Building on strength

Multi-pronged growth strategy drives Burns & Wilcox to new heights

By Elisabeth Boone, CPCU

You’re the largest independently owned specialty wholesaler in North America, with hundreds of markets, a wealth of underwriting expertise, and a reputation for skill and integrity. Does it get any better than this?

If you’re Alan Jay Kaufman, the chairman, president, and chief executive officer of Burns & Wilcox, the answer is an emphatic “yes.”

Since the firm was established in 1969 by Kaufman’s father, the late Herbert W. Kaufman, it has pursued growth on a variety of fronts. In hard and soft market cycles alike, the wholesaler is committed to growing both organically and through strategic acquisitions, and Burns & Wilcox also invests significant resources in technology, recruitment and training, and continuing education for employees. Burns & Wilcox targets large and middle market accounts and represents more than 250 domestic and international insurers, including Lloyd’s of London. The firm has relationships with more than 26,000 independent retail agents and brokers of all sizes across the country.

Kaufman also is chairman, president and CEO of The H.W. Kaufman Financial Group, which is the parent of Burns & Wilcox and such old-line wholesale operations as Rathbone, King & Seeley Insurance Services, Floyd West & Co., Cravans, Dargan & Co., and Howard James. The H.W. Kaufman Financial Group also operates Burns & Wilcox Re, a reinsurance broker; R.B. Jones, a specialty insurance broker serving wholesalers and specialty retailers, and Royal Premium, a premium financing company.

A profile of Burns & Wilcox appeared in the October 2002 issue of Rough Notes (“High-Risk Challenges, Smart Solutions”). At that time the property/casualty business was in the grip of a post-9/11 hard market, whereas today the industry is in its third year of a soft cycle that features the usual intense competition and rate cutting.

We asked Kaufman to update us on the key developments that have taken place at Burns & Wilcox over the last six years, and also to offer his perspective on current market conditions.

Growing and changing

In 2002, Burns & Wilcox had 30 offices in 21 states and conducted operations in 49 states. “We’ve opened some additional offices since then,” Kaufman says. “We now have 38 offices in 24 states. We continue to grow in premium volume, although the pace of growth is not as rapid because of current market conditions.”

The same market conditions are creating favorable circumstances for Burns & Wilcox to continue its pursuit of strategic acquisitions. “We continue to look for opportunities, and we believe that at the end of the year we’ll be a larger company because of our acquisition activities,” Kaufman asserts. “I anticipate more acquisitions coming down the pipeline, because the soft market will allow us to complete transactions on favorable terms. The high cost of technology and the shortage of qualified people in our industry mean there will be more consolidation.”

Kaufman points to a related trend. “Over the last couple of years, a number of large brokerage and underwriting houses have been sold to private equity investors and to non-insurance company ownership such as banks,” he remarks. “Two examples are Aon’s sale of Swett & Crawford and the sale of Crump by Marsh, in both cases to private equity, which generally has short-term ownership. We believe there’ll be even more of a spinoff of companies via this route.”

Although it is the country’s largest wholesaler, Burns & Wilcox doesn’t focus only on acquiring other large entities, Kaufman emphasizes. “Some companies will make acquisitions only if they’re large ones,” he comments. “We will make acquisitions of any size. We’ve even acquired firms with only four or five people because they’re excellent people, and we want to bring them on board. Our number-one interest in acquisitions is the talent that comes with them,” Kaufman asserts. “We’ve made a number of acquisitions like that and opened some offices across the country. For example, our newest office is in Monroe, Louisiana, where we acquired a small firm earlier this year.

“Of course,” he adds, “we also pursue large acquisitions, especially on the brokerage side where we have a significant amount of business—about 30% of our total volume. In today’s market, brokerage is where the greatest volatility exists, and we find that volatility creates acquisition opportunities for us. Some large brokerages are being acquired, and others are closing offices. We’ve hired some excellent brokers as a result of the consolidation that’s taking place in the brokerage segment,” Kaufman says.

