Largest Brokers Fight For Mid-Market Accounts

With fresh premiums diminishing among their traditional clients, many large insurance brokers are looking to U.S. companies in the middle market to boost their revenue.

For risk managers, chief financial officers and other executives responsible for procuring brokerage services for their company, large brokers' push could expand the services and coverage options available to middle-market companies.

While some middle-market firms, which typically want a personal relationship with their broker and industry-specific expertise, have stuck with regional brokers, others have abandoned regional firms for their larger counterparts, experts say.

"Growth opportunities are in short supply," said Greg Dickerson , an analyst for New York-based Fitch Ratings Ltd. "There just aren't as many businesses or projects being generated in the large-account sector that would produce new premiums; so where they might have once viewed that middle-market business as not worth their while, now they're starting to push into that space."

Some of the largest firms--including Aon Corp., Marsh & McLennan Cos. Inc. and Willis Group Holdings P.L.C.--have found moderate success in the middle market, Mr. Dickerson said. That success often depends on how well the "megabrokers" can emulate the "personal touch" and industry-specific knowledge of regional and local brokers.

"Most brokers at the regional level are operating in their own niche market, which means the level of expertise from an industry perspective is unparalleled," said Bill Brennan , a principal at San Diego-based brokerage Barney & Barney L.L.C. "That helps us overcome a lot of the problems we run into competing with national brokers on the resources front. We understand the business that much better."

"I'm looking for a broker who can basically be an extension of my office in every sense," said Paul Brandel , risk manager for the Rockford Mass Transit District in Rockford, Ill.

The district, which put out a request for proposals to choose a new broker in May, is to make its final selection this summer.

Mr. Brandel said the district's RFP, which requires "demonstrated knowledge in the public sector and transportation" and "ability to provide broad services to meet RMTD's existing needs and ability to provide additional services or recommendations," was crafted to attract bids from the nation's largest brokers.

"With the middle-market brokers, I just feel like, below a certain level, a lot the specific things I need a broker to do get outsourced," Mr. Brandel said. In addition to mass transit expertise, he said ancillary services such as loss-control education, claims management and compliance monitoring are paramount in the district's selection of a broker.

For Jeremy Allen , director of risk management for Austin, Texas-based Cirrus Logic Inc., industry expertise was the reason to select Houston-based John L. Wortham & Son L.P. as the company's broker in 2007. Previously, the electronic components manufacturer obtained directors and officers coverage through Kansas City, Mo.-based Lockton Cos. L.L.C and its general liability and employee practices liability coverage through the much smaller Wortham & Son. Cirrus Logic decided to use just one broker, selecting Wortham & Son in part for its proximity, but primarily for its experience in the electronics industry and the market, Mr. Allen said.

"Having someone here in Austin when I do have a question does help me feel comfortable that they know our business and they know what's going on in the area," Mr. Allen said, adding that he routinely is courted by representatives of large brokerages who often lack industry knowledge when they approach a potential client.

"There's not a lot of incentive for me to switch, even if it's going to save me $1,000 or $2,000," he said. "A lot of times, they come in with a big dog-and-pony show, but they haven't really taken the time to evaluate your business. They tell you about all of the things they can do, and how well they can get to know you and the business; and in the back of my mind, I'm thinking that I already have a broker that does that."

However, Wendy Ademy , risk manager of the city of Roswell, Ga., had the opposite experience.

The city's coverage had been placed through the same local broker for several years before the city switched to Aon in 2008. Just three years after the city opened its department of risk management, Ms. Ademy said its exposure profile had grown beyond the scope of its broker's capabilities. While the city was approached by several regional firms when Roswell opened its broker services contract to outsiders, Ms. Ademy said Aon offered the best understanding and mitigation strategies for the city's risks.

"It was a really new department, and (Aon) came in and helped us prioritize our needs, went over our losses with us, helped us develop a loss-control program and has been able to negotiate very well for our renewals," Ms. Ademy said, adding that Aon's representative frequently assists with presentations to elected officials regarding budget and insurance matters.

"With our broker's help, we've been able to better express to the budget department how important allocating our losses among the various departments really is," Ms. Ademy said. "Before, it just sort of came from one mysterious fund, and it never really sunk in with the department heads to the point that they'd make a change."

Despite the steady influx of competition into the middle market, brokerages that traditionally relied on the space as the backbone of their business say they aren't worried about being edged out.

At the Daytona Beach, Fla.-based Brown & Brown Inc., which deals almost exclusively in the middle market, President and CEO J. Powell Brown characterized competitors' efforts as having "varying levels of success, as opposed to lots of good success."

"Ultimately, we'll have to see how it plays out, but we know how we do business and we're going to do what we think is in the best interest of our customers and of our prospective customers," Mr. Brown said.

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