Not your father’s wholesaler

November 19, 2006

Much is said about retail agents having to change with the times and stand out from the crowd to survive. But what about wholesalers?

Wholesale brokers are also trying to differentiate themselves, hoping retail agents will notice them over their competitors as the best vehicle for placing hard-to-place risks.

With an estimated 800 or so wholesalers in the country, one article can’t possibly capture all the models out there. But it can highlight a few.

New York-based wholesaler Mercator Risk Services has had the advantage of starting with a new chassis in building its model. Since it was launched in January 2006, Mercator has acquired several brokers, recruited key people around the country and, according to Chris Treanor, chief executive officer and president, listened to what retailers have to say.

“As a new entrant into the marketplace, and a startup, we really spent about six months in the marketplace, talking to retail brokers,” Treanor says. They asked the top 100 retailers, face-to-face, what they liked and what they didn’t like about the wholesale model.

“I often say, if there’s 500 wholesalers in the United States, and we come in with the same business model, as the 501st, there’s really no need for anybody to turn their attention to us,” the Mercator CEO said.

So Mercator went about building a wholesale model unlike the others.

“As opposed to having our brokers really act as individuals who are out in the marketplace selling themselves and their expertise and their services one-on-one, if you will, our business model is around the organization,” explains Treanor.

Mercator has what Treanor calls a “team of relationship managers” who have two functions. First, they spend time with the retail brokers to understand their needs. Second, they are responsible for bringing the right experts in on every account.

“So they’re not selling themselves, they’re talking about the organization, and they’re bringing in the right team of people, organizationally, to solve that customer’s problem,” Treanor says. “It’s a different approach. It really allows us to drive much different levels of expertise and to deliver that expertise efficiently. We really believe that in today’s environment what retail customers and their clients are looking for is institutional problem-solving, a collaborative environment. We definitely don’t sell individuals; we definitely sell the team and the organization.”

But what motivates these individuals to continue to work as a team? Aren’t they dependent on commissions like other producers?

“That’s the Rubicon that we crossed, and sets us apart from a lot of folks. We don’t pay our producers individual commission,” Treanor stresses. “We give incentives to everybody in the organization based on the results of the organization. They have to contribute to that performance but at the end of the day, they don’t have a disincentive for bringing another resource in, because anything that they can do to help get the win is going to work to their benefit. So it’s not just about their individual performance, it’s about the success of the entire team.”

Treanor thinks this team compensation model is where the industry as a whole is headed.

Proven model

It wasn’t all that long ago that AmWINS, or American Wholesale Insurance Group in Charlotte, N.C., was the new kid on the block. When Steve DeCarlo and Ernie Telford got together in 2002 to launch AmWINS, they shared a vision of a wholesaler that was big enough to have market clout yet smart enough to let individual brokers retain their independence in their relationships with retailers.

Upon launching AmWINS, DeCarlo and Telford said they listened to retail agents who had longed for a wholesaler that was big enough to meet their needs but that wouldn’t compete with them on the retail side.

In 2005, with large retail brokers looking to divest their wholesale operations, AmWINS saw an opportunity. Willis Group sought to sell off Stewart Smith, its sizable wholesale unit that placed about $900 million in premium a year. For AmWINS, purchasing Stewart Smith represented opportunities to develop relationships with national retail brokers while also diversifying its product offerings, geographic presence and distribution force.

The Stewart Smith acquisition in April 2005 brought AmWINS’ total premium placements to over $2.4 billion. Today AmWINS is considered the biggest wholesale broker in the country with a whopping $2.8 billion in premium volume and 35 offices.

While its growth has been impressive, AmWINS isn’t satisfied. “[W]e are very much in a growth mode — that is organic growth,” says Mark Smith, who joined AmWINS from Stewart Smith. The former president and CEO of Stewart Smith became president of the AmWINS Brokerage Division, directing the businesses that include AmWINS Brokerage, Property Risk Service and Stewart Smith. He also has responsibility for expanding AmWINS Brokerage.

Smith wants to grow the brokerage unit by giving retailers more than the excess and surplus lines products they are accustomed to getting from wholesalers. He is going beyond the typical model by starting a division to offer standard markets to retail agents.

“It’s something we can bring to the retail community, ones that have lost carriers, who are down to one or two,” explains Smith.

The standard market offerings will include auto, homeowners, business owners, workers’ compensation — markets not typically found on a wholesaler’s shelf.

Smith hopes that helping retailers with markets they need, including standard markets, will help AmWINS attract more retailers and encourage a spillover effect. “We’re looking to expand our base of retail brokers, and naturally they’ll have some specialty business that we hope to capture based on doing a good job on that business,” he adds.

AmWINS is big enough to do this on a big scale. “It’s going to be a national operation, so it’ll be across the country,” according to Smith.

The result could redefine what a full service wholesaler is. “It’s not just E&S distribution, it’s product — across the board,” he says.

Westrope in the center

In the middle of the country there is a wholesaler who takes his position in the center seriously. While other brokers spread out their experts across the country, Kevin Westrope keeps them close by, right in the headquarters of the Kansas City brokerage that bears his name.

The Westrope team has its key players all in one place, where they write a lot of construction, property and agribusiness accounts. “We have a team of professionals in our property unit, all of our people are located in Kansas City, all of our brokers are also located in Kansas City, and we have a team of about 47 people in that unit,” explains Westrope.

It’s not a team held together by virtual or long distance connections; it’s physically together. “We work together. There’s seldom just one of us working on an individual risk. We’re in proximity to one another, so we can discuss what’s happening in the marketplace, offer solutions and suggestions about a particular way to go about structuring a deal to get it done.”

Might this be a more centralized approach than some other brokers?

“It absolutely is. [W]hile we have offices around the country, our brokers are all, essentially working in Kansas City. The way we look at it is, they essentially go to bed in some other cities, but their job is in Kansas City and the team is in Kansas City. We think it allows us to control the quality of the product that we’re producing in the marketplace a little better.”

This central team approach — and the resulting production of some $300 million in business from one office — is something surplus lines carriers are not used to but come to appreciate, he says. “For surplus lines carriers, it makes it very easy for them to do business with us. We are one central point. We’re also a point that is a little bit off the beaten path, —Kansas City. Most surplus lines carriers want to put another pin in their map, and so we become pretty important to people.”

Westrope contends the centralized team is efficient for everyone, particularly in today’s market where one account might require lots of coordination and multiple carriers to complete. “[W]here a year ago, working on an account, we might use two carriers to put together a deal, this year we may have as many as 12-15 to put on that same deal, and may not even be able to provide the same amount of limit.”

Westrope continues to grow. “We think potentially that we’ll grow as much as another 35 percent this year.”

No question that the growth will come from the center.

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