In Selecting A Broker, Size Doesn’t Matter

Copyright 2009 Crain CommunicationsAll Rights Reserved Business Insurance

July 20, 2009

544 words

In selecting a broker, size doesn’t matter

Regis Coccia

Does size truly matter when it comes to choosing an insurance brokerage?

This question has been debated for years, and the answer would seem to be, ``No.'' That is evident in the fact that sometimes very large, complex organizations use smaller firms. Size can correlate to service capabilities, particularly when it comes to handling risks in multiple countries, but not even the largest brokerages are equally adept at everything a client might need. A longstanding argument in favor of smaller brokers is they can give top-notch service, with attention from the highest level of the firm.

Simply put, there is more than one way to measure the size of any organization, insurance-related entities included.

For example, insurance companies often are ranked by the amount of net premiums written, but they also can be grouped by assets or policyholder surplus. Depending on the measurer's perspective, all of those are significant ways of sorting insurers.

Brokerage firms are a little different, but here too there is more than one way to stack them up.

An insurance buyer looking at brokers might consider their gross revenues, organic growth or EBITDA (earnings before interest, taxes, depreciation and amortization). Investors might consider market capitalization or the compounded annual growth rate, though market cap applies only to publicly traded companies.

Business Insurance for decades has ranked brokers based on their revenues from consulting and placing risk management and employee benefit programs for their clients. On page 14 is a chart showing the world's largest brokers by this measure, and the center spread lists the 100 largest brokers of U.S. business, measured in the same fashion, except looking exclusively at such revenues derived from U.S.-based clients.

Four years ago, rumblings from several quarters in the insurance marketplace suggested that brokers might be looked at another way: by the amount of revenue derived solely from placing coverage. BI researched this point and found some interesting differences among the brokers. We called this ``pure placement,'' and it is one way of ranking brokers based on their fundamental business. Here is how such a ranking would look based on 2008 data reported to BI:

Business Insurance believes pure placement does not reflect the full role of a broker, which is to provide advice before, during and after the placement transaction. That advisory role is intrinsic to what good brokers do.

Risk managers polled recently by BI said ``size doesn't matter'' and is ``not the driving force'' in choosing a broker. They said ``depth and quality of services,'' ``knowledge and expertise of their people,'' ``the right people'' who are accessible and ``access to insurance markets'' are more important. Also, ``culture and relationship,'' ``ability to leverage technology'' and ability to ``serve as an extension of the risk department'' trump size.

A broker can be No. 1 in more than one way, but the best brokers are those that are tops with those who matter most: their clients.

To cast your vote on which brokers are the best overall, take part in BI's 2009 Readers Choice Awards at www.businessinsurance.com/section/readers-choice-awards.

Copyright 2009 Crain Communications Inc. All Rights Reserved.

July 24, 2009