New Growth Plans Are Key To Agency Life, Agents, Brokers Told

NU Online News Service, April 13, 2:24 p.m. EST

NEW YORK--Insurance agents and brokers cannot expect help from firming market prices anytime soon and without a new direction to maximize shareholder value they may as well sell their businesses, a consulting executive said.

His advice came today during the morning portion of a one day seminar here presented by Hales & Company titled "Chart a New Course, Creating and Enhancing Shareholder Value."

The event sponsored by Summit Business Media publications, National Underwriter and American Agent & Broker Magazine, is the first of four seminars to be held across the country, aimed at educating agents and brokers about acquisition strategy and how to establish their uniqueness in the marketplace.

In his opening remarks, Rob Lieblein, managing partner with Hales said that the insurance industry is coming off its worst year in decades. He said that 2010 will be better, noting that in terms of the negative organic growth brokers have experienced and the continued soft market premium declines "the base can't get any lower."

Part of the problem, he noted, is that the industry is "living by many flawed legacy" principals and that a repetitive strategy for growth is not maximizing shareholder value.

He said producers who fail to recognize that they need a better strategy for growth will not succeed and "if you can't you might as well sell."

Growth is essential to the future life blood of agencies as more of them grow to more than $2 million in premium, smaller agencies will not be in a position to compete, Mr. Lieblein advised.

Agencies are mistaken, he said, if they have any expectation that a hard market will help them out of their financial doldrums any time in the near future.

Despite everything that should indicate an upturn, a more realistic view is that there will be no upturn until 2011, and that producers cannot expect to see that flow through from those increases until 2012, Mr. Lieblein counseled.

"We are not going to be there anytime soon," he predicted.

In terms of merger and acquisition activity, Audra Szollosy, senior vice president at Hales, said that while economic factors may have pointed to more consolidation in the marketplace, the reality is 2009 was one of the least active in close to a decade.

She said a lot of that had to do with producers, hunkering "down and concentrating out their own business as they figured out all the negative factors."

One of the hot merger areas, employee benefits, took a hit over uncertainty with the health care reform, Ms. Szollosy explained.

While M&A activity remains quiet, she said that many of the primary acquirers of agencies are saying their pipeline is full and they expect to see more acquisition activity during the second half of the year.

"There appears to be a lot of irons in the fire and activity is expected to pick-up," said Ms. Szollosy.

Dan Price, vice president at Hales, said that one thing that has affected the M&A market activity is the increased time it takes to do due diligence. This is primarily because buyers are carefully evaluating an agency's worth, especially in the face of decreased profit margins amid an economic downturn.

In 2010, he said there will be an increase in acquisition activity among the publicly traded brokers as they will need to show revenue growth to investors.

He also said the value will continue to grow between high performing agencies and others, making it more difficult for deals to be done for those who believe they should get a higher price relative to the high performing firm.

The remaining three seminars are scheduled for April 22 in Chicago; May 12 in Dallas, and May 19 in San Francisco.

Details concerning the seminars can be accessed online at http://www.mergerandacquisitionsseminar.com/