U.S., the broker may consider joining the M&A party.
“We’re very open and interested in seeing what’s out there, but we are going to be very selective to make sure any acquisition target fits within our specialty strategy and also with the culture of JLT,” he said.
Impact on Clients
However, Turk challenged the view that broker consolidation leads to less choice for the client. Large clients have had limited choice for some time, he said, while JLT’s move into the U.S. as a retail specialty broker has helped meet demand for more choice when it comes to specialty risk.
“[Consolidation] doesn’t change the markets we go to or the solutions we offer. Underwriting consolidation is something we have to deal with, but with most consolidations, teams remain largely intact. It’s a good time for clients because they can get more out of their relationships with brokers,” he said.
There is no doubt that if a small broker is bought out by a more sophisticated buyer, its clients should benefit from an array of value-adding services.
“There are always two sides to every coin but right now the positives outweigh the negatives for the insurance buyer, if successful operational and financial execution is in place,” said Herman.
Scott Burton, a partner with Sutherland, Asbill & Brennan in Atlanta, agreed.
“Ultimately, the effects of consolidation on resulting scale and the continued gains in efficiency and expertise should result in better rates and terms for many clients,” he said.
Larger brokers absorb the specialist expertise of small wholesalers but can then use their superior infrastructure to scale up these operations, bringing specialty capability to a wider audience. The key is of course to ensure the acquired teams are not dismantled, diluted or commoditized by the merger.
Companies that don’t sell up must capitalize on their ability to offer bespoke service.
“Smaller brokers can compete by differentiating and having a product,” said Herman.
“If they are able to maintain key relationships and use their niche expertise to design specialty programs, carriers will still want to do business with them.”
Turk agreed that while many of the largest brokers look at business in terms of yield and commodification, specialists use their industry expertise to create unique and innovative products for their chosen client bases. This is, he said, what makes specialty-focused JLT different than the likes of Marsh, Aon and Willis.
“There is an increasing role for true specialty brokers who have industry knowledge — an ability to understand business first and risk second, and the ability to translate that understanding into customized solutions,” he said.
Tri-Marine’s Adams is a strong believer in the value of working with the most specialized brokers out there.
“Having a department that is able to service a specialty area is not the same as specializing in a specialty area,” he said, contending that boutique brokers are more likely to have a closer relationship with the client and offer dedicated, individualized service than broad-brush broking houses.
“We want our broker to have expertise and a predilection to our areas of business. The broker we selected at our last RFP said ‘we are heavily focused on marine, and because of that we don’t offer the same abilities in property/casualty or workers’ compensation, so we’d like to partner with a very strong regional broker who can provide these areas.’ That’s the direction we went in, and together they provide what we need.”
For many companies, choosing a one-stop-shop broker may be equally, if not more appealing than using a patchwork of specialists. One area the large buyers have a clear advantage over their smaller target firms is in their ability to service a rapidly internationalizing corporate sector.
“Globalization is fundamentally changing the expectations of our clients. International clients today demand seamless global coverage,” said Turk. “There’s a growing requirement to comply with local regulations in international locations. The world is becoming so much more complex, and companies demand that the brokers they work with have the knowledge to make sure they are in compliance with local regulations when placing policies.
“I’ve been in the industry 44 years and I’ve seen expansion and contraction a number of times during my career.” — Doug Turk, chief marketing officer, JLT Specialty in the U.S.
“Smaller brokers don’t have a global umbrella capability. The problem for them is that virtually all large clients now require it. Even if you are a very niche specialty broker you have got to have that global capability,” he added.
Adams said that as long as a broker can access major insurance markets, the carriers can take care of the global program.
“We have offices across the globe, and buy insurance on a global basis through our corporate risk management program. What is important is to have a global insurance carrier that can address those needs, and a broker that can access the resources of that carrier,” he said.
“I don’t find it limiting to use a specialty broker with only two or three offices because they deal with the likes of Lloyd’s, ACE and AIG, who have boots on the ground all around the world. One call to the local broker means we can access those boots on the ground pretty much any place we have a need.”
Global brokers are, however, more likely to be able to access increasingly popular alternative risk transfer channels such as insurance-linked securities (ILS), as well as being able to offer far superior analytics than small independents.
According to Turk, “data analysis and insight is increasingly driving how insurance is procured and how companies assess their risk.”
Adams, however, said that there are still pockets of industry for which data is not yet a necessity.
He also said that while consolidation is rife among specialty brokers right now, it’s nothing new.
“I’ve been in the industry 44 years and I’ve seen expansion and contraction a number of times during my career. Every time there is a consolidation and the big brokers gobble up the specialty brokers, it’s not long before you see people peeling off and starting again, and the cycle starts over.”
For now, according to Herman, specialty M&A is set to continue.
“All the ingredients that made for an active M&A market in 2014 are still there and I don’t see why it would slow,” she said.
“The opportunities are still there and there are so many brokers that are ripe for being acquired.”
This could mean less choice for insurance buyers in an increasingly commoditized market. For those whose glasses are half full, the trend may mean specialty expertise is available to a wider audience.
Detention Risks Grow for Traveling Employees
It used to be that most kidnapping events were driven by economic motives. The bad guys kidnapped corporate employees and then demanded a ransom.
These situations are always very dangerous and serious. But the bad guys’ profit motive helps ensure the safety of their hostages in order to collect a ransom.
Recently, an even more dangerous trend has emerged. Governments, insurgents and terrorist organizations are abducting employees not to make money, but to gain notoriety or for political reasons.
Without a ransom demand, an involuntarily confined person is referred to as ‘detained.’ Each detention event requires a specialized approach to try and negotiate the safe return of the hostage, depending on the ideology or motivation of the abductors.
