Opportunity knocks for independents: it's fat city for independent brokers today—and not just because of Eliot Spitzer's investigation, which has companies wondering just who exactly their broking bedmates are

Risk & Insurance, July, 2005 by Lawrence Richter Quinn

To be sure, New York Attorney General Eliot Spitzer's probe has companies of all sizes reaching out to the independent or regional brokers, in many cases for the first time. "There's no doubt about it: Spitzer's probe is an opportunity for us," says Richard C. Hylant, president of independent Hylant Group. "We've been contacted by many risk managers or consultants representing them, customers we've never actively courted, and a number outside of our Upper Midwest footprint."

"Nationals are no longer the safer companies," says Marshall Sosne, CFO at privately-held Waterford, Mich.-based Dunham's Althleisure Corp., a sporting goods retailer working with Hylant and a former Willis client. "There's much more turmoil at the largest companies, and, as with Arthur Andersen, you have to ask if they're going to be there for the long haul."

The risk management community, brokers say, isn't alone in pushing the new interest. Far more important, they say, may be questions asked by boards and audit committees about broker relationships--a subject that rarely, if ever, has captured their interest in the past.

"The opportunity for the independents is large--and not because risk managers are initiating contact on their own," notes Henry Good, the former corporate risk manager for chemicals manufacturer Rohm and Haas and now a risk management consultant for Redwood City, Calif.-based broker ABD Insurance and Financial Services. "All of a sudden treasurers, CFOs and audit committees have to understand insurance. Because of Spitzer, if you're a CFO you're going to be asking, 'Are we dealing with the companies under investigation? Are we paying too much?' And that starts the process."

Of course, with Spitzer's investigation, a number of companies have been looking into whether their brokers charge contingency fees. They are moving aggressively to protect themselves in the aftermath, working only with brokers who forgo those fees in writing.

"There's an opportunity for regional and smaller brokers because there's much more transparency," says Randy Triplett, director of risk management at American Greetings in Cleveland, who's been doing business with Hylant for more than three years and still maintains a relationship with bruised giant Marsh. "Because they're smaller, you can see how they're doing their business. It's much easier to know what's going on with your account."

THE ICING ON THE CAKE

Regardless of who's pushing for a re-examination of broker relations internally, it's clear that the new business is icing on the cake for independents large and small. Even if individual brokers pick up no business whatsoever as a result of Spitzer, the independent community is thriving--and has been for some time.

Indeed, a bevy of multinationals has been doing business with the independents for years, helping to smash age-old presumptions about them--namely, that it's not worth doing business with them because they don't have the international offices and reach of the giants New York-based Marsh, Chicago-based Aon and London-based Willis; can't get the same or better pricing than these three giants do from insurers; and don't have the same close relationships with insurers that lead to speedy responses and greater flexibility in contract negotiations.

"Some may question whether the independents have the clout and leverage to stand at the table with the largest insurers," says Hector Mastrapa, vice president of insurance at Bethesda, Md.-based Marriott International, which does business with independents Beeeher Carlson in Atlanta and Early, Cassidy & Schilling in Rockville, Md., as well as with Marsh and Willis. "We have found that they do.

"The independents have just as strong relationships with large insurers as our larger brokers, and they work extensively with them," says Mastrapa. "In addition, accounts like Marriott tend to draw the attention of key markets anyway. So size and clout haven't been an issue for us, and they've been able to deliver for us."

What's the primary reason both multinationals and midsize companies have been seeking out the independents? Service. "They're responsive to my needs instead of what they want to sell me," says Dennis Benniee, president of Dana Risk Management Services Inc., the risk management arm of Toledo, Ohio-based auto parts company Dana Corp., which has worked with Hylant Group for close to two decades. "They take time to understand my business, and they don't blow smoke my way."

A common beef: Usually the "Big Three" deliver on the front end--during the "procurement process"--but fail to deliver with back-office operations, both in terms of quick turnaround and accuracy.

"If you can achieve similar procurement results from either a very large or smaller independent, yet the larger broker doesn't perform well on back-end service, why should I continue to spend the equivalent or even larger fees to engage the larger broker?" asks Gary E Kilburg, assistant treasurer of risk management at Benton Harbor, Mich.-based Whirlpool Corp., which worked with Marsh exclusively until July of last year, and now gives about half its business combined to independents ADB and Beecher Carlson.