Buying Spree Proves Marsh Is Serious about Targeting The Middle Market
By CYRIL TUOHY, managing editor of Risk & Insurance®
With the purchase last month of Virginia-based Thomas Rutherfoord Inc., an independent broker serving the Southeast and mid-Atlantic, Marsh has moved swiftly to establish itself in the small commercial and middle-market segments.
Marsh's appetite of late has been voracious. Rutherfoord has annual revenues of $81 million, more than 300 employees and 10 offices located from Philadelphia to the Gulf Coast region, according to a company statement.
Terms of the Rutherfoord deal, announced March 16, were not disclosed.
The Rutherfoord acquisition comes less than three months after Marsh & McLennan Agency announced the acquisition of The NIA Group LLC, along with its New York City office Kornreich-NIA, is one of the largest independent insurance agencies in the Northeast.
The Paramus, N.J.-based NIA Group, with annual revenues of $62 million and offices in New Jersey, New York, Connecticut, and Florida, has about 400 employees serving the property/casualty sector, employee benefits, and personal lines.
Marsh & McLennan Agency's NIA Group purchase came a little more than two months after its purchase in November 2009 of Insurance Alliance, one of the largest independent insurance agencies in Texas.
With annual revenue of $15 million and 72 employees, Houston-based Insurance Alliance serves more than 1,500 commercial clients in Texas and throughout the Southwest with specialist teams serving clients in construction, surety, energy and marine, professional services, general property and casualty, and employee benefits.
In a spate of progressively larger deals, Marsh's middle-market business, under the leadership of Marsh & McLennan Agency Chairman David L. Eslick, has exploded in just four months to cover a huge swath of the nation.
"The small and emerging growth sector represents one of the most dynamic growth opportunities for Marsh in the United States," said Eslick, former USI Brokerage president and CEO. "It's clear that Marsh and MMC have a strong commitment to establish Marsh & McLennan Agency as a leader in this marketplace."
Marsh, who hired Eslick in January 2009, clearly appears to be spoiling for a fight with archrival Aon Corp. over middle-market accounts. Midsize accounts, companies with $50 million to $750 million in annual revenue, can be highly lucrative and brokerage firms want to reach them in order to improve their profits.
At the same time, these accounts are also hard to reach because they require more attention than smaller accounts yet they don't need or want the scale of a large Fortune 1,000 client.
Providing the attention middle market clients believe they deserve has sometimes been tough for the largest brokers to build in-house. Hence the acquisitions.
Greg Case, president and CEO of Aon, noting that Aon was already well entrenched in the segment, welcomed Marsh's latest acquisitions in an attempt to grow in the segment.
A new GRIP analytics platform, is expected to give Aon's clients a boost in access to real-time data and market pricing, information that only the largest companies once had access to.
"Keep in mind that all our clients will take advantage of GRIP, and the midsize companies will get a lot of access that they otherwise would not have," he told Risk & Insurance® , in a March interview in Philadelphia.
Case noted that 80 percent of Aon's business either comes from middle-market or small commercial clients, and that Aon would continue to be innovative in that segment.
Aon, for example, is offering CFOs a three-year renewal program instead of the more common annual renewal program many CFOs traditionally deal with. The three-year cycle is designed to streamline and cut administrative costs.
The middle market offers big brokerage firms a wealth of opportunity because the market is more fractured, and not dominated by three or four global brokers.
The largest commercial insurance brokerage firms operating in the middle market each hold a market share of less than 5 percent, according to estimates by Greenwich Associates, the Connecticut-based market-research firm.
More than 75 percent of the middle-market accounts are handled by smaller, regional and local brokerage firms without access to the vast network that Marsh, Aon, Willis and Arthur J. Gallagher & Co., have in place in terms of expertise in industry sectors, insurance placement resources, and risk management consulting experience.
Greenwich defines the middle market as companies with sales of between $10 million and $500 million a year. About 20 percent of those accounts, maybe more, are up for grabs at any time, Greenwich notes.
As measured by premium volume, most carriers and brokers consider the middle market as companies with between $100,000 and $2.5 million in annual premium volume.
Lloyd's has also signaled its intent in taking the middle market seriously, appointing middle market veteran Hank Watkins last summer to lead the firm's North American operations, which accounted for as much as 44 percent of the firm business in 2007, up from 39 percent in 2006 and 37 percent in 2005.
'MID' THE NEW
Why all the new realignment among brokers to capture premium from the middle market, and why now?
For one, the changes in the economy and the new thinking about limiting the size of the nation's largest companies to prevent them from being too big to fail could herald a new age where midsize companies are the new big companies.
Breaking Citigroup into eight or 10 midsize banks, for example, from the global behemoth that it is now could easily alter the services and platforms brokers currently provide to Citigroup.
Some big insurance carriers, who previously hung on to their direct sales channel, have also begun to explore selling to the middle market through the broker channel. Liberty Mutual, for example, which more than a year ago created Liberty Mutual Middle Market in the wake of the acquisition of Wausau, now sells to middle market buyers exclusively through agents and brokers.
Given these changes in the carrier marketplace and a continuing soft pricing environment, the broker marketplace can expect to see more consolidation in 2010 as deep-pocketed brokers swoop in and buy smaller brokers at favorable prices.
May 1, 2010
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