And the risk is not just faced by global corporations but by companies of all sizes.
“The world is changing. We see many more occasions where governments are getting involved in detentions and insurgent/terrorist groups are growing in size and scope. It’s the right time for a discussion about detention risks.”
— Tom Dunlap, Assistant Vice President, Liberty International Underwriters (LIU)
“Practically any company with employees traveling abroad or operations overseas can be a target for a detention risk,” said Tom Dunlap, assistant vice president at Liberty International Underwriters (LIU). “Whether you are setting up a foreign operation, sourcing raw materials or equipment overseas, or trying to establish an overseas sales contract, people are traveling everywhere today for so many reasons.”
Emerging Threats Driven By New Groups Using New Tools
Many of the groups who pose the most dangerous detention threats are well versed in how to use the Internet and social media for PR, recruiting and communication. ISIS, for example, generates worldwide publicity with their gruesome videos that are distributed through multiple electronic channels.
Bad guys leverage their digital skills to identify companies and their employees who conduct business overseas. Corporate websites and personal social media often provide enough information to target employees who are working abroad.
And if executives are too well protected to abduct, these tools can also be used to identify and target family members who may be less well protected.
The explosion of new groups who pose the most dangerous risks are generally classified into three categories:
Insurgents – Detentions by these groups are most often intended to keep a government or humanitarian group from delivering services or aid to certain populations, usually in a specific territory, for political reasons. They also take hostages to make a political statement and, on occasion, will ask for a ransom.
In other cases, insurgent groups detain aid workers in order to provide the aid themselves (to win over locals to their cause). They also attempt prisoner swaps by offering to trade their hostages for prisoners held by the government.
The most dangerous groups include FARC (Colombia), ISIS (Syria and Iraq), Boko Haram (Nigeria), Taliban (Pakistan and Afghanistan) and Al Shabab (Somalia).
Governments – Often use detention as a way to hide illegal or suspect activities. In Iran, an American woman was working with Iranian professors to organize a cultural exchange program for Iranian students. Without notice, she was arrested and accused of subversion to overthrow the government. In a separate incident, a journalist was thrown in jail for not presenting proper credentials when he entered the country.
“Government allegations against detainees vary but in most cases are unfounded or untrue,” said Dunlap. “Often these detentions are attempts to prevent the monitoring of elections or conducting inspections.”
Even local city and town governments present an increased detention risk. In one recent case, a local manager of a foreign company was arrested in order to try and force a favorable settlement in a commercial dispute.
Ideology-driven terrorists – Extremist groups such as Boko Haram and ISIS are grabbing most of today’s headlines with their public displays of ultra-violence and unwillingness to compromise. The threat from these groups is particularly dangerous because their motives are based on pure ideology and, at the same time, they seek media exposure as a recruiting tool.
These groups don’t care who they abduct — journalist, aid worker, student or private employee – they just need hostages.
“The main idea here is to shock people and show how governments and businesses are powerless to protect their citizens and employees,” observed Dunlap.
Mitigating the Risks
Even if no ransom demands are made, an LIU kidnap and ransom policy will deliver benefits to employers and their employees encountering a detention scenario.
For instance, the policy provides a hostage’s family with salary continuation for the duration of their captivity. For a family who’s already dealing with the terror of abduction, ensuring financial stability is an important benefit.
In addition, coverage provides for security for the family if they, too, may be at risk. It also pays for travel and accommodations if the family, employees or consultants need to travel to the detention location. Then there are potential medical and psychological care costs for the employee when they are released as well as litigation defense costs for the company.
LIU coverage also includes expert consultant and response services from red24, a leading global crisis management assistance firm. Even without a ransom negotiation to manage, the services of expert consultants are vital.
“We have witnessed a marked increase in wrongful detentions involving the business traveler. In some regions of the world wrongful detentions are referred to as “business kidnappings.” The victim is often held against their will because of a business dispute. Assisting a client who falls victim to such a scheme requires an experienced crisis management consultant,” said Jack Cloonan, head of special risks for red24.
Without coverage, the fees for experienced consultants can run as high as $3,000 per day.
Given the growing threat, it is more important than ever to be well versed about the country your company is working in. Threats vary by region and country. For example, in some locales safety dictates to always call for a cab instead of hailing one off the street. And in other countries it is never safe to use public transportation.
LIU’s coverage includes thorough pre-travel services, which are free of charge. As part of that effort, LIU makes its crisis consultants available to collaborate with insureds on potential exposures ahead of time.
Every insured employee traveling or working overseas can access vital information from the red24 website. The site contains information on individual countries or regions and what a traveler needs to know in terms of security/safety threats, documents to help avoid detention, and even medical information about risks such as pandemics, etc.
“Anyone who is a risk manager, security director, CFO or an HR leader has to think about the detention issue when they are about to send people abroad or establish operations overseas,” Dunlap said. “The world is changing. We see many more occasions where governments are getting involved in detentions and insurgent/terrorist groups are growing in size and scope. It’s the right time for a discussion about detention risks.”
For more information about the benefits LIU kidnap and ransom policies offer, please visit the website or contact your broker.
Liberty International Underwriters is the marketing name for the broker-distributed specialty lines business operations of Liberty Mutual Insurance. Certain coverage may be provided by a surplus lines insurer. Surplus lines insurers do not generally participate in state guaranty funds and insureds are therefore not protected by such funds. This literature is a summary only and does not include all terms, conditions, or exclusions of the coverage described. Please refer to the actual policy issued for complete details of coverage and exclusions.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Liberty International Underwriters. The editorial staff of Risk & Insurance had no role in its preparation.