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