By KATIE KUEHNER-HEBERT, a freelance writer based in San Diego with more than two decades of journalism experience and expertise in financial writing
Atlanta, Houston, Philadelphia, Boston and Los Angeles now support sizable clusters of commercial insurance brokerage firms, fueled both by particular industry sectors within those markets as well as a growing diversity within their respective economies.
Atlanta's brokerage cluster has grown in response to the region being "the business hub of the Southeast," said Lee Stevenson, Southeast partnership leader for Marsh Inc. and head of its Atlanta office. There are 14 Fortune 500 companies headquartered in the state with numerous others in surrounding states, and the region also has a robust middle market.
"A lot of companies have their corporate headquarters here because of the climate and business-friendly environment," Stevenson said. "Many C-suite executives are here, which are the decision-makers from an insurance standpoint. Also, the major carriers have regional underwriting offices in Atlanta, so it's natural place for brokers."
Atlanta's brokerage firms--as well as its carriers--have access to "significant insurance talent," many of whom have degrees from the University of Georgia, which has one of the top risk management and insurance programs in the country, Stevenson said.
"In our office alone, almost a quarter of the staff are graduates of that program," he said.
Houston's energy sector has attracted both insurance carriers and brokerage firms to that region, but the region's economy also continues to grow more diverse, said Richard M. Blades, Richard M. Blades, vice chairman and managing director at John L. Wortham & Son in Houston.
"More kinds of companies have been moving to Houston because of the business climate, very reasonable cost of living and cost of housing," Blades said.
Houston might actually have become an "overbrokered" market.
"There are substantial numbers of brokers in the city because energy is a growth area and it attracts a lot of brokers," he said.
Philadelphia, on the other hand, is a "well-balanced" insurance brokerage marketplace because of its diverse economy, said Kenneth Ewell, executive vice president at The Graham Co.
The region had been a pretty good-sized manufacturing center at one point, Ewell said, but that has been replaced by service sectors, including a cluster of more than 40 universities and colleges--some with nationally recognized teaching hospitals--as well as firms in technology, pharmaceuticals and construction--not to mention the gaming industry 50 miles away in Atlantic City, N.J.
"Philadelphia has a very diverse economy, and a lot of need for sophisticated brokerage services," Ewell said. "I would say we're not overbrokered, but we're definitely not underbrokered. It's a great place to differentiate yourself."
Boston provides a rich environment for brokers because of a half-dozen industry clusters within the region--including life sciences, biotechnology, telecommunications, a large concentration of universities including Harvard University and the Massachusetts Institute of Technology, healthcare that includes teaching hospitals and many acute-care facilities run by various associated doctor networks, and finance.
"The local Fed officials call Boston one of the major stops in the worldwide flow of capital," said Kirk Metcalf, managing partner of Willis of Massachusetts. "There are a lot of asset management firms, venture capital firms and hedge funds in Boston."
Willis' predecessor firm had been in Boston since 1972, Metcalf said.
"They were very politically connected, which is very important in local politics. It's much easier to get referrals and doors opened if you throw the right names around," he admitted. "At that time, there were a couple of big companies with a presence here, but the brokerage market really expanded in the go-go 1980s and 1990s."
Now, all of the Big Three brokerage firms--Willis, Marsh and Aon--have offices in Boston, each with hundreds of brokers working with businesses in Massachusetts and throughout New England. Moreover, there are a fair number of regional agencies that are competitive in certain industry segments.
"It's a pretty saturated town," Metcalf said, though he wouldn't go as far as to say that Boston was an overbrokered market. Industry consolidation comes mainly from producers and principals of struggling firms joining other firms, and "so the struggling firm closes shop or just limps along."
"Also, a fair amount of smaller agencies are being bought by banks who have insurance operations, but they are still trying to call on our clients," he said. "Their business doesn't change that much, other than having a banking platform versus an individual agent platform."
Kris Davis, Marsh's managing director and Southwest partnership leader, is responsible for the firm's offices in Los Angeles, Newport Beach, San Diego, Phoenix and Las Vegas. By far, Los Angeles stands out as one of the firm's "most significant offices" for commercial brokerage opportunities, Davis said.
"It is clearly a hot spot," he said. "Chicago and New York are definitely insurance centers because they are also financial centers, but L.A. continues to grow."
The region has actually transitioned into a major middle-market economy, as more than dozen Fortune 500 companies once headquartered in Los Angeles have since left, either through relocation or via acquisitions by firms outside the region, according to Davis.
"What makes the market very attractive now for middle market companies is the support and the infrastructure that has been here for years for the large corporate firms," he said. Not only does the region have major ports, airports, railroads and highways, but there are a host of professional service firms, such as attorneys, accountants and consultants, with expertise in serving particular industries.
"For brokers, it is an extremely target-rich environment and growing," Davis said.
While Los Angeles may not yet be overbrokered because of the breath of opportunity that still exists within the region, the brokerage industry there is nevertheless "too fragmented," Davis said.
"There are a lot of small to midsized brokers, and it wouldn't surprise me if there was more consolidation in the industry here," he said.
Does that mean Marsh may be a buyer there? Perhaps, he said, as it has been an "agency strategy" in other parts of the country.
February 17, 2011
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