The international insurance broker and claims administrator Arthur J. Gallagher & Co. has completed more than 300 acquisitions worldwide since 2002, including several well-established agencies in Baton Rouge.
Mitch Brashier had only been with Broussard, Bush & Hurst for about a year when the firm became Gallagher’s first Baton Rouge acquisition in 1991. He climbed the corporate ladder without leaving home to become Gallagher’s regional president for 13 southeastern states. So the deal obviously worked out for him.
While he recalls some trepidation (along with some excitement) about becoming part of the huge company, he says there wasn’t much change to his work life after the merger.
“That’s something that Gallagher does well,” he says. “It’s like you’ve been part of it the whole time.”
There are about 38,500 independent insurance agencies in the United States, according to the 2012 Agency Universe Study. Many of those companies are headed by baby boomers ready to capitalize on their life’s work, and many of them have become Gallagher’s merger partners. But the global broker isn’t interested in firms where the owner just wants to cash out and move on.
Gallagher’s pitch is basically this: We’ll let you maintain client relationships and run your office more or less as you always have but with the tools and resources of a multinational company at your disposal.
“When we get someone to join us, we’re hoping one and one add up to three or four,” Brashier says. “It doesn’t do us any good to buy a book of business and it just makes us bigger but doesn’t make us better.”
Of course, Gallagher wants to buy profitable, well-run firms. Sometimes, the new acquisitions open up a new market for the larger company, and sometimes their specific specialties complement what Gallagher is already doing in that market.
The No. 1 question acquisition targets ask—aside from price—is, “What does this mean for my people?” But unlike in other industries, where a corporate takeover might mean major downsizing, in the insurance business the people are the assets. If Gallagher didn’t think the firm had good people, it wouldn’t have made the offer in the first place.
Tom Besselman, a recent Baton Rouge merger partner who is now a senior benefits consultant with Gallagher, says he wasn’t looking to sell his business when he was approached through a third party. Initially, he was “lukewarm at best.” Before pulling the trigger, he says he called about 15 or 20 of his clients, who generally said they were comfortable with the transition as long as they could keep working with him.
At the time, the Patient Protection and Affordable Care Act (aka “Obamacare”) was being implemented, and Besselman didn’t think his independent firm had the resources to successfully navigate his clients through the increasing complexity of federal health insurance regulations.
He says Gallagher has a team of compliance attorneys that can answer any question a customer might have.
“We were all sitting in my office the day the Supreme Court ruled on it,” Besselman recalls. “Before the ruling came down, I said, If they rule PPACA’s illegal, I made the wrong decision. If they rule PPACA is legal, I’m a genius.'” You know the rest of the story: The act remains the law.
All this consolidation raises an important question: Can small firms still compete? Future One, a collaboration of the Independent Insurance Agents & Brokers of America and a number of insurance carriers that distribute through independent agents, sponsors the aforementioned Agency Universe Study every other year.
The authors of the 2012 report estimated that there were 1,000 more independent agencies in the United States than in 2010, surprising some industry watchers. The study says 60% of the agencies reported increased revenue, compared to 42% in 2010. The 2014 report was not yet available when this story was written.
Jeff Albright, CEO of Independent Insurance Agents & Brokers of Louisiana, says Gallagher, far from being the enemy, actually is a member of his association. The company is considered an independent broker—just a really big one.
Still, most of his members have 10 or fewer employees, proving that the little guys can still make it in Louisiana. While the big boys may have some advantages, Albright concedes, some customers prefer to keep their business local.
“A local person can provide just as good a service as an Arthur J. Gallagher or anybody else,” Albright says. “A lot of small and medium-size agencies can get to the markets the same way that Gallagher can, either through their own contracts or through wholesale brokers.”
Albright says consolidation in the insurance business is like that in banking and other industries where companies seek economies of scale. He mentions Wright & Percy Insurance, a Baton Rouge agency acquired by BancorpSouth Insurance Services in 2003. Markham McKnight, who joined Wright & Percy in 1982, now is president of the larger company.
“Sometimes, a national group acquires a group here, and we end up being in charge,” Albright says. “It’s funny how all that works out.”