By Dave Lenckus
A half-trillion-dollar industry doesn't immediately conjure images of family-run businesses. But insurance agencies and brokerages run by the same families for generations are entrusted with placing a share of the $470 billion spent domestically on commercial property/casualty coverage annually.
Some of those intermediaries survived the Great Depression. One opened its doors before the typewriter and aspirin were invented in the late 19th century.
Despite how long those intermediaries have been around, some executives running them today weren't sure as young adults if they'd even go into the business.
And while one family-run intermediary recently sold out to a large publicly-owned brokerage, several observers believe there's a place in the insurance industry for family-run intermediaries.
Dubuque, Iowa-based Cottingham & Butler, which operates in 47 states, traces its beginnings to Dixon Cottingham, who emigrated to the United States from England at the age of 13 after having labored in lead mines. He became a farmer in America, but in 1887, Cottingham was in his mid-40s and financially secure enough to retire from farming. The great-grandfather of John E. Butler, the brokerage's current chairman and chief executive officer, began his insurance career as a personal lines agent. Cottingham, also a Methodist deacon, largely serviced his friends' and acquaintances' insurance needs.
Cottingham was a one-man operation until his son John joined him after the turn of the century.
Ellis Butler, John Butler's father, joined the practice in 1931, two years after marrying John Cottingham's daughter. By the time the younger Butler -- a freshly discharged naval officer with a master's degree in insurance -- joined the two-person practice in 1957, his father had largely refocused it on commercial insurance.
Chairman John E. Butler said he was reared to go into the insurance business. "That was almost preordained," said Butler, who turns 81 in March. "You come into the business and put some bricks in the wall."
During his first couple years there, however, Butler felt a little "brainwashed," he said. "Then, I decided I liked (the business)."
Though committed to it, Butler presented the agency as an option to his children -- not an obligation. "I didn't want to brainwash anybody." Plus, "I wanted to have a meritocracy rather than a pure family business."
Butler's daughter is not in the business. His son, Andrew, was a producer at the agency for a decade and now runs his own agency, "a friendly competitor," in the Quad Cities area, Butler said. A nephew, however, is a "very successful producer" at Cottingham & Butler, which now employs about 400 people in its Dubuque headquarters. The agency generated about $69 million in revenues in 2011.
The same year Ellis Butler married into the Cottingham family, new University of Kansas graduate Albert E. Haas opened a personal lines agency 300 miles away in Fairway, Kan. A decade later, in 1939, University of Missouri graduate William Ralph Wilkerson Jr. joined the agency, which became known as Haas & Wilkerson Insurance.
Wilkerson's son and namesake joined the agency in 1969.
The third generation of Wilkersons, William Ralph Wilkerson IV, known as Ryan, took a position in the agency in 1999. In 2004, the then 28-year-old Wilkerson succeeded his late father, by then the agency's sole owner, as president and CEO. The agency now has 100 employees who generate about $13.2 million in revenue annually, nearly all from commercial lines business.
As a child, Wilkerson sometimes accompanied his father on client visits. Especially "fun and exciting" were the excursions to conventions for operators of fairs, carnivals and amusement parks, a long-time niche for the agency.
But, Wilkerson said, his father did not pressure him to join the business, and the younger Wilkerson didn't select it immediately either. "I had no idea this is what I would do until after college," said Wilkerson, who worked largely in a menial clerical capacity at the business a while on summer break from high school and as a college intern.
In 1999, a year after graduating college and contemplating other business and educational alternatives, he joined the practice. He obtained an agent's license immediately but began as a customer-service representative while learning the business by assisting an experienced producer.
Wilkerson's two children are only 2 and 4, so he has "no idea" yet how he will approach them about careers in insurance. "If we're still in business and they approached me, it would be a great thing."
If any publicly-owned enterprise can be considered a family affair, it's Itasca, Ill.-based Arthur J. Gallagher & Co., the world's fourth-largest insurance brokerage.
For 57 years before going public in 1984, Gallagher was an independent family business. The company, where the Gallagher family continues to hold top management and other positions, was founded by Arthur J. Gallagher in Chicago in 1927.
Years earlier, Gallagher returned from World War I to find that his pre-war employer, a German-owned insurer, had not survived. Gallagher, a bookkeeper, landed a similar position with Chicago's then-largest insurance brokerage.
But he realized that agents were among those with the largest incomes at the firm, so he moved into sales in the early 1920s.
In October 1927, he felt unhappy that he did not have the same deal as other agents, so he opened his own agency with a lone assistant.
