Largest Commercial Insurers’ Revenue Up 9%; Marsh Still No. 1
Despite dropping workers’ compensation rates the past five years, the top 20 commercial insurance brokers in Orange County increased their total revenue 6% this year, and most industry folks attribute it to the economic growth in the county.
According to this week’s Business Journal list, which ranks companies by fees received on premiums sold in the 12 months ended June 30, revenue jumped to $200.3 million, an increase of $11.9 million from last year.
Local employment at the 20 companies increased 8% from last year, to 1,346.
Dropping rates coupled with government litigation has made it tough for commercial insurance brokers to pull out profits. But with the strong economy in OC, “clients are thriving and growing, and the services they procure grow along with it,” said John Monroe, the president and COO of No. 5 Sullivan, Curtis Monroe Insurance Brokers.
No. 1 on the list, Marsh Risk & Insurance Services, which recently completed the acquisition of London-based Sedgwick Group of California, reported no increase in revenue even though the company added five brokers, a 4% increase. Marsh also has 10% more total employees in Orange County this year, topping the list with 270. The company increased its benefits personnel by 10 this year.
Jean Macino, a managing director at Marsh and highest-ranking official in OC for the company, said the acquisition of Sedgwick strengthened the firm’s international capabilities even though the company was already the largest in the nation.
“Our experience in integrating Johnson and Higgins a few years ago prepared us for a smooth integration of Sedgwick,” Macino said, adding that the insurance brokerage industry is experiencing slow growth and disappointing earnings.
No. 2 on the list, for the second year in a row, is Aon Risk Services in Costa Mesa. The brokerage reported revenue of $30 million, a 30% increase from last year. Aon also added 10 more brokers and about 20 employees in Orange County.
Armstrong/Robitaille took the No. 3 spot on the list with $17.7 million in revenue improving 15.5% on last year’s revenue.
No. 4 on the list, Orange-based Cal-Surance Associates Inc., reported a decrease in revenue of 13%, to $17.4 million, and reported a slowing in employment growth, posting increases of 3% for brokers and employees. Last year the brokerage had a 36% increase in revenue and a 13% increase in employees.
In line with other fields, the insurance industry has been changing as a result of the Internet.
“The Internet is a key tool and part of our client service philosophy,” Macino said. Marsh has been spending more and more on technology of late, and was among the Top 20 companies for use of technology on a list compiled by Inc. magazine.
The Internet is mostly used by clients to access and manage data, even though some of the smaller brokerages are selling directly over the net. The larger companies are shying away from selling online, since they look to provide consulting and financial services, and tend to deal with clients face-to-face.
For small clients, the Internet will provide “cookie-cutter” insurance programs and will cut down expenses, said Art Schuler, the senior vice president at Aon.
Bob Dennerline, COO of Armstrong/Robitaille, thinks that life, personal, auto and homeowner insurance have a place on the Internet, but the Internet doesn’t lend itself to the consulting and financial services the insurance brokers want to get into.
Bob Gettlin, the communications director at the Council of Insurance Agents & Brokers in Washington D.C., said, “Companies are struggling with electronic commerce and how to build that into their businesses and how to make the most use of that.”
“The Internet will provide personal and auto insurance-selling online, but commercial insurance is still going to be brick-and-mortar,” said Gettlin.
Meanwhile, “there has been tremendous consolidation by the carriers and the activity is positive,” said Wade Olsen from The Precept Group. The consolidation has allowed some of the smaller players to increase their client bases, since some of the larger national brokers choose not to retain or attract middle-market companies or small businesses as clients. Companies like Marsh and Aon tend to go after clients in the Fortune 2000 or companies with more than 1,000 employees.
The state’s insurance commissioner, Chuck Quackenbush, recently recommended a rise in rates for workers’ compensation. The larger companies may not be affected by the recommendation since their rates tend to reflect their claims paid. The larger companies also can opt to insure themselves. Large companies can usually save money by self-insuring, since it doesn’t require the overhead of a brokerage firm or staff.
With rates increasing, clients also will question broker commissions and be more attentive to services offered, said Art Schuler. Brokers will start having to provide more financial products.
Bob Dennerline said that the “larger client is much more sophisticated, and they are looking for more than just an insurance broker.”
The workers’ comp rate increase is due, though. About five years ago, the state allowed insurance companies to control the rates, and since then natural competition has sunk the rates below profitability. Monroe said that $1.40 was paid out for every dollar brought in last year.
Dennerline said that rates have come down 40% to 50% in the past five years and the carriers are losing money, so they know they have to raise rates.
“The claims costs have escalated and benefits have increased, and it will increase next year,” he said.
Monroe said the health insurance industry has seen double-digit increases in HMO and PPO rates, but property and casualty rates have been relatively flat lately.
Insurance companies also are feeling the effects of the federal banking overhaul bill that has yet to be signed into law by President Clinton.
“The deregulation of financial services by the federal government has opened up and now banks, stock brokers, mortgage brokers are trying to cross-pollinate by buying (insurance) brokerage firms,” said Monroe. It has not happened here yet, said Monroe, “but it is threatening to happen in Orange County.”
But the insurance brokers also are “cross-pollinating.” Clients are not just looking to brokers for service, but also for financial services, such as information and risk management, consulting and structuring employee benefits.
To help out insurance brokers even more, a financial services bill was signed by Clinton, streamlining agent and broker licensing, Gettlin said. Previously, brokerage firms would have to obtain several licenses for each state it chose to broker in, since each state had its own requirements. The bill allows brokerages to bypass the individual state licensing requirements.
