By Elisabeth Boone, CPCU
In the story of David and Goliath, the advantage first appears to be entirely Goliath's: he's huge, feared by all, and has no acquaintance with the notion of defeat. As his opponent, young David--armed with only a slingshot--seems hopelessly overmatched. The unlikely ending of this ancient tale not only surprises and gratifies us but also teaches us a valuable lesson: ingenuity and daring often trump size and reputation.
Amid the rough and tumble that characterize today's commercial lines marketplace, the legend of David and Goliath takes on a startlingly contemporary hue. At first glance, the power and influence seem to be the exclusive sphere of the undisputed giants: Aon, Marsh, Willis, and the like. With their tremendous size, sophisticated communication networks, and global reach, these titans have ready access to capital, can negotiate impressive concessions from insurers, and are able to deploy significant in-house resources for the creation of appealing new products.
Game, set, and match to the "big boys"? Not quite. Striding from the wings to play David to this Goliath is an entity that may lack bulk and instant name recognition but that offers some key advantages in the competition for a growing market stronghold: emerging and mid-market risks. In this article we'll talk with Tom Harvey, president and chief executive officer of Assurex International, to learn how this group of large regional brokers is becoming a formidable contender for dominance in the middle market.
The Assurex legend
What exactly is Assurex? When was it formed? What does it do? And what can it offer to the commercial insurance marketplace of the new millennium?
Established in 1954, Assurex was born out of the idea that today remains its guiding principle: By sharing information with trusted colleagues, each partner grows stronger, and their collective strength becomes a powerful force in the insurance marketplace.
"The legend of Assurex is that a trio of independent property/casualty brokers, each from a different part of the country, were meeting to develop strategies for landing a multi-location account," Tom Harvey says. "The account, I'm sure, was in the hands of an alphabet house that's since been acquired by a mega-broker. After two or three meetings, these brokers realized that they had a lot in common, that a lot of the problems each was trying to solve independently, the others either had solved or were working on strategies for solving: automation, finding producers, dealing with carriers, and so on."
In addition to discovering the power of sharing ideas and solutions with peers, Harvey continues, the brokers recognized another home truth: "Humans often tend to learn more from their defeats than from their successes. In particular, bright, intelligent, reflective people tend to look back on their mistakes and ask, 'How could I have done that better?'" It was the desire to learn, grow, and support each other that led those three original brokers to form what today is known as Assurex International, bringing together the top independent brokers across North America.
The willingness to share mistakes, solutions, and successes, Harvey observes, is limited by brokers' understandable reluctance to discuss such matters with direct competitors in their local marketplace. To dispel that reluctance and promote the candid exchange of information, the founders of Assurex agreed to select only one broker from each market area. "The mission of Assurex back in 1954--and the essence of what we do today--is to bring together the best and the brightest commercial insurance agencies to learn from each other and to win and serve multi-location clients," Harvey explains.
Suiting up for the game
Playing David to the mega-brokers' Goliath takes all the skill, cunning, and dexterity a daring competitor can muster. A look at Assurex International's structure and operating philosophy sheds light on the advantages it brings to the hotly contested middle market playing field. Many of these advantages can best be appreciated by contrasting Assurex with the "big boys" of the commercial insurance marketplace: Aon, Marsh, Willis, and other powerhouses.
Unlike these titans, whose stock is publicly traded, Assurex International is privately owned by its 68 North American partners. "Everyone who joins Assurex buys 20 shares of our stock, and if they leave, Assurex buys it back," Harvey explains. "We're a private company, and we will always be a private company; we have no plans to take Assurex public." Joining Assurex, he points out, is in no way comparable to being acquired by a major brokerage and giving up ownership and self-determination. Each Assurex partner operates autonomously, exchanging information with noncompeting colleagues and retaining all the benefits of independence.
