There’s no denying the robust mergers and acquisition trend among wholesale brokers in the property/casualty insurance industry nationwide, and Texas is no exception.
But some Texas wholesale brokers and managing general agents (MGAs) with fiercely independent streaks say that while expanded firms may have a few advantages over smaller ones, bigger is not always better. They are resisting the healthy multiples that national brokers are offering, preferring instead to retain control over their own operations and crafting perpetuation plans that don’t include selling to outside entities.
By and large, the brokers and MGAs that have chosen to stay independent acknowledge the marketplace has its challenges. But, they say, they are doing just fine by continuing to do what they do best: building and maintaining relationships with both retail agents and carriers, and providing excellent service.
“We’ve grown from an $11 million wholesale operation to excess of $100 million in 2018 from doing nothing but growing organically and building on the relationships that we have,” said Landon Parnell, owner of LP Risk, which has offices in Dallas, Houston and San Antonio, Texas, and in Shreveport, Louisiana.
Parnell and other independent MGAs concede that many larger, retail agencies and insurance carriers are limiting the number of wholesalers they work with, and that larger wholesale operations often are able to structure special arrangements with insurers that smaller organizations cannot. However, they point out that the client base of smaller, independent wholesalers generally differs from that of large, national wholesalers, and that carriers appreciate the service provided by the small-to-medium sized MGAs.
Bill Brecht, founder and owner of Brecht & Associates in Grapevine, Texas, said he’s not really competing with the large nationals. With a focus on the trucking industry, Brecht & Associates’ “business is either with people that specialize in the trucking side of the business or with your smaller retail shops that don’t have a great number of places to go,” he said.
Like other independents, Karen Quirk, chairman and chief operating officer at San Antonio-based Quirk & Co., believes that smaller agencies need the service and attention that independent wholesalers can give them.
Quirk said while larger wholesalers may be able to offer certain things that smaller shops cannot, “there is a uniqueness to a regional wholesaler that has time for the smaller or mid-size retail market agents.”
She said Quirk & Co. looks for agency partnerships, seeking to “work with agents who want to work with us. When we get to working together and the synergy is there, we’ll get the job done because we know that we’ve got the companies to back us.” She said her company keeps its agency base small because of that focus on relationships and the needs of retailers. Bottom line, she said, it’s not about money, it’s about customers and it’s about service.
“It’s not that we don’t deal with some big retailers because we’re making some inroads with some in really cool ways,” she said.
Quirk said her vision for her company is “$100 million with 100 agents at year 100, which is in 12 years. That’s my goal. Because it’s not about the number of agents you have. I think we can be viable to 100 agents in a good and positive way.”
Amy Leicht-Craig, president of Craig & Leicht in Houston, said her firm is “hyper focused on service and we have to be, because our distribution is smaller and our products are smaller.”
Leicht-Craig has worked in both small and large wholesale establishments. Before they founded their own company just over three years ago, Leicht-Craig and her brother Matt Leicht, who serves as chief executive officer of Craig & Leicht, managed the Houston branch of the national wholesaler, RPS. They also learned the independent wholesale side of the business from their parents, who owned and operated a brokerage that was eventually sold to RPS.
Leicht-Craig said as a smaller wholesaler she’s found it easier to maintain closer relationships with retailers. “Because as you grow and get larger, your focus is spread in many different directions,” she said.
The “entrepreneurial spirit” led her and her brother to start their own operation, she said. “We really just wanted to do it on our own. We like to answer to ourselves. We like the idea of having control.”
Plus, with smaller operations, she said, “it’s easier to turn the ship. If you realize something’s not working, it’s easier to correct it. But as you get larger it gets harder and harder to make moves quickly.”
Glenn Hargrove, managing director of the Texas branch of All Risks Ltd., said regardless of size, an independent, privately held ownership structure allows for a flexibility in management that private equity or corporate-controlled wholesalers don’t have. All Risks, headquartered in Baltimore, Maryland, has nearly $2 billion in annual premium and operates nationally. But, Hargrove said, because it is privately held, All Risks has the ability to react to market pressures in the way that smaller independents do.
“When you’re privately held, whether you’re privately held like All Risk is with $2 billion in premium … or you’re $100,000 in premium and a smaller operation, you have that ability through private ownership to change direction, to be able to maybe make long term investments in some projects that aren’t going to pay off short term. You have the ability to discontinue operations and move, even if it may affect your financials in the short term. If you have ownership by an outside corporate entity or a large private equity firm or whatever, you have so many more voices at the table.”
Finding and retaining talent is one of the biggest obstacles faced by independent wholesalers, but they recognize they are not alone in dealing with that issue. After all, insurance organizations of all kinds need knowledgeable employees.
Hiring is definitely a challenge, said Leicht-Craig. “But I don’t think that’s a challenge unique to being an independent versus one of the big guys. I dealt with that when I was managing an office for a large corporation and I deal with that now.”
Along with high valuations that acquiring firms are offering potential sellers, the larger wholesale organizations also are upping the ante when it comes to salaries and hiring incentives.
However, some smaller shops have benefited from the impact of the M&A trend on hiring.
“When [companies] are acquired it tends to put a certain percentage of people that work for the firm into the market, which opens the opportunity for us to look at different people and say, ‘I think this person may fit for us,'” Brecht said. “That person has relationships that they’ve built over years and if we would bring that person on, a great deal of those relationships will follow. Because it is a relationship business.”
Quirk said she, too, has been approached by professionals that have been laid off from merging companies. But Quirk and others also say they are willing to go outside the insurance industry to find talent.
Quirk & Co. currently has employees representing every decade from the teens through the 70s, she said. And new hires are not all from the insurance industry.
“We are willing to take on the training of new people because we want to grow them our way,” she said.
Parnell said LP Risk also is “starting to expand outside of the insurance space,” approaching people from other industries and training them internally. That’s because, in Parnell’s view, it’s hard to see a return on your investment “when you’re paying somebody for their book of business and the multiples and sign on bonuses that we’re seeing in the industry today.”
Hargrove, with All Risk, said his firm also believes in organically growing talent and training its own producers and staff. It’s cheaper, he said, and “better because you’re able to build a training infrastructure and have a lot more resources for training and development.”
M&As to Continue
As long as cheap money is available, the mergers and acquisitions will continue, the wholesalers say.
Brecht and Associates, Quirk & Co., Craig & Leicht and LP Risk are all approached on a regular basis about their possible interest in selling, the owners say.
All Risks is more of an acquirer, but Hargrove said his company’s acquisitions are targeted with an eye for expanding capabilities or geographical presence, not for the sake of getting bigger.
Hargrove’s view is that while there are still deals to be made, the pace of M&A transactions among wholesalers could slow down simply due to attrition. Many of the independent MGAs that “could be sold have been bought,” he said.
To Hargrove, the most interesting thing about the current merger and acquisition environment is not that the M&A deals are occuring, it’s what happens after the sale.
“We’ve seen some pretty good success stories — firms that have been able to integrate their acquisitions and really get a critical mass and have it work together and become one company. And we’ve seen other firms that have done frankly a pretty poor job of being able to combine the entities and come up with a true team work across the acquisitions and the various companies,” he said.
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