While Burns & Wilcox pursues growth in the domestic market, it also is expanding its global footprint, Kaufman notes. “We place a significant amount of business—some 10%—in the London market,” he says. “In terms of having the underwriting pen, we’re one of the largest facilities in the London market.” To enhance the firm’s presence in London, Kaufman says, “We recently entered into a joint venture with a company we’ve been doing business with for 20-some years, C.J. Coleman & Co. We formed a London brokerage operation called Coleman & Kaufman, and we will use it for placement of business in the London market.

“We also see opportunities around the world to use the London market for business that comes our way, whether it be from North America or from any other part of the world,” Kaufman adds. “The London market, we feel, is still the center of the world insurance market, and we believe our joint venture will give us a better handle on what’s going on in the market because we’ll be there on the ground. We’ll continue to use our long-term London brokerage facilities as well.”

Investing in the future

While adhering to old-fashioned values and standards, Burns & Wilcox management recognizes the importance of being on the leading edge when it comes to information technology.

“We have a significant investment in IT, and our IT platform continues to expand,” Kaufman says. “We’re working on new architecture to provide better service to our agents more expeditiously and to enhance our connections with our insurance company partners. Time is everything, and if we can quote and bind business and broker business more quickly, everyone benefits,” he comments.

“In both personal and commercial lines, we have automated programs where agents can complete and submit applications online and we can generate quotes on a timely basis,” Kaufman says. “On some personal lines business, policies can be both quoted and bound online.”

On the carrier side, he adds, “We have a virtual network where we’re able to connect with our companies to search and find the best market and coverage for a retail agent’s client.

“Document management is another phase of our IT investment,” Kaufman says. “We’re in the final stages of a two-year project to go paperless throughout our network of offices across the country.” Going forward, he says, “We will continue to invest heavily in technology, and we will use technology to leverage our underwriting and brokerage talents to help us achieve our goal of expanding worldwide.”

Another area in which Burns & Wilcox makes a significant investment is recruiting and training employees who can help the wholesaler achieve its objectives in marketing, underwriting, brokering, and service to agents. “We recruit from universities across the country and around the world, and we also seek seasoned veterans,” Kaufman says.

“Our candidates like us because we’re a family-owned company that’s been around for a long time, and they prefer to join a company where they know the ownership and know it’s not going to change. As a result, our recruiting efforts have been very successful, and we’ve been fortunate in attracting talented people from what is a very small pool,” Kaufman notes.

Cutting-edge products

“We compete at the highest level, and there’s a great need for products that respond to the needs of our marketplace,” Kaufman says. “We try to be ahead of the curve in anticipating the need for products to address new exposures and improve coverage opportunities for our agents.”

The strong and growing “green” movement is one such exposure, Kaufman points out. “Alternative energy, like wind and solar power, is a rapidly growing field, so we’ve designed products for that market,” he says. “We recognize that the trend to build green homes and commercial facilities will continue as the cost of energy continues to increase. We are developing products now to protect the people and companies who design, manufacture, and install green equipment and construction components,” Kaufman comments.

The subprime mortgage meltdown and foreclosure crisis also have created a need for new products, Kaufman observes. “There are a lot of vacant properties out there, so we’re offering coverage for that exposure. We continue to be very involved in the umbrella market because we see an ongoing need for umbrella protection for both individuals and commercial risks. That’s an area where we have considerable expertise in our specialty niches,” Kaufman remarks.

“Catastrophe coverage obviously is needed all over the country,” he continues. “We have an office in New Orleans that writes a tremendous number of CAT policies because of the coastal exposures in Louisiana as well as Florida, Texas, Mississippi, and the Carolinas.”

Another growing market for Burns & Wilcox is cyber risk, Kaufman says. “We offer products for many kinds of technology risks, including software developers and manufacturers. The technology area will continue to expand, and we want to be at the forefront in offering products to meet those needs of our agents and their clients,” he asserts.

“We also have a large presence in the recreation and special event market,” Kaufman says. “Despite the slowdown in the economy, there’s still a wide range of special events that need appropriate coverage. And people are still pursuing recreational activities like rafting and hunting, even though they may be staying closer to home. There’s a big need for coverages to address these exposures, so we’ve expanded our capabilities in that area.”

State of the market

As an attorney and veteran of the property/casualty business, Alan Kaufman has insurance in his blood. He is a keen observer of the market, legal climate and the forces that drive change in the insurance world.