Advantages of autonomy
This independent status, Harvey observes, gives Assurex partners some key advantages over the mega-brokers. First, they can attract talented people with the promise of equity ownership, an appealing "carrot" for professionals who value the opportunity to own equity in a growing small company. What's more, he comments, "A small firm led by its owners tends to have much more grit and determination when faced with challenges" than does a huge corporation whose executives often are protected from the consequences of their decisions by lucrative "golden parachutes." Further, he says, "Given their flexibility and relatively small size, regional brokers can make key decisions faster. These days, with clients demanding speedy responses, the swift often beat the slow--just as, in the old days, the big beat the small." Another advantage Assurex partners offer is stability. "Our Assurex partner in Columbus, Ohio, is not pushing to get promoted to the Chicago or New York office," Harvey points out. "He's deeply involved in his local market. He sees his clients all the time at the country club, restaurants, church; these are long-term, stable relationships, and he's not going to let his customers down."
Together, the 120-plus Assurex International partners (68 in North America and some 60 other countries) generate annual written premium volume of $13 billion, making Assurex the world's largest privately held commercial insurance brokerage group and third largest in commercial insurance brokerage revenue. "When we look at the typical North American Assurex partner, with $13 million to $14 million in revenue and $130 million to
$140 million in premium volume
(25 of the 100 largest brokers in the United States are Assurex partners), in many second-tier cities Assurex partners are the biggest game in town," Harvey declares. Assurex partners operate more than 300 offices around the world and employ over 12,000 professionals to serve clients everywhere.
Partnership: the rules
A brokerage can become an Assurex partner by invitation only, and it must meet specific, rigorous criteria both to qualify for and to retain partnership status. "On the front end of our relationship, when we have a vacancy in a market area and we're looking for a new Assurex partner, we conduct a thorough review of the larger independent commercial property/casualty agencies in that marketplace, and we obtain referrals from our friends at the company level and from our in-house database," Harvey explains. Each partner is selected on the basis of its premier market position, history of growth, quality, breadth of services, integrity, and commitment to serving the clients of all Assurex partners. "We're looking for people who are growing, who are doing clever, innovative things they can teach us about, and who are open minded and eager to learn," Harvey comments.
Helping to round out the picture of an Assurex partner are the group's admission standards. Potential partners must bring:
* Expertise in solving problems unique to the firm's geographic area
* Broad access to insurance markets
* Financial strength that reflects sound business practices
* Commitment to conducting business for the long haul
* Active participation with other Assurex partners to solve client problems
Assurex also requires that partners have a professionally qualified and highly motivated staff with insurance and risk management expertise in:
* Property and casualty sales/service/marketing
* Life, disability, and group employee benefits sales/service/marketing
* Property and casualty claims service
The partnership commitment
Once approved and accepted, Harvey explains, an Assurex partner makes a commitment to respond immediately and professionally to requests from other partners for advice on local insurance conditions, for assistance with local placement of coverages, and for help with other services such as claims and loss control. "This commitment is at the heart of why our system works," Harvey says, "because if you call me and ask me for help or ask a question, that goes to the top of my to-do list, and I call you back that same day."
To keep the lines of communication open and to promote the exchange of ideas and experiences, Assurex partners meet every six months. This practice also reinforces the importance of acting quickly on partners' requests for advice and assistance, Harvey points out. "If I'm going to see you every six months, I'm much more likely to be helpful and responsive than if I never meet you face to face," he says. In addition to these twice-yearly sessions, Assurex arranges national meetings of partners' chief financial officers and international, sales, information systems, marketing, and benefits managers.
Information sharing is facilitated not only by meetings but also through electronic communication. An internal network via the Internet is anchored by a password-protected Web site that contains the names and addresses of more than 1,500 key managers and employees. Assurex partners can search for specialty products, unique coverages, and other information. Ad hoc requests are broadcast to all partners, and responses are returned and stored for future reference.
Peer evaluation
To keep Assurex International strong and growing, each partner is evaluated every three years by a committee of its peers. "We maintain complete information on all our partners--their financial status, growth rate, participation in problem solving with other partners, and their responses to our surveys," Harvey says. "If a partner is experiencing a period of negative growth, we ask them for a business plan, and then we help them get back on track. If a partner needs assistance in a particular area such as perpetuation or sales training, we can identify another partner who has that expertise and will share it on a confidential basis. Then we track the partner's performance to the business plan, and if that performance doesn't come up to standards within a specified time period, we may ask the partner to resign. This process is essential to ensure that all of our partners are growing and contributing and are always the best and brightest."
