Sensible Success

By | November 16, 2008

Focusing on One Industry Has Allowed Construction Specialist Allied North America to Grow Organically Through Even the Toughest Markets

Top 100 Agency Profile
Ranking: No. 6
Agency Name: Allied North America
Headquarters: Jericho, N.Y.
Year Founded: 1979
Additional Locations: 16 offices in 11 states adn D.C. with 18 profit centers
Specialization: Construction
2007 Property/Casualty Premium: $829.0 million
2007 Revenues: $86 million
Principals: William A. Marino, chairman and CEO; Henry Lombardi, president and chief operating officer.
Number of employees: 487

It would seem like a safe, sensible way to slowly grow a business — learn an industry segment, develop a business around that industry, and be content with a specialized, if not small, market space. Yet when Allied North America opened its doors in 1979 to serve the construction industry, growth came not slowly, but steadily and organically.

Even as it first began offering surety products to contractors in the northeast, the company had seen the potential in specialization. William Marino, chairman and CEO of Allied, started with surety, which quickly became his expertise. What followed was a level of service that elevated Allied to what is now the largest privately-held surety brokerage in the country, and helped the company to not only expand to the national level, but also become the industry standard of surety offerings and service.

Now the company handles much more than surety transactions. In fact, Henry Lombardi, president and chief operating officer, says Allied is used to taking on complex surety transactions. Lombardi, who joined Allied in 1987, has been on board for some of the more exciting changes and developments in the company’s evolution. He credits the success to the ability of great employees adhering to the company’s core value — serve the customer.

“We focus all of our energies, innovations and technology on helping contractors meet their needs and deal with the risks that are inherent to their business, be it insurance, safety or loss control,” says Lombardi. It shows. Even with some heavy economic pressure on both the insurance market and Allied’s core client base, the company is positioned to exceed $100 million in commissions this year.

Building a Specialty Niche

With its roots in Jericho, N.Y., Allied North America expanded shortly after its inception to neighboring areas in New York and Warren, N.J. Within a few short years, the company decided to develop an insurance practice in order to support the surety business. The mid-1980s brought the company’s wrap-up programs, a natural extension of the surety offerings. Soon to follow were loss control and safety products. Now the company has 16 offices in 11 states and the District of Columbia and 18 profit centers, as well as nine member companies in five states.

That’s all organic growth, too. Lombardi says the company’s quest to go national posed little, if any, challenge. “We’ve always felt we’d found the right people. Those people had the same passion, the same culture. We look to the people. Once you get the right people, the organization will do well.”

Today’s Allied menu of products and services is an exhaustive list of must-haves for the construction industry. Insurance coverage options come in both national and international packages. Surety services target contractors, commercial, and international clients. Plus the company now has a specialty risk management practice within the real estate, energy, transportation and marine markets. That’s not including the company’s focus on captive and reinsurance products and services.

Risk with captives and reinsurance is a relatively new venture for the company in the past three years. “It’s an area we felt had a lot of potential,” says Lombardi. “As the market has evolved, as contractors have taken on larger and larger assumptions of risk and deductibles, we felt that was something that we had to be involved in.”

Schematic for Success

With a relaxed, sensible approach to business that belies the attitude of much of the competition, Allied has been able to steer its offices and people through some tough markets. Marino and Lombardi, along with Chief Operating Officer Peter McGann, have developed Allied as a holding company with many offices, or “profit centers” working independently, yet in tangent with the corporate goals. Each office is headed by a president who serves as the decision maker for that operation. “We put a tremendous amount of autonomy in those offices, allowing those individuals to make decisions that are important for our clients,” says Lombardi.

Maybe it’s because the focus is solely on the client that it works. “We have what we call a single treasury. We worry about the client. We don’t worry about the revenue stream. We’re fortunate in doing that because the whole organization focuses on that. There are never any misunderstandings or misgivings about what we’re supposed to do.”

That’s what Lombardi believes is the company’s differentiating point. “There is a statement we play with — we’re a national broker with local flavor in that we deal with everything locally for the customers.”

In one of the toughest markets imaginable, Lombardi has only good news. “We will grow this year by 12 percent.” He attributes that to the company’s business model and core philosophy of taking care of customers and not chasing dollars. “When you talk about an industry that’s not growing, when you talk about all these companies that grow through acquisitions and then look for cost-effective reductions, those are things we don’t worry about. We are building a business. We are very successful and very profitable, but that’s not what’s important to us. One of the premises Bill came up with years ago was to deal with the clients, give them what they want, and we’ll be okay.”

Attracting top talent and potential profit center locations is also a sensible approach for the company. “We’ve turned down more people than we’ve taken in as partners because what’s important to us is that they’re not strictly focused on their revenue, on how much they’re making, but that they’re focused on what we’re building and where we’re going.”

Like everything else the company does, finding new talent is an exercise in patience and knowing one’s market. “We track talent throughout the industry. We attend functions and association meetings. We watch what’s going on. We look at who’s happy, who’s not, who is an upcoming star. Everyone always says this, but it’s about the people you hire.”

