New Breed Of Broker Emerging

Palmer & Cay keep close to clients; target people inacquisitions to fuel growth

To the leader of a 136-year-old broker in Savannah, Ga., havinga commanding presence on the top broker rankings has nothing to dowith size. It's all about respect, he says.

“We're a company that's highly focused on being respected in theindustry,” said John E. Cay III, the chairman and chief executiveof Palmer & Cay, describing a culture that he believes is“distinctively different” from most of the firm's competitors.

“We distinguish ourselves, simply stated, through our peoplethrough their competence and their passion,” he said. “Our focus isnot on building the largest firm in the insurance brokerage andemployee benefits business, but on building the mostrespected.”

Nestled between the world's largest broker and specialtyinsurance agencies, Chief Operating Officer James Meathe sees adifferent breed of privately-held firms staking their claims to theforgotten territory of client service.

“If you look at our business, there are really three segments:There are the mega-brokers. Then there are thousands and thousandsof high-service small agencies that have revenues from $1-to-$3million. Then there's that ever-shrinking class of boutique brokersthat are privately held and have $150-to-$500 million in revenue,”he said, referring to the class that Palmer & Cay fallsinto.

“We are in the process of creating a firm that blends theincredible intimate service that the small firms give theircustomers with the sophisticated talent that you come to expectfrom a large firm,” Mr. Meathe said.

The move to create such firms reflects “the recreation of thebrokerages that customers cherished 10-to-15 years ago.” Thosefirms of yesteryear have “all been swallowed up throughacquisitions,” Mr. Meathe observed.

Palmer & Cay has swallowed its share of property-casualtyagencies on the road to becoming the second-largest privately heldindependent brokerage and benefits consulting firm. According toSavannah press reports, the firm bought at least eight agencies inthe 1990s, as well as some consulting practices, including severaldivisions of KPMG.

But most of the growth has been internal, Mr. Cay said. “We'venever believed in the philosophy of buying business as much we doin [the idea of] buying to get the right people,” he said,explaining how the firm expanded its Georgia roots clear across theUnited States in recent years.

“In some cases, we've had to buy the businesses to get thepeople. In other cases, we've hired people,” he said, pointing toMr. Meathe, who had 22 years of experience with brokers Johnson& Higgins and Marsh before joining Palmer & Cay.

According to Mr. Meathe, the firm hired over 200 highlyspecialized employees in the last 15 months. He also reported thatit took nearly 100 years to achieve $1 million in revenue a markthat was reached in 1963. Now, he noted, “we're on the road toproducing $1 million of new revenue a week.”

Palmer & Cay's revenues were just $3.5 million in 1985. In2003, total revenues came in at $134 million. (Kansas City-basedLockton Companies is the largest independently owned brokerage,with revenues of just over $250 million in 2003, according to thefirms Web site.)

Although one executive tells the story through the eyes of anewcomer, and the other represents the fourth generation of afamily of executives, Mr. Meathe and Mr. Cay share a common visionof the firm they lead. They view it as a company that's intenselyfocused on keeping clients and employees satisfied. They're able tomaintain that focus, both report, because the firm is privatelyheld.

Mr. Meathe said that when he joined Palmer & Cay in February2003, he saw the firm as “a platform that was near perfect to takeadvantage of the changing insurance brokerage environment in theUnited States.”

“Being privately held allows us to make long-term,client-oriented decisions,” he explained, adding that with revenuesover $150 million, Palmer & Cay has the resources to “makesignificant investments to satisfy the technical and specialtyrequirements of customers and prospective customers.”

Mr. Meathe also said he admired Mr. Cay's courage to remainindependent while the broker world has consolidated.

It was two years ago, according to Mr. Cay, that he trulystruggled with the question of whether Palmer & Cay wouldremain an independent enterprise, go public or be merged into apublic company. At that point, “we reached something of acrossroads,” he said. “We concluded that it was in our clients' andemployees' best interests to continue as an independent enterprise.As such, we created a partnership of 115 people across the country”to help drive its value in the future.

“Our focus is on creating an environment where we can take greatcare of the client as opposed to [living with] concern over nextquarter's earnings,” he said.

The firm is now 100-percent owned by 115 partners, with eachhaving a significant stake in the business. The 115 people selectedto buy into the brokerage “meet very high standards not onlystandards of performance, but living what we call the 'Palmer &Cay Way,'” which, Mr. Cay explained, is all about strong clientfocus.”

In addition, “the 'Palmer & Cay Way' is all of us doing theright thing,” he said, referring to a “strong cultural commitment”of adhering to high ethical standards “that's been built overgenerations. It's part of our reputation, which we guardjealously.”

In addition to allowing for better client focus, Mr. Cay saidbeing privately held also allows the firm to focus on a second maingoal “creating the best place to work.” This means that the leadersof the firm work to create “a positive work environment [with] aperformance-and-rewards system that is the best in the business,”he said.

“We believe that we work for the people who are on the frontlines serving the clients,” Mr. Cay added, referring to himself andto Mr. Meathe. “They don't work for us. We work for them” by makingsure they have a positive work environment, he said.

The performance-and-rewards system, which rewards employees whomeet specific goals, “goes all the way throughout theorganization,” he noted, referring to the fact that it applies toeveryone on the line and up through senior management.

An entrepreneurial environment that's “free of bureaucracy” isalso part of the “best-place-to-work” vision, he said.

Mr. Meathe believes that the lack of bureaucracy is a big drawfor new hires. “They want to work in a more intimate environmentwhere they can make a difference,” he said. “If you have a goodidea, you implement it.”

In addition, he noted a strong interest in playing a broaderrole with clients among the senior ranks. “Our senior-mostemployees in management are client- and market-facing. Many peoplewant to get back to that,” he said.

According to Mr. Meathe, a defector from the larger brokerageranks, “the insurance placement strategy of the mega-brokers isfrustrating to many” employees because it “prohibits those who areclosest to customers from being intimately involved in theplacement of insurance.”

Explaining his assertion, he said that larger firms haveseparate placement groups that do nothing but negotiate insurancetransactions with the insurance companies, while client-facingexecutives do not have hands-on responsibility with the insurancecompany market.

Such a strategy, he believes, “leads to less than optimalresults” because the risk placement departments don't know theclients well enough to negotiate effective placements.

At Palmer & Cay, Mr. Meathe said, the team that works withthe client day to day is the same team that places the risk withthe insurer.

“There is a huge demand” for a new breed of broker fromemployees of mega-brokers who feel disconnected as evidenced by allthat have come and the 500 that are waiting in line to come andcustomers who want dramatically improved service,” according to Mr.Meathe.

Industry consolidation, he said, has created an opportunity todevelop this new type of boutique broker “that can solve any riskissue” because it has resources to develop product expertise, “yetdelivers service that is unparalleled.”

“I think you'll see several” members of this new breed “beingdeveloped over the years,” he said. “It's the healthiest thing thatcan occur. It's the best thing for our customers the riskmanagers.”

Reproduced from National Underwriter Edition, April 5, 2004.Copyright 2004 by The National Underwriter Company in the serialpublication. All rights reserved. Copyright in this article as anindependent work may be held by the author.