Credit some of Orange County’s biggest insurance brokers with quick adjustments to shifts in California’s corporate landscape.
The moves revolve around the middle market in the wake of the recent trend of other states wooing larger corporations away from California.
“When the large multinational companies began to leave Southern California in the last three years, this magnified the need to focus our service-delivery model to this new economic dynamic,” said Arthur Schuler, a Newport Beach-based managing director at Aon Risk Solutions. “From the brokerage perspective, we have to financially restructure and operate differently and cater to the middle-market companies. They may not need the resources that the large companies might—their needs are different.”
California has seen a mix of high-profile and more quiet outflows of corporate headquarters—Toyota Motor Corp. announced plans this year to move its U.S. headquarters from Torrance to the Dallas area, and smart-card maker HID Global shifted from Irvine to Austin.
The national presence of Aon Risk Solutions and London-based parent Aon PLC—a publicly traded company with a market capitalization of about $25.2 billion—provides the potential to retain the business of firms that relocate, according to Schuler.
Local offices in California still have gaps to fill, though.
“We [as a national firm] can absolutely tap companies that move from one state to another,” said Schuler, “but I’m saying this from a California perspective.”
Newport Beach-based Alliant Insurance Services Inc. has also staked out new ambitions in the middle market. It has a new division specifically geared for the segment, and it’s counting on acquisitions across the country to help build the unit.
Alliant—the perennial No. 1 on the Business Journal’s annual list of the largest insurance brokerages here (see list on page 20)—started Alliant Americas early this year with a quiet rollout.
The division is focused on the midsize client base, a market that “has been untapped from Alliant’s perspective” and is “more traditional and geography-oriented” than Alliant’s long-standing focus on specialty niche markets defined by industry, said Sean McConlogue, president of the new unit. He’s also served since 2004 as president of an Alliant subsidiary, Alliant Specialty Insurance Services Inc.
Definition Varies
The definition of “middle market” varies and could be based on revenue size or premium volume, McConlogue said, adding that Alliant Americas is looking at “accounts that are between $100,000 and almost up to $1 million in premium size” to make up the client base.
“This is an opportunistic move on our part,” said Alliant Chief Executive Thomas Corbett. “And this is heavily slanted toward mergers and acquisitions.”
Corbett said the 89-year-old company has built itself primarily by focusing on specialty segments for large clients. The strategy has helped it reach various industries and risk categories nationwide, ranging from the construction and marine sectors to tribal nations, nonprofit groups and waste haulers.
He said Alliant Americas now makes up 10% to 15% of the firm’s overall revenue, which was about $548.3 million in 2013, with its OC operations accounting for 13%.
The company is aiming to boost Alliant Americas to account for 30% to 50% of overall revenue within five years, Corbett said.
“We have lofty goals. That will take an aggressive move on our part. Our first mission is to complete the larger acquisitions that are geographically diverse in the U.S.”
The company last month acquired Moloney O’Neill in Spokane, Wash., on undisclosed terms, specifically for the Americas operations.
“We want to expand that geographic presence to include the Midwest and to include the Southeast,” McConlogue said, adding that Alliant is currently considering about 20 deals, including local firms.
Post-Recession Competition
Aon Risk Solutions’ Schuler said the middle market has become more competitive as a legacy of the recession.
“After the economic meltdown in 2008, almost every company was impacted [on] revenue and margin,” he said. “When companies had to respond to the margin pressure, insurance was one of the many drivers they focused on.”
The competition on price touched off during the recession continues, he said, in part because there are “too many brokers”—which makes it a “buyers’ market right now.”
“It’s a function of supply and demand,” Schuler said. “The insurance market is soft, premiums are going down. So it will be a challenge … to match resources with what the client is willing to pay and what they expect us to provide as value-added services.”
James Davidson, managing director of Avant Advisory Group in Newport Beach, said the larger accounts for a broker would likely “require more advisory services, [as] their risks are larger, more pervasive, of greater complexity, and of greater dollar magnitude.”
Midsize accounts typically are “more defined and can be more easily analyzed, defined and quantified,” he said.
Avant is a financial advisory and management consulting firm that primarily serves the middle market.
Some Challenges
Schuler said some of the biggest challenges at Aon as it boosts focus on the middle market will be “changing the culture internally,” as well as finding ways to “scale the breadth of the products and services that you have on your menu for larger clients [to better cater to] middle-market clients, and do that effectively.”
That would mean larger brokers would need to build a “cost-effective operating model” around the midsize accounts, said Kevin Caceres, a Chicago-based partner at PricewaterhouseCoopers.
“It’s about making sure that the brokers have repeatable, efficient internal processes,” said Caceres, who focuses on the financial services area. “A lot of the large brokers are starting to invest in those processes.”
