Rising healthcare rates, insurance for corporate directors and officers and disaster policies drove revenue growth for Orange County’s insurance brokerages last year.
But a slower economy,thanks to the recent subprime mortgage crash,has many bracing for a squeeze next year.
The 20 biggest brokerages in OC posted a 7% jump in local revenue to $455.5 million for the 12 months ended June 30, according to this week’s Business Journal list, which ranks brokerages by revenue.
Three on the list were estimates.
Brokerages grew their property and casualty brokers here by 2% during the past year to 338 people. The companies saw a 2% decline in benefits brokers to 248 people. The number of support staff workers grew 3% to 1,016 people.
New York-based Marsh & McLennan Cos. held the top spot again. The company’s Newport Beach office, which serves the real estate, construction, technology and other industries, posted flat revenue at $65.6 million.
Marsh & McLennan’s workforce held steady during the past year. It counted 15 local property and casualty brokers, 26 benefit brokers and 100 support workers.
Many of the brokerages on this year’s list that saw revenue and employee gains attributed it to growth in work from rising healthcare insurance premiums.
This year, employer healthcare premiums rose 7.3% in OC, according to Hewitt Associates Inc. Next year, they’re projected to rise 8.7%
“Rising healthcare costs are always an issue affecting the insurance brokerage industry and that trend will likely continue,” said Arthur Schuler, managing director and vice president of No. 2 Chicago-based Aon Risk Services Inc.’s Irvine office.
Aon, which focuses on the construction, property management and other industries, posted a 2% gain in revenue in the past year to $51.4 million. Its Irvine office counted 61 local property and casualty brokers, an 8% drop from a year earlier. Benefits brokers declined 3% to 32 people. The company’s OC support staff declined 18% to 9 people.
Aon, like other brokerages, is cutting costs by outsourcing work and moving jobs internationally, according to Schuler.
Growth Area
A continuing area of growth is the renewal of liability insurance for directors and company officers, brokers said.
Fueling that business has been the recent stock option backdating issue of the past few years. Companies are looking at big financial restatement charges and even litigation from backdated options.
“(It allows) us to provide more services for directors and officers,” said Robert Waltos, managing partner of No. 17 Milwaukee-based Northwestern Mutual Financial Network’s Waltos Group in Newport Beach.
Waltos Group, which provides services for wealthy individuals and small businesses, grew its local revenue by 4% to $10.8 million. It grew its benefit broker headcount 2% to 104 people from the year earlier. Support staff increased 8% to 56 workers.
The recent downturn in the subprime mortgage industry will impact local brokerage revenue, Waltos said. His company uses its investment side of the business to work through such downturns.
“The current challenges affecting the industry are relatively obvious with a lot of high-profile executives experiencing lifestyle changes,” Waltos said. “We have to help them modify their investment plans or offer more services to them because of the risks they took.”
Anthony D’Asaro, president of No. 18 Complete Insurance Inc. of Irvine, also expects insurance brokerages to suffer from the subprime mortgage crash.
Aon’s Schuler shares the same sentiment.
“Generally speaking, the slowdown in the economy and the secondary credit market issues are going to be affecting our clients going forward,” Schuler said.
Complete Insurance’s revenue dropped 16% to $10.2 million during the past year, the biggest decliner on the list. The company saw its overall worker base remain flat, with 19 property and casualty brokers, three benefit brokers and 30 support staff.
A softer market has affected Complete Insurance’s revenue, D’Asaro said. The rising cost of materials, fuel and other business necessities that clients in the construction, energy and manufacturing industry face, are impacting Complete and other brokerages, he said.
“Business has been relatively stable but it’s hard attracting new clients in a soft market. You have to tighten your belt and watch your expenses,” D’Asaro said.
While the downturn in the mortgage industry will impact insurers next year, D’Asaro said it could provide a good recruiting pool for brokerages.
“The insurance brokerage industry’s biggest challenge is recruiting talented workers and dealing with an aging workforce,” D’Asaro said. “As the mortgage issue leads to more industries laying off workers, we can expect to scoop up talent.”
Meanwhile higher premiums for most insurance during the past few years have given brokerages a revenue lift. 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.
Catastrophic events like the recent wildfires throughout OC, San Diego and Malibu should affect reinsurance,the insurance that insurers buy to protect themselves, according to Schuler of Aon.
“Insurance companies are going to pass along those increases to the clients so I see that affecting our clients going forward,” Schuler said.
