Insurance brokerages who merge ‘have to share the same principles,’ says former IBAO pres

Insurance brokerages should have a “diversity in skills” among shareholders and should communicate their succession plan to employees and while acquisitions are one way to grown, most mergers and acquisitions fail, speakers said Tuesday at the CIP Symposium in Toronto.

Having a succession plan “and telling your people about it allows you to find very smart very effective staff,” said Rodney Hancock, the London, Ont.-based president and chief executive officer of McFarlan Rowlands Insurance Brokers Inc., which has 15 branches in southwestern Ontario.

“We are keenly interested in building a business that is going to last for a long time,” he said during a seminar session at the CIP Society Symposium, titled Growth: Challenges of Getting Bigger.

“For us, growth and perpetuation go hand in hand. You have to have a perpetuation plan in place long before you are ever going to need it,” Hancock (pictured below) told an audience of about 50 during the seminar.

The CIP Society Symposium was produced by the Insurance Institute of Ontario, Greater Toronto Area and held at the Toronto Region Board of Trade in First Canadian Place, which also houses the Bank of Montreal’s head office.

Hancock – a former president of the Insurance Brokers Association of Ontario – started his career in insurance in 1979 with Rowlands Insurance Brokers Ltd. in London.

“We had six people and we handled $1 million gross premium” at the time, he said, adding the firm grew by acquiring other brokerages.

Between 1980 and 1985, Rowlands went on a “buying spree,” acquiring 10 brokerages in five years. Eventually, the firm acquired 44 brokerages.

“We recognized that we were better at buying brokerages than we were at cold selling insurance, so hence we focussed on retaining what we bought and developing strong relationships with clients in order to do that,” he said.

But up to 90% of corporate mergers and acquisitions fail, warned a co-panelist, Dr. Richard Hackman, who is trained as a physician but is vice president of health care at Strategic Resource Consultants Inc.

“I think the hardest part of merging is the first year,” he said. “The failure rate in the first year – it’s a disaster.” Dr. Hackman was commenting on mergers and acquisitions in general, not just on the insurance sector.

One reason a merger can fail is the effect it can have on morale, Dr. Hackman added.

“Change often is difficult for employees,” he said. “Sometimes change adds stress to the people.”

Another reason is clash of cultures.

“Many companies do not have the same culture,” Dr. Hackman noted. “They struggle. The culture is very very important. If you look at the negative impact, this can produce sometimes people looking for a job, looking for an exit.”

Related: Profile (Rodney Hancock) – The Long Run

Hancock had some tips for brokers looking to grow through mergers and acquisitions.

“Identify the people who see the world the same way you do,” he said. “That’s important. They have to share the same principles.”

Brokerages should also have a shareholder-employees with different skills.

“On the one hand, you want a broad range of owners,” he said. “While brokers are essentially sales organizations, you don’t want just the producers making all the decisions. On the other hand, I believe that too many cooks spoil the broth, so I am constantly reminding my shareholders that if everyone is thinking the same, somebody is not thinking. We believe there should be a diversity in skills that the shareholders bring.”

Rowlands merged with McFarlan Martin in 1998.

“They saw the world as we did, so that really solidified our place,” said Hancock. Today, he said, there is one firm “that nobody sees” that owns 15 brokerages.

“We have 14 shareholders that own that company,” he said. “All of those shareholders are employees.”

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