January 2010 | New York RIMS Chapter Monthly Breakfast Meeting
Things are going great and they’re only getting better. I’m doing alright. Getting good grades. Future’s so bright, got to wear shades. Timbuk3
In this third week of January, when health care reform got derailed and the Dow dropped 400 points, Pat Gallagher, Chairman and CEO of Arthur J. Gallagher & Company declared that the future looked bright for the insurance brokerage business. Consolidation will continue in the brokerage sector. Employment opportunities for agents and brokers, underwriters and claim adjusters will abound and insurance capacity will expand.
”What a difference a year makes!” Pat laid down plausible reasons for this optimistic outlook. First, he gave us a synopsis of the near collapse of the global financial system, drawing upon Andrew Ross Sorkin’s bestseller, “Too Big to Fail.” That the notional value of credit default swaps could grow to be two and one-half times GDP was an “incredible breakdown of ERM.”
What the insurance brokerage business will look like.
Insurance brokers will thrive as the economy expands. The demand for insurance will grow as sales, payrolls and investment grow. Double digit rate-cutting is over, so brokerage commissions will move upward. Unlike previous hard markets, he predicted, there will be no sharp increases in rates, nor shortages of product for brokers to sell.
Competition for business will be greatest in the middle market segment populated by businesses and organizations that pay higher rates than Fortune 100 Companies and who usually do not have full time risk managers. Organic growth will be difficult in this contested segment. Growth will be achieved through consolidation as smaller family-owned brokerage firms sell out to larger brokers. Arthur J. Gallagher, he said, will continue to be a consolidator.
Achieving organic growth will depend on how well brokers project their value proposition in the middle market, which for Arthur J. Gallagher, is comprised of the following elements.
Value Proposition
A couple of statistics Pat disclosed that caught our eye were that:
Arthur J. Gallagher, he said, will be successful because of its culture. “We’re just different.” Having worked with clients on competitive broker selections, risk management reviews and claim audits involving several different Arthur J. Gallagher offices, we would not be surprised to see them succeed with their new shades on.
P.S. On Friday AJG closed at $22.70 per share, up 50 cents for the week.