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By CYRIL TUOHY, managing editor of Risk & Insurance®

Wham, bang, slam, bang ... down go the wholesalers as some big U.S. retail brokerage houses take a hatchet to their lineup of wholesale brokers.

Chicago-based Aon Corp. earlier this month announced it was using just two wholesale brokers, Charlotte, N.C.-based AmWINS Group Inc., and R-T Specialty, the wholesale unit of Chicago-based Ryan Specialty Group. In the past, Aon has traditionally relied on hundreds of wholesalers.

"There are some economics (at work) there," said Glenn Spencer, chief operating officer of the Kansas City, Mo.-based insurance and benefits broker Lockton Inc. "It's important that all business partners maintain high standards for us and our clients."

Wells Fargo Insurance Services Inc. earlier this year lopped off 10 wholesalers from its list, and now does business with about 20 wholesalers.

In the past two years, Itasca, Ill.-based Arthur J. Gallagher & Co. has trimmed its most-favored-wholesaler list to about 20 from 80 wholesalers with whom it does business as the old system "reeked of inefficiency," said Craig M. Van der Voort, vice president - market relations for Arthur J. Gallagher Brokerage & Risk Management Services.

"We need firms that are going to stand behind us," he said.

Van der Voort also said since the implementation of the new wholesale broker strategy, the number of complaints from insureds looking for help from their carriers with policy or claims issues has dwindled.

"We've seen very few problems with regard to placement and claims matters," he said. "The improved service standards are a win-win for the client and us."

Marsh and Willis do not appear to be making major changes for now to their wholesaler broker lineup, according to senior managers quoted in media reports, and industry analysts have questioned the wisdom of relying on only a handful of wholesalers. "Marsh's wholesale strategy is to evaluate the best market options for all clients," said a Marsh spokeswoman, in an emailed statement.

The activity related to the wholesale brokerage business is no accident. Wholesalers operate in a highly fractured segment of the distribution chain and the past two years have seen consolidations among wholesalers large and small because of the soft market and dwindling excess and surplus lines premium volume.

Last June, Swett & Crawford Group Inc. merged with Cooper Gay Holdings Ltd to form Cooper Gay Swett & Crawford Ltd.

In another big deal, this one taking place last April, Charlotte, N.C.-based AmWINS Group Inc. merged with Dallas-based Colemont Insurance Brokers. The resulting company will do about $4.8 billion in business annually on behalf of individual retail insurance brokers who need the company's service in placing excess and surplus lines business in London and Bermuda.

In February 2010 founder and former chairman and CEO of Aon Corp. Patrick Ryan launched Ryan Specialty Group LLC, whose wholesale brokerage unit R-T Specialty LLC is one of two wholesalers chosen by Aon.

In choosing R-T Specialty LLC, Aon dropped Cooper Gay Swett & Crawford, though Cooper said it expected the change.

"When Cooper Gay completed the deal with Swett & Crawford in July 2010 we did not expect the existing relationship with AON to continue for the long term and we factored this into our strategy," said Toby Esser, group chief executive of Cooper Gay Swett & Crawford, in a statement emailed to Risk & Insurance®.

"We expect to continue to place some of the business that is currently transacted with Swett & Crawford because some elements of the portfolio are in facilities and others are under the close direction of risk managers."

He also called the reduction in Aon's wholesale business "manageable."

Soft pricing means insureds are less likely to rely on the excess and surplus marketplace, traditionally the bread and butter of the wholesale distribution channel, Van der Voort said.

Premium volume in the excess and surplus lines marketplace declined by more than 15 percent to $32.3 billion in 2009 from $38.2 billion in 2007.

"There are thousands of wholesalers and most of them are less than 10 employees," Spencer said. "It's highly fractured and it's been consolidating and in the wholesale business the softer the insurance market the more difficult the wholesale business is."

Some industry analysts said cutting down a wholesale list to a handful isn't advisable, but Aon has said that other wholesalers would be used if AmWINS and R-T Specialty can't provide the services sought by Aon's clients.

July 25, 2011

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