The Greater Whole
Wholesale divisions of large brokers
boost revenues, aid in placements.
Wholesaler distributors play an important role in the
marketplace, providing access to excess and surplus lines
insurance for situations that demand it. Large brokers see
value in having a wholesale division that is distinct from
their retail operation.
You might say it fills a hole in their sales operation.
The wholesale division increases the revenue stream by
generating business from the broad universe of unaffiliated
agents and brokers. Hilb Rogal & Hobbs (HRH), the
world’s eighth largest insurance broker, obviously sees
the benefits of strong wholesale operations. The Richmond-based
firm has completed two purchases of wholesalers this year.
In May HRH bought Global Special Risks (GSR), a wholesale
broker that specializes in energy and non-marine property
fields. With offices in Houston and New Orleans, Global Special
Risks created product offerings for the London and North
Earlier in the year HRH purchased London-based Glencairn
Group Ltd. An independent Lloyd’s insurance and
reinsurance broker with $39 million in 2006 revenue, Glencairn
provides a range of wholesale and retail products and services
in a variety of areas.
HRH Chairman and CEO Martin (Mell) Vaughan III noted the
London connection in a statement announcing the acquisition of
Global Special Risks: “GSR’s extensive access to
both the London and U.S. markets will allow us to continue
building our excess and surplus capabilities in the larger
complex property and energy areas, as well as further assist
our entry into the Lloyds of London market.”
When it comes to deciding what to do with its wholesale
operations, says Tom Riley, a regional president at Brown &
Brown, there isn’t much of a decision to make. Brown
& Brown has been buying up wholesalers at a steady pace.
The largest company acquired by Brown & Brown in 2006 was
Delaware Valley Underwriting Agency, a Pennsylvania-based
excess and surplus lines wholesaler and public entity
specialist with locations in six mid-Atlantic and northeastern
states and about $21 million of revenue. Brown & Brown
added four other wholesalers last year: Axiom Re, Excess &
Surplus Lines Insurance Brokers, High Country Insurance
Managers, and Residential Underwriting Agency. Brown &
Brown’s largest wholesaler is Toronto-based Hull
Taken together, the wholesale division contributed $163.3
million or 18.6% of total company revenues to Brown &
Brown, up from $24 million in 2002. Not bad. And more than 80%
of that comes from unaffiliated agents and brokers.
That’s how you build a market.
Riley says that Brown & Brown and other large brokerage
firms maintain a distance between their retail and wholesale
sides. When the company’s retail agents need access to
the E&S market, they go to the wholesaler who can best
serve that particular client at that particular moment. In
other words, they compete against themselves. Sometimes they
win, sometimes not.
Tom Curtin is president and CEO of wholesale broker CRC,
based in Birmingham, Ala. Founded in 1982, CRC had been the
nation’s largest independent wholesaler before it was
bought in 2002 by BB&T, the bank behemoth based in North
Carolina. Today, Curtin says, CRC does less than 7% of its
business with BB&T’s retail side.
Like Brown & Brown, BB&T buys wholesalers and then
builds them organically to enhance its unaffiliated agent and
broker revenues. Just look at the numbers. In 2006, CRC
generated more than $3 billion in sales of property, casualty
and professional insurance company placements, primarily for
commercial businesses. The company has 26 offices across the
country. BB&T’s total insurance commissions increased
by $99 million to $813 million in 2006. CRC was responsible for
about 40% of that growth.
Arthur J. Gallagher & Co. is the nation’s fourth
largest brokerage and the largest with a wholesale operation.
Gallagher formed its domestic wholesale business from scratch
in 1997, and in that decade its division, Risk Placement
Services, has grown into one of the largest wholesale
brokerages in the United States, with much of the business
generated by agents unaffiliated with Gallagher.
Gallagher reports that an increasing amount of wholesale
business is coming to Gallagher via the company’s
e-commerce portal, CoverageFirst.com, which has more than
18,600 registered users from among the ranks of independent
agents, wholesale brokers and managing general agents.
A big reason large brokerage firms choose not just to maintain
but build their wholesale operations (and it’s the same
reason that private equity firms have been so eager to acquire
wholesalers): It’s a profitable business.
“We consider it obviously a big part of our
business,” says of Brown & Brown’s Riley.
“We like the line of business, and we’re continuing
to grow it.”
Hann is a contributing editor.