Finding the True Disconnect (Updated)

In the eyes of risk managers, there is a distinction between privately held and publicly traded commercial insurance brokers.

By CYRIL TUOHY, managing editor, Risk & Insurance^®

A recent survey conducted by Greenwich Associates on the "disconnect" between risk managers and their insurance brokers reveals a more subtle split among the commercial insurance brokerage community in the eyes of risk managers.

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Risk managers, it appears, hold privately-held commercial insurance brokers in slightly higher esteem than the larger publicly-traded brokers, the Greenwich survey finds.

While economic pressure, in part due to softening property/casualty rates, may be to blame for the disconnect between risk managers and brokers, it is also true that service suffers when brokers concentrate too heavily on "quick 'wins' and the associated revenues," at the expense of service Greenwich Associate consultant David Fox said.

Preserving profitability, particularly at a time of softer prices and thinner margins, is forcing some brokers to cut back from as many areas as they can: claims, loss control, and actuarial support, said Peter F. Garvey, president and CEO of Integro Insurance Brokers, in a separate interview with Risk & Insurance^® July 7.

The 2010 Large Corporate Insurance Survey, found that of the nation's top 10 commercial brokers, Beecher Carlson Insurance Services, Integro Insurance Brokers, Hays Group Inc., and Lockton Cos. Ins. -- all privately held -- scored relatively well in the favorability ratings.

Privately-held brokers, according to one top executive with Beecher Carlson, do indeed offer clients a different experience ? which is reflected in the responses of risk managers in the Greenwich survey.

"We set out to provide our clients with a different experience; hence they receive something different by design," said Beecher Carlson President Steve Denton, in a statement to Risk & Insurance^®. "For example, we are focused on the total cost of risk, not just the premium aspects of the transaction."

Of that group of privately held brokers, only Lockton stands as an outlier, with a relatively high overall awareness rating as well -- in the vicinity of 30 percent -- in the minds of risk managers, the survey found.

Whether a broker is privately held or publicly traded, or even whether a "disconnect" between risk managers and their brokers exists in reality, John Lumelleau, president and CEO of Lockton, agreed the Greenwich survey "identifies issues that resonate with Lockton's clients."

"For risk managers in large firms, service means delivering expertise on risk management and business, not just transactional support," he said, in an e-mailed response.

Clients, he added, are best served when all the parties involved -- the risk manager, underwriters and the broker -- are on the same page."The power of three trumps the power of two," he said.

In the Public Eye

Publicly-traded brokers, however, are likely to score higher than their privately-held competition on the awareness scale in the minds of risk managers, the survey also found.

Of the nation's top 10 commercial brokers, risk managers are most likely to be aware of Marsh & McLennan and Aon Corp. Marsh and Aon, who run neck and neck, have an awareness rating of more than 80 percent, according to the survey.

Risk managers are next most likely to be aware of Willis Group Holdings, followed by Arthur J. Gallagher & Co. Wells Fargo Insurance Services and BB&T Insurance Services are next, and score equally in terms of awareness, the survey found.

MMC, Aon, Willis, AJG, Wells Fargo Insurance Services, and BB&T Insurance Services are all either publicly traded or belong to a publicly-traded parent company.

Among the publicly traded commercial brokers, only BB&T stands as an outlier, with a relatively high excellent favorability rating of more than 30 percent, the survey found.

Arthur J. Gallagher, a publicly-traded broker with a particular strength in the middle market and dozens of acquisitions over the past two years, said that for AJG, service continues to be paramount.

"Providing exceptional client service is our No. 1 commitment," said AJG, in an e-mail statement.

New business growth continues to be strong and retention rates over the past two years have hovered in the 90-percent range or higher, AJG added.

"Going forward, Gallagher continues to place client satisfaction as our top priority," said AJG, noting its high rankings in client satisfaction rates in prior Greenwich Associates surveys.

Despite what risk managers may have revealed to Greenwich about how they feel regarding privately-held or publicly-traded brokers, commercial insurance brokers always have an opportunity to distinguish themselves through service, said Will Thoretz, a spokesman for Willis Group.

"That's why we work hard every day to know our clients and their industries better than anyone else, find the best markets and solutions for their risks, provide proactive advice, analysis and service, and fight to get claims paid quickly ? and do it all with integrity," he said. "Our refusal to accept contingent commissions for retail brokerage is another point of differentiation. We've won clients and retained business because we operate in a contingent-free zone."

"Considering we're the only major broker to show positive organic growth last year, our efforts must be resonating with clients," Thoretz added.

Survey results were gleaned from interviews with risk managers at 683 companies with annual revenues of at least $500 million from October to December 2009.

July 15, 2010

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