He echoes this in nearly everything that’s good about Allied. The company hires partners, he says, not just employees. When asked how Allied has managed to succeed in one of the toughest markets imaginable, Lombardi says, “It’s the people. It’s not us. I’m one person. Bill’s one person. We have great people. Our people are empowered. It’s an overused term, but we truly empower our people to make decisions. Do they always make the right decisions? Probably not. But as long as we keep making more right decisions than wrong ones, we’re doing alright. That’s also our management style. We believe in the people we have.”

Add that to the culture of client-centric business and one can see the way Allied has grown through organic means. “Our whole model is not about having to open three more offices or get into two more locations. Our issue is where do we see there’s a need that we can fill?”

That includes seeing potential areas to expand into within the construction market. Seeing the need and coming up with ways to fill it is how Allied has expanded throughout its history, and it’s a model the company is not looking to change. Lombardi says it’s because the company isn’t looking to meet some arbitrary deadline or attain some preset goal. “Once we see the need, then we decide how to fill it. It’s not like tomorrow morning we have a plan where we have to be in three more states.”

That’s not to say there aren’t goals that the company sets. With this year’s projected $100 million in commissions, up from $13.5 million just 11 years ago, the goal is to continue that progress. “We do have plans in place [to do that], but it’s not that the plan is going to drive us to make decisions that will take us away from our core of construction or of going into another discipline within construction.”

Industry Influences

Even so, Allied is not immune to the influences of adverse market conditions. Insurers are nursing slow premium growth and lower underwriting profits. Also, the construction industry is unstable thanks to a weakening real estate market and troubles in the mortgage industry.

Lombardi follows the construction and insurance industries very closely. “There are some concerns about what will happen to the industry in the next year. Contractors in general are going through some tough times. Contractors are concerned what revenue will be, how the state and local governments will get the funding to build the infrastructure. The federal government estimates $150 billion to redo bridges, yet where is that money coming from?

“There will also be changes, whether it’s privatization or different structures or mechanisms to finance these projects. I think all those things are going to be there. As a broker, we need to understand that.”

To have both channels of one’s business in an unstable condition is enough to keep many executives up at night. Lombardi tends toward a more balanced view of things. Citing his own company’s evolution, he says, “As with any organization, as you’re growing there are new challenges — to become a national brokerage firm, to deal with the geographic spreads, to manage a business. At the same time, you’re dealing with the variables of a changing market — soft market, hard market, 9/11. All of those things are happening as you’re trying to grow and convince people you can be a national platform. There’s really no model. As we’ve been doing this there has been no model for us to follow. We’ve come up with this on our own.”

He credits corporate values for getting Allied through tough times. “It’s the enforcement of what’s important to you — your values. That value of standing by and delivering what you say you’re going to deliver. All too often people make statements about being the client advocate or being focused on the client. In reality, it’s a great tagline for an advertisement, but do they live it? We live that. The difference with Allied is that Bill Marino and I are both active in the business. Bill’s expertise in surety is far superior. He’s actively involved in accounts. I’m involved in insurance. As we’ve expanded, we now have other partners and they also are actively involved. We are working partners. That’s the difference.”

New Areas of Practice

That concentration has allowed the company to remain focused on the client. Realizing that the market of their base client is currently in flux, Allied has introduced a new practice area — financing for contractors. “Right now we’re looking at the ability to fund projects. That’s a big industry concern. What concerns me is that insurance company margins are getting very tight. They themselves are looking at where their pricing is going.” As a result, contractors are finding it more difficult to not only secure funding, but secure coverage. The company offers financing to provide working capital as well as fund health care and leased equipment.

The company also now offers its Subguard product, a hybrid package that combines surety bond coverage with coverage that indemnifies contractors for costs resulting from a subcontractor’s default.

In keeping with the company’s current offerings in risk management, Lombardi says the development of the online risk management tool, MySocrates, has given more control back to the customer. “Our clients are able to set their stewardship reports and monitor us the way they want us to be monitored.”

That technology came from within. “Everything we do goes back to the client. We have our own programmers in-house. Everything Allied does is done here in the United States with our people. Our programmers go to client meetings to understand what the client needs are and what the client wants. We’re building a business around the client. We’re not building a business and then trying to export it to clients.”

Success Without Apology

Lombardi is quick to point out that not every decision made or employee brought on board worked out. With a casual tone, he equates mistakes with lessons to be learned. “We all make mistakes. The difference with us is that we have a philosophy — no decision is a decision. I’d rather have made a decision as long as we learn from it. Is everyone we’ve brought in still with us? No. There have been people who didn’t fit the culture, but that’s normal. What we’ve learned is how to respond better as managers, and how to respond quicker to things that maybe aren’t the right things.”

Despite mistakes at varying levels of the organization, Allied has persevered. “One key to our success is we were able to do something that I don’t think has ever been done before. Another key to our success is the people we have are truly unique. I don’t think you measure success by what account you got or didn’t get. You measure success on a more global approach. That is always being successful as a group.”

It takes also a passion for the client and the client’s well-being, along with a passion for the job and the people. “We all like and respect each other. As an industry, we’re excited about what we’ve accomplished.”

Was this article valuable?

Here are more articles you may enjoy.

From This Issue

Insurance Journal West

Insurance Journal Magazine