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Oh, how buyers ought to love their insurance brokerage oligarchs. For now and in the future, may this small, elite group of brokers reign forever, whether they're known as Marsh, Aon, Willis and Gallagher, or even perhaps one of their as-yet-unnamed successors.

The four titans who control about 70 percent of the commercial insurance business are good for insurance buyers, believe me. These four companies are best positioned to cover complex, intricate risks. Only they are capable of delivering the scale and breadth of coverages commercial buyers need.

When times are good and oil prices are high, this global giant pulls in billions in profits per quarter. But when the drilling gets tough, the quarterly write-off is often larger than the GNP of most countries.

A Fortune 5 giant the size of an ExxonMobil needs a broker who can handle the complexities of policies, across all of a big client's business lines. Middling brokerage outfits aren't going to cut it in this league. Big-time companies need big-time brokers, and that's all there is to it.

Buyers find value with Marsh, Aon, Willis and Gallagher, as a number of products and services can be bundled at an attractive price. Their reach into overseas markets is unmatched. Their ability to draw upon other resources to spread a client's risk is unparalleled. They are most likely to be the ones who know people, who know people, who know people, who can best fill a need.

Spare me the arguments about price-fixing and collusion, and the high-pitched whines of politically ambitious attorneys general.

Buyers who don't care for the unsavory business practices of some are welcome to jump ship and join another broker. There are plenty of options for disgruntled risk managers.

Making the switch between Marsh and Willis, Aon and Gallagher happens all the time. It's practically become a weekly game of musical chairs. Buyers tired of the Big Four have other options still. Integro, HRH and Beecher Carlson pop into mind.

And don't forget that buyers are loyal to individual brokers, not necessarily the brokerage firm. Who cares if just four firms control 70 percent of the market? The key issue with the commercial insurance brokerage market is the integrity of the broker-client relationship.

And the Big Four breed great brokers. These four stalwarts are the wellspring from which new brokerages, large and small, are born. For the Big Four, we have much to be thankful for.

The brokerage giants exact control on the brokerage market. They take in inexperienced graduates and produce talented, ambitious brokers who mature into seasoned professionals.

The Big Four act as a filter for the industry, retaining high standards while letting go those who don't measure up. The oligarchs form an exclusive club, organizations that stand by their brand, their tradition and reputation.

These bigs form the insurance distribution's Ivy League--an oligarchy if there ever was one--of commercial insurance distribution. And that, of course, can only be good for buyers, whether they intend to do business with the Big Four or not.

"Who says organization, says oligarchy," wrote German sociologist Robert Michels in a treatise called Iron Law of Oligarchies. Commercial insurance distribution is no exception to this "iron law."

So what? More power to them.

ERIN FOGG is associate editor of Risk and Insurance®.

April 1, 2007

Copyright 2007© LRP Publications