By Phil Zinkewicz
Marshall P. Kath is CEO of Heath Insurance Brokers.
Sometimes, as the poet says, "the best laid plans of mice and men" ... well, you know the rest. You chart a course, paying close attention to the logs of all the navigators that have gone before you, and you believe firmly that your ultimate destination will be reached. Then, an unexpected storm brews and you have to improvise, ride the waves and hope for the best.
Back in the early part of the last decade, the well-known London broker C.E. Heath had a destination in mind. That destination was the United States. It was at that time that the Heath Group decided to establish a wholesale brokerage operation and potential production source in the United States. The Heath Group's plans were well laid out, based on historical data. In 1991, it had been four or five years since the last "hard market." History had indicated that the market, which had been soft since the late '80s, was bound to harden once more. A ramp-up period of two years was all that was needed to successfully position the new venture, called Heath Insurance Brokers based in Dallas, when the market turned.
But the market didn't turn. In fact, the insurance marketplace remained soft throughout the '90s and is only now beginning to show signs of hardening and even only in certain lines. Nevertheless, against great odds, Heath Insurance Brokers grew from zero in the early '90s to just over $340 million in premium volume last year, writing commercial insurance and financial services products for middle market and national accounts.
"As it turned out," says Marshall Kath, CEO of Heath Insurance Brokers, "we didn't even need a hard market. Today, we have ten physical locations geographically positioned around the United States. This tapestry allows us to efficiently, yet effectively, cover the key areas of commerce."
How did Heath do it? They did it by bringing together a group of experienced insurance brokers, establishing a flexible approach towards evaluating risks and, in effect, becoming "troubleshooters" for the retail property and casualty insurance industry.
"We're mindful of the fact that there is more than one choice in wholesale specialty lines brokers," says Kath. "Much of our success has come from the fact that we simply ask our retail agents to think of us when their problem needs a second opinion. The account may not be that problematic but another viewpoint wouldn't hurt or perhaps some reference points are needed on price. Our brokers do this all the time at no charge.
"Conversely," continues Kath, "we want them to think of us when the account has driven them up a wall and they don't know what else to do. Even with decent lead times, it may be patently obvious that accessing specialty markets is the way to go. And, of course, we want them to think of us when their established standard market carriers have left them high and dry in the 11th hour without a quote. While last minute requests are not the way to live, we're certainly used to them and are quite capable of dealing with looming deadlines. In fact, some of our best work has come out of incredible time constraints."
Kath maintains that one of the keys to Heath's success is the recognition that it must provide superior markets and insurers to retail agents. Those markets include "A" rated, well-capitalized companies that are capable of delivering products and services responsive to the types of accounts in the specialty marketplace. "Currently, we place business with over 500 markets and approximately 270 insurers," Kath says. "Penetration of the marketplace with those kinds of numbers speaks well of our ability to identify the markets we need and to obtain the necessary appointments to represent them. And yet, the insurance industry is built around relationships. Approximately 83% of our business resides with our top 20 markets. Nevertheless, one of our stated goals is to increase our current leadership with our top markets while concurrently identifying and plugging in with new market entrants."
That task has fallen to John Rath, senior vice president of market development, whose background includes a wide variety of responsibilities including program development work. He has experience with AIG and Cigna, an alternative risk organization and a wholesale broker. Working along side him is Dave Condon, senior vice president of product development, whose responsibility is to "get the ideas out of the lab and on to the plant floor." Condon's background includes, among other things, underwriting and claims experience, retail and wholesale production responsibilities, and reinsurance development. He is also an attorney and assists Heath in coverage and exposure analysis.
Condon echoes Kath's belief that Heath's success has come about because of the firm's ability to tackle tough problems that retail agents face. "The tougher the problem the better," he says. "Working on easy ones means others can more readily copy our successes. Implicit with this is an emphasis on solving a specific problem versus too general a problem. We're never married to a particular prototype. What we are committed to is stringent research and the development of empirical information that will ultimately support the underlying product design and pricing. Moreover, we're not averse to contracting with additional experts. For one current product in development, we've engaged an outside economist to help us with the econometric modeling."
While Heath principally relies on the property and casualty arena for its book of business, it is also heavily involved in the executive protection and financial services world, according to Rath. "We have brokers dedicated to handling various professional lines of insurance such as errors and omissions, directors and officers, employment practices liability and so on," says Rath. "Their area lends itself extremely well to partnering with our retail agent customers for the purpose of developing a collective strategy for each account. Basically, they act as an extension to the agent's in-house capabilities adding coverage analysis, form comparisons, etc." In order to fully exploit all of these opportunities, this area of specialization is the focus of a separate financial services national practice leader, Cindy Stowe, who has worked with a major bank as well as AIG and Chubb."
CEO Kath emphasizes that Heath's staff has worked well together to hone the wholesale broker's reputation with retail agents as "troubleshooters." Says Kath: "The maxim that you're only as good as your people is certainly true for us. Our brokers and their related staffs represent an eclectic group that has diverse educations, varied work experiences and broad skill sets. These broad expressions of individuality have actually resulted in our being fairly creative. Our brokers' thrill comes from 'doing the deal.' They recognize that we occupy one of those creative parts of the insurance spectrum that is characterized as tough or last-minute. Hearing 'no' from one of their underwriters just means that they've got a little bit of extra work to do. But at the end of the day, they're confident they will have placed the account with just that right market to provide just those right terms and conditions so the insured's needs are met."
Heath's emphasis on individuality extends to the ten branch offices as well as to members of staff. Each office has its own business plan proxy, he says. "There is no corporate mandate that each office look the same and, to the contrary, each office is encouraged to build itself based on its innate strengths and the uniqueness of its marketplace. Certain common business processes, such as technology and finance, are centralized in our corporate office to take advantage of economies of scale. Otherwise, the organization is kept relatively flat so decisions can be made quickly and nimbleness can be retained."
That nimbleness may very well be sorely needed as the standard market slowly hardens, almost a decade after Heath initially thought it would. "Traditionally, when the standard market tightens up, business that standard companies had been writing moves back into the specialty market," says John Rath. "There's no question that we're inundated with more submissions. The market is hardening in areas such as workers compensation and commercial auto and trucking. Those are segments we serve very well."
Heath already does business with about 2,500 retail agents. "We're looking to increase that amount," says CEO Kath. "We believe we have many things to offer retail agents, especially because of our independence. We have no ownership with any U.S. retail property/casualty insurance operation. This independence allows us to be a working partner with our retail agent customers and not a competitor," he says. *
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