After the terrorist attacks of 9/11 and the severe hurricanes of 2004 and 2005, “we moved into a hard market, with rising rates and declining capacity, after many companies relocated or expanded or opened facilities in Bermuda,” Kaufman says.

“The result was a huge influx of capital into the insurance market and, specifically, the niche specialty markets that Burns & Wilcox is involved with. This globalization of capital eventually led to the soft market in which we now find ourselves. Now we’re seeing what I think are poor underwriting decisions, and companies like ours and our competitors are losing business to companies that normally would not be writing specialty classes,” Kaufman remarks.

“We’re seeing a significant reduction in premium because there are too many companies chasing the same business,” he continues. “This competition always starts with the very large risks and continues to trickle down. We fortunately have a substantial amount of business with premium averages of approximately $8,000, and we find that those accounts have experienced less of a challenge from other companies.”

How long does Kaufman believe the current soft market will last?

“I think it will endure to 2010,” he responds. “I see 2009 being another difficult year. We’ll see some positive changes in 2009, but we won’t really feel their effect until 2010, unless there are major catastrophes. All things being as they are today,” Kaufman remarks, “there’ll be more consolidation. The dollar will strengthen again; there’ll be some changes in the world economy, and that will have an effect on the insurance market. In the meantime, the soft market unfortunately will take its toll on a lot of companies, brokers, and MGAs.”

Gaining an edge

The property/casualty business is nothing if not dynamic, and large wholesalers like Burns & Wilcox are particularly challenged to position themselves in a marketplace where flexibility must be balanced with stability. We asked Kaufman how he sees the Burns & Wilcox “advantage” with respect to competitors.

“We serve retail agents from the smallest up to the very largest international firms in the world,” Kaufman says. “We’re comfortable working with all of them. Our size allows us to compete with anybody at any level. We are able to represent all of the companies we wish to do business with in both a brokerage and underwriting capacity. We have the pen exclusively for many companies, which many of our competitors would like to secure,” Kaufman continues. “That distinguishes us from our competitors.

“Some of our large competitors have minimum premiums such as $25,000, $50,000, or $100,000, and they handle only certain types of business,” he comments. “Conversely, many of our smaller competitors are able to do business with smaller agencies only. Also, we have a network of offices throughout the country, and some are specifically equipped to deal with certain kinds of agencies. Because all of our offices are connected, we can offer our agents the appropriate office for their clients’ needs nationwide,” Kaufman explains.

“We do not write everything—for example, we don’t handle workers comp or personal auto—but in the specific areas on which we are focused, we provide complete coverage and service to agencies of all sizes.”

Another competitive advantage, Kaufman points out, relates to the ownership structure of Burns & Wilcox. “We are a privately owned family company,” he says. “We are only in the insurance business, and only on a wholesale basis. That is unique, especially for companies of our size. We are interested only in serving retail agents and brokers; we don’t compete with them. We answer only to our agents, not to anyone above us who might make decisions that would be in conflict with our values,” Kaufman asserts.

It’s a source of great pride to Kaufman that his late father, who owned a retail agency before entering the excess-surplus and specialty lines business, chose to sell 100% of the retail firm so he could dedicate himself completely to serving retail agents and brokers.

“I think my father had great foresight to see in the mid-1970s the potential for conflict in owning both a retail agency and a wholesale facility,” Kaufman says. “He had been in the business, which was a family business, for many years and had developed close relationships with his clients, so it was very difficult for him to sell his highly successful retail agency. In terms of what he wanted to accomplish in life, he believed that he could be either a retailer or a wholesaler, but he couldn’t be both. Obviously,” Kaufman observes, “he made a great decision—because the rest is history.”

Throughout its existence, Burns & Wilcox has carefully balanced its proud history and tradition with its commitment to meeting the needs of an ever-changing insurance market. Firmly dedicated to perpetuating his father’s legacy, Alan Kaufman seeks every opportunity to continue the company’s mission of building on its strengths and maintaining its history of high integrity, innovation and service. *

For more information:
Burns & Wilcox
Web site: www.burnsandwilcox.com