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By MATTHEW BRODSKY, senior editor/Web editor of Risk & Insurance®

There's hope that things will turn around in 2010, said Scott Hudson, the recently hired CEO and president of Gallagher Bassett Services Inc. But he added that he has no "crystal ball."

You could probably assume the same words would come out of the lips of an executive from any of the major insurance industry third-party administrators (TPAs).

The main trends that have made life more difficult for third-party claims administrators have not abated. Hudson told Risk & Insurance® in a phone interview earlier in March that his firm's client base has remained stable but their exposure units have continued to drop because those clients have fewer employees.

Another trend to continue is a positive one, yet one that affects a TPA's bottom lines. Clients' loss-control capabilities continue to improve, leading to fewer claims as well.

Well then, can't Gallagher Bassett make up the difference by selling clients loss-control services? Yes and no.

Demand for such services remains strong, reported Hudson, but the selling process is more demanding, in part because of clients' procurement processes and because of the tight economy.

"Client organizations have continued to become more sophisticated buyers of our services. They challenge us from a pricing standpoint," Hudson said.

FIREWALL PROTECTION

Still, despite the economic environment he finds himself in, Hudson feels very good about the chances of the award-winning TPA that he's joined.

When asked why Gallagher Bassett has been able to succeed and whether that's because the firm is a large subsidiary of a large insurance brokerage (Arthur J. Gallagher & Co. Inc.), Hudson didn't think so.

For him, the success at Gallagher Bassett is not a result of being a subsidiary.

"We make the right decision for the client no matter what," is how he put the secret of the TPA's success.

Of course, such an attitude is part of the "Gallagher Way" of doing business. Gallagher Bassett was started at AJG more than 50 years ago; it wasn't something "acquired along the way" and viewed as a distraction by the parent company, explained Hudson.

"So there is a healthy respect throughout the company for what it (Gallagher Bassett) does," he said.

Yet always remember, as anyone at either AJG or Gallagher Bassett would tell you, there is a "firewall" between the parent and the TPA.

"It really is this notion of we are viewed as an independent business and allowed to do what makes sense as it relates to our business and serving our clients," the TPA chief said.

In the past decade, according to industry insiders, many of the TPAs that were subsidiaries or joint ventures of large insurance brokerages or carriers have been weeded out of the marketplace.

Brokerage Aon divested itself of its stake in Cambridge, Marsh spun off Sedgwick CMS. Of the four largest brokerages out there (Willis being the other), AJG is the last with a TPA subsidiary.

On the carrier side, ESIS Inc. is part of Philadelphia-based ACE USA. Specialty Risk Services (SRS) is a subsidiary of The Hartford Financial Services Group. And Liberty Mutual is the parent company for Helmsman Management Services LLC.

April 1, 2010

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