Agency Startups Defy A Hard Economy and Soft Market

The independent insurance agency system is enjoying a bit of resurgence. For years, the number of agencies in the country had been declining but that trend, while not reversed, has been halted. The number in 2008 was 37,500 — the same as in 2006.

That number is from the 2008 Future One Agency Universe Study sponsored by the Independent Insurance Agents and Brokers of America, Trusted Choice and several carriers. The study attributes the stabilization to two key trends: fewer mergers among larger agencies and more start-up agencies. Eleven percent of the agencies involved in the study were founded after 2004, and about 4 percent as recently as 2007 and 2008.

The new agencies appear to be concentrated in Florida, Louisiana, Texas and other states where coastal concerns have prompted some long-established insurers to reduce writings, creating opportunities for other carriers to wade in and appoint agencies. Also, some agents acquired years ago may be re-entering the fray as their non-competes expire.

Not surprisingly, most new ventures are small; few if any have the resources of, for instance, a giant like Marsh, which is behind one of the new agencies. But the new agency entrepreneurs are not small in ambition. Insurance Journal interviews across the country reveal these agency entrepreneurs have big plans and, in some instances, are showing promising early results.

Eyes on Marsh

In the Northeast, many eyes in the industry remain focused on one startup in particular: the soon-to-launch retail agency arm of New York-based mega-brokerage Marsh. In October, the company said it would set up a separate retail agency to go after a share of the $80 billion in premium paid by smaller and emerging growth companies. That entity – Marsh & McLennan Agency LLC – is scheduled to start hiring producers as it opens in select cities across the country in the first quarter of 2009.

Jack Butcher, president and CEO of the new venture, said the retail agency will conduct business separately from Marsh’s brokerage operations, although the launch is part of Marsh’s overall growth strategy.

Butcher said Marsh will pursue client-firms with revenue from $50 million to $75 million. Marsh lacks a large customer base in this range, and some of its brokerage division customers in this size range could end up becoming customers of the agency in the future.

Butcher declined to say which cities the new retail operation will launch. “When we do go live, this will be a national agency,” he said. “I do expect to have a footprint that will be attractive to carriers who are looking for an effective distribution model.”

He said Marsh will “almost certainly” look to hire producers to staff these locations, as well as use current employees. It will also look to acquire agencies. Marsh has named as chairman of the new agency, David L. Eslick, who most recently headed USI Holdings, where he negotiated more than 50 acquisitions over five years.

Marsh’s strategy – injecting new blood into an established system – is also being played out on an industry-wide scale across the country, as newly launched agencies look to 2009 as the prime time to make their mark.

Long-Term Outlook

In Florida, for instance, Kevin VanDyke and Andy Norman opened their agency, VanDyke Norman, around Thanksgiving last year. They’re already thinking big for 2009. The two plan to grow their Jacksonville-area agency by outselling other agencies, but also through acquiring commercial books or agencies.

VanDyke, a former president and CFO of a $130-million wholesale nursery, said the insurance and risk management issues he faced in that job, piqued his interest in owning an agency. “I always felt like I could offer people help based on my experience buying it,” he said.

His business partner, Norman, was a producer with a local independent agency, Thompson Baker Agency. His father had been a partner there before selling to younger owners. Those owners made Norman a job offer right after he graduated from college in 2002 and he signed on as a producer. As he gained more sales and experience, he grew impatient for the next phase in his insurance career. “I wanted to be an agency owner,” he said. “My previous employers kind of thought that, too, and they encouraged it but they weren’t on the same timeline that I was,” said the 30-year-old Norman.

They met through a mutual business contact, and used their own cash to bootstrap their new agency venture.

It’s a common story. Many of the faces behind new agencies are, like Norman, insurance agency employees looking to take the jump into ownership. For many who do, the possibility of a viable long-term business is the prime motivator.

“When I started thinking about what I wanted to do I knew I wanted to build something, bring my kids into it, something for our future,” said John Witty, who in September opened Chattanooga Insurance Agency in Tennessee.

“I realized having the income stream is nice but it’s nothing like owning your own business,” he said.

Witty had been both a captive agent and a producer in an independent insurance agency, but it’s not his first time owning a business. Prior to his insurance career, he worked for a department store. When the owner sold that business, Witty opened his own retail store.

“I’ve always had an entrepreneurial bend and I’ve always known that no matter what I do, at some point I would do it on my own,” he said. “The rewards if you are successful far outweigh the risks in my opinion.”

Witty has already lined up five carriers, and said that – if he can sign two more personal lines and commercial lines carriers, he’d “be set for the next 10 years.”

Profile of New Agencies

Source: 2008 Future One Agency Universe Study sponsored by the Independent Insurance Agents and Brokers of America, Trusted Choice and several carriers.