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Two decades ago, in the midst of the toughest part of the insurance cycle, Marsh turned to Bob Clements for a solution. Major risks were finding it difficult, even impossible, to get coverage at any price. Marsh and Clements realized that to provide the coverage that large clients urgently required, Marsh needed to get into the business of creating new underwriting capacity. Initially, this was a client service strategy. Marsh recruited the needed capital and the management necessary to start insurance operations. This initial effort led to the formation of ACE and XL.

After running Marsh's brokerage operations for the best part of 10 years and briefly serving as president of its holding company, Clements turned to full-time investment activity as the founder and CEO of MMC Capital and began a series of exceptionally successful insurance investments. In 2000, he left to become chairman of what is now Arch Capital.

Why did you decide to start Integro from scratch rather than acquire other firms and roll them up?

Our interest in the brokerage business is only in that area where three firms (Marsh, Aon and Willis) hold a 95 percent share of the market. This part of the market is unusual in that the players are more analogous to investment bankers than to commercial insurance brokers. Both serve the same kind of customers. For brokers, the customer is a full-time insurance person, often with a large department of insurance-oriented people. For the investment banker, his customer is the treasurer or the CFO who is also, full time, in the banker's business.

With the very largest customers, there is a different set of wants and needs. In both cases the insurance needs of the customer are too big to be covered by a sole provider. The insurance broker syndicates the catastrophe risk of his clients. The clients are often bigger than the providers. No one provider can insure these clients. These clients need brokers that have special skills.

What happened that made the market attractive now?

There was a thirst for additional choice.

This market cannot be well served by the presence of only three competitors. It was underserved, not only in the minds of the customer--the insurance buyers--but also in the minds of the insurance companies themselves.

At the end of the day, a broker is not just a fiduciary, he is also a distributor. He's basically the distribution channel for the insurance he delivers to his clients. The fact is the insurance companies that provide capacity for this market have been distressed about having only three distributors.

It didn't make sense for us to use our capital to acquire a commercial broker and attempt to convert it into the fourth competitor. The only option that makes sense is to start the business from scratch. However, if you start up this kind of a business, you will have to wait for the return. It's not like starting an insurance company in the aftermath of Sept. 11. Nevertheless, the return should justify the wait, and it is for this reason that we took a large amount of capital and recruited experienced investors with a particular knowledge of the insurance industry.

You want to minimize the risk, and to do that you want to be sure that the opportunity really makes sense. You want to make sure there was a demand, not only from the users of insurance, but from the providers, and that they will trust you. You also need to look at whether there is a likelihood that you can do this without creating a ruinous price war on salaries--a cost war--and then that you would have a chance to attract outstanding people, and, of course, clients.

Can you do that?

What helped me go forward was the realization that success was a likely possibility. Our analysis may not be right, but it is my impression that we can do that.

What role did the Spitzer investigation play?

Interestingly enough, and this was certainly true of Marsh, and I suspect it was of all of them, the details of these contingency-fee agreements were not common knowledge within the company. The people that dealt with the client were very often unaware.

Even some of the people who placed the business with insurance companies were unaware. I can tell you for sure that there were many, many, many disillusioned brokers who felt that not only had their clients been betrayed, but that they had been deceived also by the management policy of the company. They honestly had not known that the company was benefiting at the back end in a way that abused the client relationship.

So, there was a situation in the market where the buyers felt they had inadequate choice, the underwriters felt they had inadequate distribution facilities and the brokers themselves were restless. They didn't know what to do about it. You didn't know if you were in the fire or in the frying pan. You just didn't know what was going to happen. Was this going to go away, or what would happen?

You've had a vastly successfully career. Why this now?

Let me tell you that I did not need to do this. I certainly don't need the money. I have found in the last few years, in fact, that giving away money is much more satisfying than making it. I had a wonderful job with a wonderful insurance company (Arch), and I had some spare time in which to gratify myself by making commitments of time and money to worthwhile and important causes.

Why did you decide to give that up?

I thought it was a situation that cried out for some kind of response.

The other thing was the availability of Pete Garvey and Roger Egan. I've known them both for 25 years. To my way of thinking, they are the two best executives within the entire brokerage community. These are really good people, dedicated people trying to make the business as good as it can be.

What value will Integro bring to its clients?

What we have said in public statements is that we intend to remain exclusively providers of professional services related to large and/or complex risks. The management of our company is in the hands of professional brokers. We think this is by far the most appropriate platform for any provider of professional client services. We have obtained, in a real sense, control of our own destiny to the benefit of our clients, as well as insurance companies and our employees.

This is a company where really talented and really committed brokers and their clients will be comfortable, where they will have a sense that there's a degree of permanence to that company. Most will also be owners. Those are the main things. We're totally focused on the main business that we do.

Certainly, we believe it's a good investment, but we think it makes for a great place to work and a great place to do business.

August 1, 2005

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