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Channel Check by Kevin Amrhein Consolidation Squeeze

Retailers are concerned about effects of wholesaler consolidations on their access to markets.

By  Kevin Amrhein

Journalism consists of three steps: (1) ear to grapevine; (2) question; (3) write. Sometimes it’s that simple. Other times our line of questioning uncovers a greater concern, an angle not anticipated until introduced by more than one source. A pattern forms, and a new story follows. Here’s what I mean: After hearing (step one) brokers are consolidating their business to fewer and fewer wholesalers at an alarming rate, the plan seemed simple—contact brokers, ask the question (step two) and report the answers (step three). But in this case, the asking produced an unexpected result—at least from the vantage point of two Council members whose answers forced a shift in the dynamic of this report. It appeared my line of questioning involving “consolidation” had unearthed a different concern but one certainly worthy of this column’s ink. Specifically, brokers seem more concerned with what’s happening to their wholesaler partners.

“In our experience recently, it could be said that our wholesalers are consolidating faster than retail,” says Albert “Skip” Counselman, chairman and CEO of RCM&D, based in Baltimore. Currently, he says, about 20% of his firm’s business is placed through wholesalers.

Such changes often have an adverse effect on the relationship a retailer has with a wholesaler. Counselman’s concern is that consolidation among his firm’s distributors may cause detrimental changes to products as well as personnel.

“Any merger is disruptive to a retail agent; although, sometimes it is seamless if the people remain in place through the account renewal period and if the program remains intact.”

Unfortunately, he says, this isn’t always the case; nor is it the only concern. In some cases, other retail brokers are party to the consolidation. Once finalized, retailers that continue to feed that distributor are now feeding a direct competitor. “For an independent like ourselves, we are particular about whom we do business with, and we also don’t wish to make placements through a direct competitor if there is a reasonable alternative.”

John Pollock agrees that increasing consolidation among wholesalers is a concern. Pollock is president of Oswald, Trippe and Co. based out of Fort Myers, Fla. He estimates that 15% of agency business is placed through wholesalers.

“In 2009, we’ve seen more consolidation on the wholesaler side. In a way, many of them are forcing consolidation on us.”

His choice of words is descriptive of the frustration he says occurs when changes within the organization of a wholesale distributor are so significant that it feels like a new relationship must be formed—a process Pollock says involves a bit of soul-searching. Tedious paperwork, time spent on contracts, E&O concerns and other elements cause Pollock to contemplate aloud: “We have to ask ourselves: Will this relationship be beneficial to all concerned?”

Pollock’s greatest fear is that consolidation among his firm’s wholesale brokers will displace those individuals with whom his agency has spent years developing a relationship. These relationships exist primarily between his agency and individual broker/underwriters, rather than with an entire wholesale organization. Many such relationships are so dedicated that when that person moves, the agency will move with them. “Wherever they go, that’s where we will go,” he says. Right now, Pollock says his agency has enough volume with its wholesalers that most provide a dedicated broker. But when consolidation happens, brokers’ roles get changed and he starts to worry. “Perhaps they are moved to another territory or they go somewhere else. That could adversely affect us.”

Counselman agrees. “We see it in London more so than anywhere else. Firms and groups are leaving one house and going to another. That expertise moves around, but it doesn’t always leave the market. If we have to, we try to move where the expertise moves.”

Both agree that the main reason wholesalers are essential to their agency business models is access to a market the agent can’t get to directly. Pollock says that, while it’s true some wholesalers sell on volume as it relates to better terms with a carrier the retailer may represent directly, that feature likely appeals to smaller agents. “For mid-sized and larger brokers who do considerable volume with standard admitted carriers, wholesalers are much more about providing a market we don’t have access to.” While he acknowledges that consolidation may open doors to new market opportunities, it’s difficult to remain positive amidst the adversity that looms with the inevitable changes in relationships.

Is there evidence to support what I’ve been hearing about brokers consolidating their wholesaler selection at an alarming rate? Sure. But to those brokers concerned that rampant, escalating consolidation on the wholesale distribution side will have an adverse impact on current and future placements—that’s a story for another day.

Amrhein is wholesale editor.
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