Canadian Underwriter

Strength in Numbers

October 9, 2018   by By Michael McKiernan

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ci0918_navacordIn 2015, Petrela Winter and Associates, one of Canada’s few insurance brokerages devoted entirely to the construction industry, found it was barely able to keep up with demand.

President Gregory Petrela had taken the reins from his father, the Toronto-based company’s founder, in the late 1990s, and since then, had expanded its core bonding offering to include a wider variety of insurance options for contractors.

But, as Petrela readied himself to take the business to the next level, he wasn’t a fan of the choices in front of him.

“Historically, when an insurance brokerage wanted to become part of something larger, the only real option was to sell outright to a consolidating business, and give up your equity. But when you lose all the skin you have in the game, you can kiss goodbye to making your own calls and steering your own ship,” Petrela explains. “That might be a good option if you’re ready to retire and cash out, but I was in my late 40s, with no intention of slowing down, let alone getting out of the business altogether.”

Around the same time, Petrela began exploring the possibility of linking up with Navacord, a partnership of commercial insurance brokerages from across the country. And, by June 2015, Petrela Winter and Associates had made the decision to become one of the earliest additions to the Navacord stable.

“It was the only option for someone like me: still in building mode and with a long runway, but who wanted to be part of something bigger,” Petrela says. “We maintained meaningful equity in the business, but nothing changed with respect to its operations, personnel, location or culture.”

Marshall Sadd, Navacord’s executive chairman, says Petrela was exactly the type of partner he envisioned when Navacord was founded in 2014 as a partnership between Jones DesLauriers Insurance, Lloyd Sadd and Fairfax Financial Holdings.

“Both broker businesses were looking forward to the future of broker distribution in the Canadian marketplace. Insurance companies and big U.S. publicly traded brokerages were buying up independent brokerages 100 percent,” Sadd says.

“Selling out wasn’t in our DNA, so we decided to create something unique together,” adds Shawn DeSantis, president and CEO of both Navacord and Jones DesLauriers. “We wanted to build out the business and turn it into a great Canadian commercially focused brokerage.”

Four years on, Navacord bills itself as Canada’s fifth-largest commercial broker, with more than $700 million in annual premium generated by its 10 broker partner firms.

Having experimented as a former founder-member of the Canadian Broker Network, Sadd is keen to stress the difference between that group and the level of integration required of Navacord members.

“This is not a network,” he says. “It’s a fully financially aligned organization, operating under one umbrella.”

When Navacord partners with brokerages, key figures not only retain an interest in their existing businesses, but also take a stake in the parent organization. The newly expanded Navacord now has more than 80 shareholders, and growing, from brokerages dotted across the country.

Still, individual brokerages are afforded a great deal of independence after the tie-up.

“We want to support their entrepreneurial spirit—not kill it,” DeSantis says. “Our average shareholder is 44 years old and very ambitious. They understand the human capital of the business, and across the organization, we’ve got 500 talented insurance professionals that I would put up against anyone in the industry. They are the ones who drive our business.”

As Sadd says, “For us to change how they work would destroy the franchise value they’ve built up over the years. We’re there to help them scale up and deliver better service to clients, through best practices, synergies and better technology.”

In addition to back office support and cutting-edge broker management systems, Sadd says individual brokerages are making use of Navacord’s deep bench of experts in commercial insurance niches.

“With collaboration from different business units, they’re able to go after clients they weren’t traditionally able to,” he explains.

DeSantis says the extra heft also gives its members clout with the insurance companies who underwrite their policies.

“They are looking for more volume and premium, and brokers need to be part of something bigger to get the right service and compensation levels,” he says.

Making an impact

Martin Thompson, the president and CEO of RSA Canada, says Navacord has made an impact since its arrival on the scene four years ago.

“Obviously, we had relationships with a lot of their individual members, but what we have noticed in our discussions is what I would call a broader and more strategic conversation about industry sectors and growth,” he says. “I would say that size and scale is less relevant for us than the expertise that they bring to the table.”

Roger Swierstra, president and co-founder of Iridium Risk Services, a Calgary-based brokerage that specializes in the energy and marine industries, was another early convert to the Navacord model. His firm joined up in 2015, within a year of the organization’s foundation.

Swierstra says joining Navacord has improved Iridium’s corporate governance, financial planning and overall operations in the ways he hoped it would. But he has also been pleasantly surprised by the rapport building between the growing band of broker partners.

“Each addition brings their own fresh ideas and concepts that make us all stronger,” Swierstra says.

