Canadian Underwriter
Feature

Joint Forces


April 1, 2011   by Vanessa Mariga, Associate Editor


Print this page Share

A long-rumoured spate of merger and acquisition activity finally seems to be gaining traction in the Canadian marketplace. Big brokerage firms and insurers are clearly on the acquisition trail, and many point out it’s becoming tougher for independent firms to remain truly independent.
 
How to avoid getting swept away in the merger mania? Marketing clusters, management groups and broker networks are by no means a new phenomenon, but some suggest these types of organizations are gaining importance in the current environment.

A marketing cluster or management group is essentially the banding together of several smaller firms – typically in the same general geographic region, but with enough space between them so that they’re not in direct competition with one another. The firms form an entity in which they pool their respective premium volumes and share costs for infrastructure. Although they leverage shared premium volume to negotiate with carriers, the firms still operate relatively independently of one another, each with its own principal and management team.

Broker networks, on the other hand, differ from management groups or marketing clusters. In a broker network, the firms operate entirely independent of one another. Membership within the network is tightly controlled, with members signing confidentiality agreements. Once in, member firms meet on a regular basis and share crucial information – financial performance records, for example – in order to help one another develop best practices. The networks are not meant to operate in place of broker associations, but serve as a compliment. Membership tends to be much smaller. And whereas associations serve as advocates in the political realm, the focus of the network is entirely inward, on improving the operational side of the business.

Management Groups

“Clusters or management groups have been around for a number of years and it is a good way for smaller operations to manage through difficult times in order to maintain a good representation of market and choice,” said Randy Carroll, CEO of the Insurance Brokers Association of Ontario. “We have not really seen an increase of late, but we had a slight increase in the number of mergers and acquisitions. For brokerages restricted to few market choices or that are looking to gain access to markets without selling, it’s an option worth considering.”

Rick Elliott, principal of Elliott Nixon Insurance Brokers Inc. in Blyth, Ontario, says being a member of Huron Insurance Managers Group (HIMG) has allowed his firm to retain a focus on offering personalized client service and building solid relationships that he feels are typical of smaller firms, but with the benefits of being a part of a larger organization. HIMG is comprised of five independent firms in southwestern Ontario (the other four are in Brussels, Goderich, Seaforth and Linwood). In a small business, employees frequently have to be jacks-of-all trades, he says. But when resources are shared across the group or cluster, that eases the day-to-day operational burden, allowing employees to specialize or really focus on an area of the market.

“We have support from the other offices [and that has] certainly enhanced the job for the customer service representatives,” he says. “So they always have other people they can call on if their management team is away.”

When the group first formed, each office had individual and separate broker management systems (BMSs). The overhead of sustaining their own individual BMS grew increasingly onerous for each of the firms; quite a bit of redundancy existed between the businesses. When HIMG came into fruition, they developed a minimum standard for workstations and consolidated their BMS and servers. Essentially, the five firms have a digital pipeline between one another that allows instant communication and information transfer, as well as online meetings.

“If someone is working on a piece of business and they’re not sure which market to use or who to talk to, we can direct them to the best market,” Elliott says. “That speeds the quote back to the client and it gets bound. The management group allows us to lean on one another.”

Costs for BMS or server infrastructure are spread evenly across the firms. But each firm is required to cover the costs of their own internal infrastructure such as workstations, printers, etc.

Coordinating these types of investments requires a balanced approach, Elliott observes. Some firms are larger than others in the group. It may be tempting for them to push the costs of upgrades onto the smaller ones, eventually wearing them out financially.

“We try not to be on the bleeding edge of technology,” Elliott says. “We work through these decisions together. This is not a melting pot. Each member has to realize that what seems appealing for an individual firm may not be best for the group. And ultimately, what’s best for the group is best for the individual firms.”

Overall, Elliott said his brokerage is still the same small brokerage, just within a larger group. “But now we have the time to put better business on the books, which is beneficial for the carriers, and makes for positive long-term relationships with both the insureds and the insurers,” he said. Also, he added, members of the group have outpaced carriers’ premium growth.

Networks

Networks, on the other hand, allow brokerages to operate entirely independently of one another. But as friendly competitors, they work together to develop practices that they believe will help them compete against larger conglomerates.

In Canada, these ‘self-help’ groups have come and gone in various incarnations. The Canadian Broker Network (CBN), comprised of 12 independent commercial firms from across Canada, has been in existence for roughly a decade.

Bruce Rabik, chief operating officer at Rogers Insurance in Calgary, says the group has evolved to be extremely tight-knit, with trust being the cornerstone of its existence.

“We share complete financial statements with one another, because that’s what really facilitates deep discussion about why one firm is doing so well on an expense line, or in a segment of the market,” he says.

Members are tightly screened. Each firm has an opportunity to veto a new member. Confidentiality agreements are signed, and the group tries to keep membership numbers relatively small and spread across a vast geographic area.

Daryn McLean, principal of Moore-McLean Corporate Insurance, is also a member of CBN. “There’s a real trust issue that we’re not going to compete for staff and business,” McLean says. “I think it’s very important from an independent standpoint. We have very strict criteria. We don’t want to add brokers for the sake of adding them.”

Both McLean and Rabik’s firms have joined an international network, Intersure.

Intersure is a North American-based network of independent brokers with just under 40 members in Canada, the United States and Mexico. It is based on the same basic principles of trust and the sharing of knowledge, but members of the network also have reciprocal agreements; thus, if a Calgary-based brokerage has a Canadian energy company travelling to Mexico, they can bind coverage through the local office.

“Intersure extends our firm’s reach across North America,” Rabik says. “It provides us with a very powerful competitive advantage.”

For the most part, U.S. brokers face challenges similar to their Canadian counterparts, he says. “So it’s been an incredible learning experience from them, even for the little things, like including the number of years an employee has been in the industry on the name plate of their office,” Rabik. “That sort of thing is small, but can make a big difference with clients.” 


Print this page Share

Have your say:

Your email address will not be published. Required fields are marked *

*