Arthur J. Gallagher & Co.'s CEO says the Patient Protectionand Affordable Care Act has created a demand for services fromclients and an increase in acquisition targets, as small-benefitagencies find they can't handle client demands and need to partnerwith someone who can.

CEO Patrick J. Gallagher says, "We are running hard" as thePPACA is keeping the firm busy with "new clients, prospects andmergers." Many businesses, he says, "are just waking up to thereality that this act is going in place in 2014, and frankly,they've failed to prepare."

Businesses need to prepare now for the changes PPACA will bringto their administration and health-insurance buying for employees,says Gallagher. At the same time, small-benefit agencies andbrokers can't handle the onslaught of regulatory changes and arelooking for partners for the expertise they lack.

"Simply put, the smaller broker consultant cannot keep up," saysGallagher, noting that the law has increased the firm's acquisitionpipeline and is providing new avenues of growth through this yearinto next.

Gallagher is no champion of PPACA and has been extremelycritical of the law because of its complexity and failure to curbthe inflationary aspects of healthcare. However, he has said hebelieves the law would be a boom to large brokers such as AJGbecause small brokers would not be able to handle it. He says thefirm has prepared to take on the challenge with software toestimate individual business costs and it has contracted withLiazon, a private benefits exchange.

AJG says first-quarter net income was up 44 percent compared tothe same period last year to $40.5 million. Revenues increased 23percent to $674 million.

The brokerage segment produced first-quarter net income of $25million, up 39 percent. The risk management segment, which includesits claims settlement and administrator Gallagher Basset, saw netincome of $14 million, up 19 percent. Organic growth for the twosegments combined is 6 percent.

Commissions have benefited from insurance rate increases ofabout 5 percent, says Gallagher. Workers' Compensation has beenhigher, and rates need to continue to rise to put that line "in aprofitable position." He emphasized this is not a hard market butone of gradual, disciplined increases that are easier for client'sto handle.

"If the economy holds up, and rates continue to trend up, expectthe rest of 2013 to be another outstanding year," says Gallagherduring an earnings conference call.