Brokerage

Brokers Active with Acquisitions

The number of broker M&As — many by private equity — "exploded" during the first quarter of 2017.
By: | April 18, 2017 • 4 min read

Mergers and acquisitions continue to be robust due to aggressive appetites for growth in the brokerage sector.

There were 358 transactions in 2016, exceeding the prior five-year average of 348 transactions per year during 2011-2015, according to the 2017 “Global Insurance Distribution and Services Sector Mergers & Acquisitions” report by Conning, an investment management company for the global insurance industry.

Alan Dobbins, director of insurance research, Conning

“There are a number of trends driving this,” said Alan Dobbins, director of insurance research, Conning. “There has been slow organic growth. There are less exposures, and flat to negative pricing in most commercial lines. It’s tough to grow profitably in that kind of environment.”

Acquisitions offer “one of the best growth options” at this point in time, he said.

Another big driver is demographics, he said. The average age of brokerage executives is 59. “There’s a large segment of that group eligible for retirement or will reach retirement age in the next couple of years.

“Close to 50 percent of them don’t have succession plans in place. That makes them attractive targets,” Dobbins said.

One-third of all transactions during the past five years – totaling 728 transactions – were by a mix of public and private equity-owned brokers, according to Conning.

“Private equity firms like the insurance distribution sector because the cash flow is reasonably predictable and it doesn’t require much in the way of capital expenditures,” said Timothy Cunningham, managing director of OPTIS Partners, an investment banking and financial consulting firm specializing in the insurance industry.

“Buyers are still being very aggressive in their valuations of prospective acquisition partners,” he said.

OPTIS Partners recently reported that agency M&As “exploded during the first quarter” of 2017. There were 178 transactions, compared to 115 in the first quarter of 2016.

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The bulk of the transactions were private-equity-backed brokers (93 in 2017, compared to 56 last year).

The PE-backed buyers involved in the most transactions were Acrisure (29 transactions), and Alera Group, a new organization that came into being with the consolidation of 24 brokerages focused on employee benefits, property/casualty, risk management and wealth management.

Alera Group, which was formed with investment from Genstar Capital LLC and brokerage assistance from Marsh Berry & Co., announced its formation in January, instantly becoming the 14th largest privately held insurance firm and the 7th largest privately held employee benefits firm in the U.S., according to the firm.

“That was an eye-opener,” said Dobbins. “I don’t recall ever seeing that number of independent groups form a large organization that quickly with that number of transactions. It’s hard to say if that’s going to be a trend.”

The other Q1 transactions reported by OPTIS Partners included 49 by privately owned brokerages, 17 by publicly owned brokerages, banks (7), insurance companies (11) and other (1).

“If you look at the industry, you are going to see a fairly significant reduction in the number of agents and brokers, maybe 15 to 20 percent, in the 10 to 15 years,” Cunningham said. “They are not going to go away. They will be absorbed into other firms.”

Timothy Cunningham, managing director, OPTIS Partners

Such consolidations will likely impact the tier of brokers below the top three of Aon, Marsh and Willis Towers Watson, he said.

For risk managers and companies without risk managers that rely heavily on the advice of their brokers, the consolidations should mean better service, advice and products, Cunningham said.

“They will have more scale, more skill, more talent,” he said. “I think it will be positive for clients. They will have more opportunities and more robust brokers with whom they can do business with.”

InsurTech acquisitions are included in the 90 insurance services transactions that took place globally in 2016, according to Conning.

Most service-related InsurTech startups focused on ways to improve customer service, better control expenses or manage loss costs, upgrade insurance technology, and assess and exploit the Internet of Things, according to the report.

Conning reported that transactions could accelerate if the Federal Reserve continues to raise interest rates, as M&A activity has benefited from historically low interest rates.

On the other hand, the consolidation pace could slow if confidence in President Trump’s policies fade and the economy weakens. &

Anne Freedman is managing editor of Risk & Insurance. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.

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That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.

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Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]