Defining the middle market
Assurex International partners focus on middle market commercial risks, which Harvey describes as the "growth engine" of today's economy. "Regional brokers serve emerging and mid-market clients, which are growing substantially across North America," Harvey points out. "In fact, the Fortune 1000, where the big boys focus, has actually shrunk as an economic mass; over the last 12 years, they've lost about 11 million jobs. We have Fortune 500 companies on our customer list, but we're really fishing below that level."
In pursuing mid-market business, he notes, Assurex partners don't limit themselves to specific target industries. "Our zone is accounts that generate commission income between $15,000 and $150,000 and higher," he explains. "We write everything: auto dealers, hospitals, lawyers, accountants, e-commerce. We'll take on a commercial account regardless of its industry and try to meet all of its needs for insurance and related products and services: property, casualty, employee benefits, executive life insurance, financial planning for senior management." Some Assurex partners do human resources consulting and can serve as the HR specialist for the client. Other partners manage 401(k) programs, are involved in employee leasing operations, or handle payroll processing.
"Our goal is to provide the chief executive officer and chief financial officer of a mid-market client a whole range of services and to become their trusted, indispensable adviser, comparable to their lawyer or accounting firm," Harvey continues. "They look to us for risk management solutions. Many customers don't have a risk manager; we're their risk manager. When the client's property and casualty policies come up for renewal, it's a no-brainer, because we're involved in so many aspects of his or her business."
Employee benefits, Harvey points out, now constitute 40% of Assurex partners' business, whereas just five years ago it was 25%. "When you wake up the CEO of a mid-market company in the middle of the night and say 'insurance,' he or she probably doesn't think about property or casualty insurance; he thinks about health insurance, because his rates are going to the moon," he comments. "That's why Assurex partners are required to have a benefits capability. The needs of our target market require us to go beyond property and casualty insurance and provide the spectrum of products and services."
Going global
Assurex International's slogan, used as a tagline in all of its advertising materials, is "Think Globally-Insure Locally." To help its partners meet the needs of mid-market prospects and clients, who increasingly are expanding their operations overseas, Assurex has created an entity that is charged with providing assistance in the global insurance marketplace. It also has formed a strategic alliance with a leading network of European brokers to strengthen its partners' hand in international marketing.
In January 1999 Assurex formed the Assurex Global Services (AGS) division to help its North American partners assess prospects' global risks and troubleshoot clients' international problems. Serving as AGS president is David Hokanson, a risk management professional with 15 years of insurance industry and international experience. "AGS was formed in recognition of the reality that over the last few years, our client base of mid-market and emerging risks has been moving aggressively overseas," Harvey explains. "When an independent broker encounters a risk with cross-border exposures, that broker generally doesn't have the experience to handle it, so he or she either looks elsewhere for international expertise or decides not to pursue the prospect. Our partners were telling us, 'I need someone to call on the account with me, help me understand its strengths and weaknesses, create a proposal that is superior to what the incumbent is providing, and show the prospect a plan that can deliver seamless service.'"
To fund Assurex Global Services, Harvey continues, "We persuaded the Assurex partners and some carriers to support us financially during the startup phase. We've spent the last year or so visiting our Assurex partners, helping them design programs and create competitive options to pursue the business that many of them were not pursuing because they lacked the expertise to solve the prospect's problems." Thanks to the AGS initiative, he notes, Assurex partners are landing more lucrative accounts with cross-border exposures, and also are writing increased amounts of reverse flow business. AGS's strategic insurance company partners are ACE, Atlantic Mutual, Chubb, Fireman's Fund, Royal & SunAlliance, and UnumProvident, all of which are significant players in the global market.
