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Earthquake, Healthcare, Executive Policies Drive Brokerages

Insurance brokers saw another round of revenue gains for the 12 months through June, thanks in part to rising healthcare rates, policies related to earthquakes and insurance for corporate directors and officers.

The 20 biggest insurance brokerages operating in Orange County reported a 4% rise in local revenue to $390.3 million for the 12 months ended June 30 from a year earlier, according to this week’s Business Journal list.

A year ago, the brokerages on the list saw a 2% gain in revenue.

To eke out more profit in what many see as a soft market, brokerages have been cutting support staff or sending some work offshore.

In OC, support staff workers fell 6% to 1,005 people in the past year, after rising 9% to 1,014 the year before.

The number of local brokers grew about 3% to about 625 people.

The story on healthcare costs is a broken record: Analysts see 8% to 12% growth in next year’s premiums, part of a multiyear trend in rising health insurance costs.

An emerging growth area: Renewal of liability insurance for directors and company officers.

Rates have risen for some technology companies already caught up in the stock options backdating scandal, according to some brokers.

Rates haven’t climbed dramatically, as many insurers still haven’t paid out claims related to the options issue.

“It won’t be the magnitude of Enron,” said Lauri Stang, senior vice president of No. 18 McGriff, Seibels & Williams Insurance Services Inc. in Irvine. “Some (directors and officers) insurers will make payouts. But you won’t see the tremendous magnitude of claims. Prices will go up, but not tremendously.”

Companies are looking at big financial restatement charges and possible litigation over the options dating issue. At issue is whether they timed the grant dates to low points in their stocks.

Higher premiums for most insurance have lifted revenue at local brokerages for the past few years. Insurers have upped rates to make up for the lingering effects of the 2001 terrorist attacks, as well as the hurricanes and wildfires of recent years.

Earthquake premiums have jumped 50% to 100% in the past year, McGriff’s Stang said.

Prior to Hurricane Katrina, insurers had used certain data to project losses for major catastrophes.

“They found out that the models were based on estimations that were way off,” she said. “The premiums weren’t in line with what they had anticipated.”

It’s been the opposite for workers’ compensation policy premiums. They’ve fallen during the past three years after reforms spurred by Gov. Arnold Schwarzenegger. The result has been a $14 billion reduction in the cost of claims, a 58% drop since 2004, according to state Insurance Commissioner John Garamendi (see story, page 53).

The number of licensed property and casualty brokers working at the companies on the list rose 3% to 341 from a year ago. There were 285 licensed life and disability insurance brokers at the companies, up 4% from a year earlier.

The Newport Beach office of New York-based Marsh Inc. easily held the top spot with estimated local revenue of $65.8 million, up 3% from a year earlier.

Stephen Flynn, managing director of Marsh’s OC operations in Newport Beach, said he sees a soft market, with some exceptions.

“While earthquake insurance is going up, the rest of the marketplace is very soft,” he said. “I have clients electing to not buy insurance or less than before, or taking higher deductibles on earthquake insurance. Basically, the market is exceeding their budgets.”

Two companies, Nos. 3 and 4, flipped.

No. 4 Brown & Brown of California Inc. slipped a spot from last year with revenue of $34.2 million, down 4% from a year earlier.

Moving up a spot to No. 3 was Irvine-based Sullivan Curtis Monroe with $35.2 million in revenue, up 7% from a year earlier.

“We’ve been very successful putting a real estate practice together,” said John Monroe, president and chief operating officer of Sullivan Curtis. “The growth of that unit and the clients who it is attracting has catapulted our growth locally.”

The biggest move on the list came from No. 15 Pridemark-Everest Insurance Services Inc., which was up two spots from last year after a complicated combination of three brokerages in May.

The threesome, which saw an estimated 66.7% jump in revenue to $10 million, now operates from Pridemark’s building in Santa Ana.

McGriff, Seibels fell a spot on this year’s list, though estimated revenue remained unchanged at $6 million.

It made the list for the first time last year when former insurance brokers at the Newport Beach-based office of Marsh left and opened an office here for Birmingham, Ala.-based McGriff, Seibels.

The former head of that office, Danny Carreras, bolted in the fall to join Hilb Rogal & Hobbs Co. in Long Beach where he’s heading up the firm’s directors and officers insurance business for the Western U.S. The Irvine office of Hilb Rogal, which is headquartered in Glen Allen, Va., fell a spot to No. 13 on this year’s list, seeing a 5% decline in revenue to $10.7 million.

One newcomer to the list was No. 20 Santa Ana-based Andreini & Co., which saw revenue grow 14% to $5.7 million this year.

One brokerage fell from the list: former No. 11 Orange-based Colony West Financial Insurance Services.

San Diego’s Barney & Barney LLC didn’t qualify for this year’s list but could next year after opening an Aliso Viejo office in February. The local operation does about $3 million on a yearly basis here and is growing, according to managing director Travis Trask.

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