Marsh & McLennan's focus this year will be on building its small-commercial market insurance agency business–a niche the company's chief executive said should be highly profitable, but which he conceded the mega-brokerage failed miserably to effectively cultivate in the past.
"We have successfully screwed that up year after year," said Brian Duperreault, president and chief executive officer of New York-based MMC, elaborating yesterday on plans announced late last year to develop a new unit within the company to handle small-commercial accounts through Marsh & McLennan Agencies.
Discussing the new initiative during a conference call with financial analysts at the Merrill Lynch Insurance Investor Conference, he called the move a logical step to grow business in the small-commercial market–one that he said would prove to be highly profitable for the firm.
However, he said prior attempts to write substantial business in that huge sector were unsuccessful because the firm "smothered it with 'Mother Marsh'"–the insurance brokerage subsidiary of MMC.
The vision for MMC Agencies, he said, is to create a hub-and-spoke type of network of agencies, as it grows the business "brick by brick" with the acquisition of small independent agencies.
While small agencies offer Marsh efficient access to the small-commercial market, the benefit for such firms to join MMC will be access to products they would normally have to market via wholesalers.
Mr. Duperreault said building the agency unit will take time, but emphasized it is a strategically smart move because there are plenty of acquisition targets and the margins are high. He also indicated the brokerage has interests in making some international acquisitions to add to Marsh's footprint.
Commenting again on what he characterizes as an "invisible hard market," he explained that while premium increases are inevitable, insurers and brokers will not see the usual benefit of higher rates immediately because clients will likely be buying less insurance due to the economic crisis. He said the drop-off in insurable exposures will effectively neutralize any benefit of increase for the industry.
He added that because of deteriorating earnings for insurers, it would not take a "big event" to promote sustained hardening in the market.
Reinsurance is already showing some signs of hardening–more so than in the retail insurance market, Mr. Duperreault observed. For the company's reinsurance brokerage subsidiary–Guy Carpenter–he said it has seen a turnaround in its business and continues to improve. Changes there have improved morale, and that is improving performance, he added.
Asked about how the acquisition by insurance broker Aon of reinsurance broker Benfield is affecting his business, Mr. Duperreault said: "We feel very good about 2009, and when you lose a competitor, it makes you feel good."
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