Unlike some new, small agencies, Gallagher focused on commercial rather than personal lines business. In addition, he advised clients how they could cut insurance costs by reducing risk.
Nearly 20 years later, when Gallagher's three sons returned home from World War II, the two older sons joined the agency. The youngest son, John, initially went into advertising, but his brothers eventually persuaded him to join them.
John's son, J. Patrick Gallagher Jr., who has been president and CEO of the brokerage since the 1990s, said he realized as an adolescent that he was "hooked" on the family business.
It was 1966 -- he was 14 and in 8th grade. His father had created the brokerage's summer college internship program a year earlier. The younger Gallagher also had grown up hearing discussions about the business at the family dinner table and had worked around the office as a file boy and runner.
"I didn't know whether I'd be good at (selling insurance), but I liked the people," said Gallagher, who turns 60 in February.
During the summers of 1971 and 1972, he participated in the brokerage's internship program; he joined the company full time in 1974.
Gallagher noted that some siblings and cousins also are in the business, as are his three sons.
A few generations of other families also have worked at the company, which promotes "the feeling of family" as part of its culture of "benevolent nepotism," Gallagher said.
But, "we don't carry anybody," he stressed. "There have been some Gallaghers who've come and gone, and that's okay."
Those who remained earn their place in the organization, he said. "You won't outwork the Gallaghers. We may not be the smartest people in the room all the time, but you won't outwork us."
Today, the company generates $2 billion in annual revenues and has a market capitalization of about $3.6 billion.
The brokerage's growth over the past quarter-century has been fueled in large measure by its ambitious acquisition strategy. The Gleason Agency of Johnstown, Pa., where four generations of Gleasons have sold insurance, accepted an acquisition offer from A.J. Gallagher in 2010 after a 22-year courtship. The deal closed in early 2011.
In 1910, Gus Gleason -- the grandfather of the brothers currently running the agency -- began selling life insurance door to door in Dubois, Pa. A few years later, Gleason also began selling workers' compensation insurance for Pennsylvania Manufacturers' Assn. Casualty Insurance Co., the predecessor of an insurer that merged with Old Republic International Corp. in 2010.
PMA eventually transferred Gleason to Johnstown. While selling workers' comp coverage, he opened his own agency in 1924 to sell personal lines insurance.
Gleason's son, Robert, took over the agency in 1940. Robert's older son, Robert Jr., the agency's current chairman and CEO, joined in 1965. Robert Jr.'s younger brother, Christopher, joined in 1969 and now is the agency's president.
Robert Gleason Jr. said his father never encouraged him to join the agency and that he didn't make a career decision until he finished his military service. He had completed college earlier, earning a degree in insurance, and had interned with an insurer one summer. But he had not worked at his family's agency before.
When Gleason joined the agency, he was its fifth employee, and annual revenues totaled $78,000. The agency now has 70 employees and generated about $12 million in revenue in 2011.
All four of his children and three of his brother's four children have come into the business.
"I did encourage my children to join," and they started out with summer jobs at the agency, he said. But a couple worked in other careers first, and a son who went into insurance early left the agency to run a former unit that A.J. Gallagher did not acquire.
Gleason, 73, said several factors prompted the decision to sell.
A major concern was finding the resources that would allow the agency to grow into a $25 million enterprise. A.J. Gallagher provides those "depth of resources," he said.
Another factor was that no one in the fourth generation of Gleasons was in management. "You have to be managers, not just sales people, which is tough, because it's the producers that make the money," he said.
Gleason said he and his brother still are healthy and producing business. "But there comes a time when our health may go south, and we probably didn't do as good a job grooming anyone to take our place."
While the sale will benefit the Gleason Agency tremendously, Gleason said there remains a vital role for independent family-run intermediaries.
"Absolutely," he said. "There are towns everywhere where the top 100 brokers and agencies can't do business" because those markets are too small for them to run efficient operations. "But there's still a need for good, sound insurance practices in every town in America."
Wilkerson said he recently completed a perpetuation plan to keep his agency independent. He said it has the resources, including state-of-the-art technology and improved talent-recruitment capabilities, to remain independent.
Butler, too, sees a continuing role for independent and family-owned intermediaries.
Plus, family-run practices have an intangible benefit over others in small towns, he said. "Several of our clients are family businesses. We have a kinship with them."
DAVE LENCKUS has covered the insurance industry for more than 20 years. He can be reached at email@example.com.
February 21, 2012
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