Twice a year, key principals of each individual Navacord brokerage come together for what they call “Founders Circle” meetings to discuss the organization’s priorities and future direction.

“Entrepreneurs love talking to other entrepreneurs, and that collaboration has been fantastic,” Swierstra says.

He adds that his customers are also reaping the rewards of Iridium’s membership in Navacord, in the form of better coverage, pricing and turnaround times.

“We have a collective premium volume that allows us to go toe-to-toe with national brokerages, and puts us and our policyholders at the top of the pile with insurers, where we might not have been before joining,” Swierstra says.

Still, he says Navacord’s hands-off approach to the management of individual brokerages means the changes at Iridium may have been too subtle for many customers to notice. That may change in the coming year, as Navacord rolls out a marketing plan that will introduce some common brand styling and colouring, as well as identifying brokerages more prominently as members of the Navacord family.

“It’s more of a brand evolution,” Sadd says. “Our local brands have a lot of goodwill in their communities, and we don’t want to lose that. Having the two attached is the best of both worlds, because it signals that it’s a local entrepreneur backed by a national-size brokerage.”

Steady growth

2018 has been a busy year for Navacord, which added three new brokerages between April and August, expanding its reach in the process to B.C. The arrival of Wylie-Crump Limited—another construction-focused firm—was Navacord’s first broker partner headquartered outside Alberta or Ontario.

In addition, Fairfax’s shares in the business were purchased in July as part of a management-led buyout, with the help of private equity investment firm Madison Dearborn Partners.

Sadd and DeSantis say the deal positions them perfectly to execute on an aggressive growth plan, with no sign of the organization’s activity level slowing down in the near future. Having doubled its revenues from $60 million to $120 million since forming four years ago, Navacord is plotting a repeat over the next four or five years that will see it hit the quarter-billion-dollar mark.

“We’ve got some great partners already, and we’re looking for more mid-market, broadly held commercial brokerages. Our pipeline is full,” Sadd says.

Petrela admits that joining Navacord felt like somewhat of a leap of faith, given the organization’s relative youth when he joined back in 2015.

“It was a bit like getting married. Everything seems to point to it working, but then you know that half of them break up,” Petrela says.

After building a successful business over 25 years in the industry, he was apprehensive about what changes the deal might entail.

“We got our strong upper hand in the construction industry by doing things a particular way, and when you’ve got a good recipe, you don’t want to mess with it,” Petrela says. “We were very deliberate about the process and getting to know the partners. You want to make sure you’re compatible before you do something irreversible, and we had a good feeling about it. But it has worked out better than we hoped.”

“In a way, it has allowed us to have our cake and eat it too. We get that critical mass and market reputation without having to give up the culture or boutique nature of the firm,” he adds.

As time passes, Sadd says he has less work to do pitching to potential partners.

“It’s not a hard sell: they’re much more comfortable because we have this track record,” he says. “I don’t think people need to be convinced, because they can see that we’re the right model to perpetuate broker distribution in Canada. For most of them, it’s a question of timing and where they are in their business cycle.”

“We’ve validated ourselves as a significant option for brokers when they’re making choices about their future,” Sadd adds.

Swierstra says Navacord offers a new type of succession plan for brokers who are willing to think well ahead of retirement. In his case, he says the deal was spurred in part by the desire of an older partner to exit Iridium.

“The principals didn’t have the money to buy him out, so joining Navacord allowed us to make the transition and stay in the business as owners,” he says. “Navacord really understood the importance and power of employee ownership at the brokerage level, because those tend to be the businesses with the higher performance, higher margins and superior service.”

“Every situation is unique, but we’re very flexible,” says DeSantis, who adds that Navacord has structured deals in a variety of ways during its relatively short history.

“We can work with a principal who wants to leave, but we want to make sure the brokerage continues and expands,” he says. “If it’s a personal brokerage with one principal who wants to get out, then we can help facilitate an equity transfer to the next generation, and bring in the future leaders.”

At RSA, Thompson says he wouldn’t be surprised to see other organizations attempt to emulate Navacord’s model in the future.

“To survive as technological developments continue in the industry, brokers need to be working at scale,” he says. “There are other vehicles out there, and none are identical, but one thing that will continue in the future is consolidation in broker distribution.”

Bring on the competition, says Sadd.

“Potentially, anyone could put a plan together. The challenge is executing on it.”

Copyright © 2018 Transcontinental Media G.P. This article first appeared in the August edition of Canadian Insurance Top Broker magazine

This story was originally published by Canadian Insurance Top Broker.