Did you ever wonder how David might have felt had Goliath gotten to his feet for a rematch? Of what it would be like as a Lilliputian watching Gulliver break loose from the ropes that bound him? That's how I imagine independent agents might be feeling while reading accounts about Marsh preparing to launch a new, nationwide agency to go after the bread-and-butter business of Main Street producerssmall-commercial accounts.
Of course, Marsh used to be a competitor of sorts for agents–albeit a clumsy and ineffective one–until the mega-broker jettisoned the bulk of its smaller accounts four years ago as part of the fallout from having to surrender contingency fees in settling bid-rigging charges.
Back then, after Mike Cherkasky replaced the deposed Jeff Greenberg as Marsh & McLennan's CEO, Marsh cut its losses by cutting loose thousands of smaller accounts it could not service profitably. That left a lot of new business on the table for independent agencies to gobble up, as if a whale had just decided to pass on a large chunk of the food supply.
Now, however, MMC is primed to get back into the Main Street game. But instead of trying to squeeze such square-peg business into Marsh's large, round holes, the firm decided to launch a better fitthe Marsh & McLennan Agency LLC, devoted to serving the insurance needs of small and emerging U.S. companies. (Click here and here to read more details about the launch.)
It was clear to us that the customer in this segment requires a very different experience than the customer in the global 500, said Jack Butcher, president and CEO of the new agency. We decided this is a very attractive segment for us and can be profitably served, but we have to service this customer the way they want to be served, not the way we service our larger clients around the world.
Due to launch in the first quarter of 2009, the new agency will operate separately from Marsh, offering a wide range of both commercial and personal lines via a chain of retail offices throughout the country.
We don't know exactly where the new agency's outlets will be located, or which carriers it will represent. But I suspect that despite the assertion of independence from the Mother Ship, the new Marsh & McLennan Agency will benefit from the common brand it shares with its parent, projecting expertise in complex risk and global contacts.
The new firm is supposedly targeting accounts that do not need complex risk management solutions, with a typical revenue size of $75 million or less, but whether that's how this experiment plays out remains to be seen.
The question of how small we go will ultimately be driven by our carriers appetite, said Mr. Butcher. There are a lot of neat products that can serve [Main Street businesses] very well.
There are other considerations to take into account if you are about to go up against the new Marsh agency–and not all of them negative. Under the heading of, if you can't beat 'em, join 'em, the new firm might provide badly needed M&A opportunities for agencies looking for a bigger platform or to exit the business in this difficult economy.
Indeed, Daniel S. Glaser, chairman and CEO of Marsh, announced in a recent conference call that the new unit is on the lookout for small agencies with $5 million or less in revenue–part of its strategy to become one of the largest agencies in the United States in a very short time.
You also might be interested to know that unlike other independent agencies, MMC's new outfit will follow the lead (if not the legal restrictions) ham-stringing its parent, in that it will not accept contingency fees. They will perhaps market that fact as a competitive advantage over their potentially "compromised" competitors.
The new agency will be staffed with a combination of current Marsh employees and new hires–meaning there may be job opportunities out there for agents looking to advance their careers.
This is a bold and fascinating move by MMC. At a time when exposure growth is likely to slow and many accounts might be going out of business, Marsh is looking to expand its prospect base without taking a cookie-cutter approach. The firm realizes smaller accounts would get lost in the Marsh maze, and will feel more comfortable with a standard agency pitch.
The move also puts the heat on Main Street independent agencies to maintain their books of business against a widely-known juggernaut. While Marsh's name recognition could prove to be a competitive disadvantage if too many folks remember the bid-rigging allegations, I doubt this will turn out to be a significant factor so long after the fact.
However, Marsh won't be able to just show up and cherry pick whatever small business it chooses. It's going to be a dogfight out there next year–especially with indications that the soft market is at least bottoming out, if not heading into reverse.
The MMC agency is going to have to prove itself and win business the old-fashioned way, with competitive pricing and strong service–particularly on the risk management side, where many of NU's commercial agencies of the year have made their stand.
How do you folks think the new agency will do?
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