Insurers’ Revenue Rises as Rates Soar; Marsh Repeats at No. 1
The 22 biggest insurance companies in Orange County increased local revenue for the year ended June 30 by 15%, beating the 12% growth recorded a year ago, according to this week’s Business Journal list.
Meanwhile, industry executives say that premiums, which already were going through the roof during the economic slowdown, have skyrocketed since Sept. 11 (see story on page 34).
“If people aren’t hearing that from their brokers, they should hear it,” said Matthew Schafnitz, chief executive at No. 8 Laguna Niguel-based Brakke-Schafnitz Insurance Brokers Inc. “The cost of reinsurance is doubling and tripling in many cases, and these losses will have to be passed on the consumer. We’re seeing 40% to 50% rate increases for our clients, across the board.”
The largest 22 OC brokerages grew employment 7% in the past year, to 1,436.
The Business Journal’s list ranks the county’s insurance brokerage operations by revenues generated locally.
The 22 brokerages on this year’s list posted an aggregate $251.5 million in revenue in the 12 months ended June 30, up from $219.3 million in the prior 12-month period.
Brakke-Schafnitz fell a couple of notches from its previous-year position, even though it grew revenue 7% to $10.2 million. The company showed no hiring changes.
“It’s a good time for the insurance business but not for consumers, because all these costs are going to be passed on to them,” Schafnitz said. “So I think we’re going to be in a hard market for two to three years at least.”
Premiums are going up because payouts have risen in the faltering economy and insurers are drawing on reserves. The trend, already under way before Sept. 11, was exacerbated by the terrorist attacks.
“Since Sept. 11, we’re seeing a shortage of insurance capacity for aviation property, as an example,” said Jean Macino, managing director of Marsh Risk & Insurance Services’ Newport Beach office.
The Newport Beach office of No. 1 New York-based Marsh Inc. grew revenues 9%, to $58 million, and added 10% to its local work force, which now totals 269.
“In OC, we’ve been able to offer a brokerage that has grown both organically and through acquisitions,” Macino said. “We’ve had low employee turnover at our firm, which gives clients confidence.”
She said that during the year ended June 30 most client sectors in the county were doing well, “although tech was off a little bit.”
“But things are going to get worse before they get better,” Macino said. “The post-Sept. 11 world requires our clients to pursue better risk management, so they can better prevent situations of loss.”
Ideally, better risk management could help hold down premium rates.
Macino also called the rise in insurance premiums since Sept. 11 a “double-edged sword.”
“The tragedies have caused our customers to cut back, so it evens things out somewhat,” she said, adding that the firm still has seen “some growth” in revenue.
Macino also said the number of carriers delivering insurance is going to shrink and that the carriers that survive will need more premiums to cover their losses, a trend she said already was in play before Sept. 11.
Schafnitz said this typically is a time when brokers end up trying to sell their businesses to larger companies that are looking to buy.
“We’re planning to buy other agencies while growing our own company,” Schafnitz said.
No. 4 Irvine-based Sullivan Curtis Monroe Insurance Brokers posted the biggest revenue gain in real-dollar and percentage terms, growing 52% to $19.8 million in sales. It also boosted its OC employment 31% to 85 people.
“We’ve had a significant year of new client growth,” said John Moore, president of Sullivan Curtis. “Until recently, the economics in Orange County have been very positive and we’ve been able to follow that, although we had been seeing a slowdown in tech and a little bit of a slowdown in construction already.”
However, insurance executives point out that their industry can have a bit of a counter-cyclical boost during slow economic times, because people tend to insure on the commercial side,whether it’s assets, plants, revenue base or payroll.
“The past six to nine months have seen the insurance market harden dramatically,” Moore said. “While the economy is going down we’re still growing because insurance unavailability in a hard commercial marketplace is causing rates to increase as people work harder to reduce their exposure.”
Moore said that even though insurance companies are seeing the effects of their clients’ downsizings, the brokerages still are growing revenue because commercial rates are rising at a more accelerated pace since Sept. 11.
“Sept. 11 has more dramatically accelerated everything that was already happening six months prior,” Moore said. “But we have not yet seen the economic impact on our clients.”
Also posting large revenue gains were No. 11 Colony West Financial & Insurance Inc., Tustin, up 51% to $6.4 million, and No. 9 Precept Group, Newport Beach, up 32% to $6.5 million.
In all, 19 of the 22 brokerages grew revenue in the reporting period. No. 20 Dodge, Warren & Peters Insurance Services Inc., Orange, and No. 21 Baker, Thomsen Associates Insurance Services, Newport Beach, posted shrinkages of 1% and 9%, respectively. No. 16 Andreini & Co., Santa Ana, reported flat revenue of $4 million.
On the local employment side, Andreini posted the biggest percentage gain, 70% to 34 employees, followed by Precept and No. 7 Arthur J. Gallagher & Co., Irvine, both up 47%, to 66 and 53 employees, respectively.
No. 17 John Burnham Insurance Services grew its local workforce 39%, to 25.
Of the 22 brokerages on the list, 12 reported adding staff, five cut jobs and five reported no change in the sizes of their work forces. n