With AGS in gear, how does Assurex International stack up against the "big boys" in terms of global reach? "When I joined Assurex in 1992, I think we had representation in eight countries," Harvey says. "We realized that, of necessity, we do play the 'dots on the map game,' because prospects say, 'You're only in 32 countries, and Big Broker is in 64 countries, so he must be twice as good as you.' We understood that we had to expand our global network. That's what David is doing, and we're now in more than 60 countries, compared to 80-plus for our competitors. We're on the way to filling out the globe."
As further evidence of Assurex International's commitment to helping its partners compete in the international market, Assurex Synergy Group - ASG was formed in July 1999 as a collaboration between Assurex International and Synergy Europe. ASG represents the founding members of Synergy Europe (HSBC Insurance Brokers of London, Groupe Verspieren of Paris, Leue & Nill of Dortmund, Germany, and Pulsar Holding of Milan, Italy) and Assurex International. ASG has the resources to represent clients and prospects in more than 100 countries worldwide, allowing Assurex partners to compete effectively with mega-brokers in the global marketplace.
Support from affiliates
Assurex International's partners not only enjoy the advantages of an expanding international network; they also benefit from access to a host of services and products provided by three Assurex affiliates: Assurex Development Corporation (ADC); Professional Agencies Reinsurance, Ltd. (PAR), a Bermuda captive facility; and Quadrant Insurance Managers, a managing general agency.
Assurex Development Corporation: "ADC was created in the mid-1980s as a joint venture between Assurex and six carriers: Atlantic Mutual, CGU, Chubb, Hartford, Kemper, and St. Paul," Harvey explains. "ADC's goal is perpetuation: to maintain the regional broker network in North America. That's why those six insurers support ADC--because regional brokers like Assurex partners bring them good, stable, profitable business." Using capital committed by the insurers and a bank line of credit, ADC provides planning assistance and low-interest loans to partners for agency perpetuation, management transition, and acquisition initiatives.
ADC supplies funding for Assurex's Eagle Loan program, which Harvey says is designed to help partners hire a talented and experienced person who could ultimately become a manager and part owner of their agency. Under the program, a partner can borrow up to $100,000 a year for three years to cover half the cost of compensating an "Eagle": an aggressive, entrepreneurial, results-oriented individual with a minimum of 10 years of successful business experience, not necessarily in the insurance industry. An Eagle must have the potential to become a meaningful owner and a significant agency leader in five years or less. The loans are made at a competitive interest rate; for the first three years the recipient pays interest only, then repays principal and interest over the next three years. The Eagle Loan program, Harvey says, is part of ADC's goal of independent agency perpetuation.
Professional Agencies Reinsurance (PAR): This facility was created in 1986, with support from Fireman's Fund, to provide errors and omissions coverage to Assurex partners. "E&O insurance for regional brokers virtually disappeared in the hard market of 1986 and 1987," Harvey comments. "My predecessor, Bob Ashlock, surveyed the partners about their E&O losses. He discovered that, although they couldn't get insurance, they didn't have very many losses. In concert with some consultants, he designed a comprehensive quality management program to help our partners manage their E&O exposures. With the courageous support of Fireman's Fund, when a lot of pundits warned them they'd lose money, Assurex created PAR as an agent-owned reinsurance facility to back up Fireman's Fund's paper." A year later, Harvey continues, "The Council of Insurance Agents and Brokers became a cosponsor of PAR, and we have about 100 insureds in the facility right now."
Quadrant Insurance Managers: Assurex created this managing general agency in 1992 to promote programs for partners to sell on an exclusive basis. "The rationale was that several of our partners were very active in offering statewide or regional programs for various niche industries. In forming Quadrant (originally called Assurex Marketing Group), our strategy was to create a national distribution capability and provide products for Assurex partners to sell." (Assurex is now a minority owner of Quadrant; the majority stake is held by US RE Companies, a large independent reinsurance broker.) Quadrant can design state-of-the-art reinsurance programs with competitive reinsurance placements, captive management solutions, and actuarial and MIS capabilities. Assurex partners receive program/product-specific training that helps them begin to develop a specialty in the particular class of business they will be offering.
What's ahead?
For Assurex International, there's no such thing as sitting still. "We're all about growth, and we're always working on ways to help our partners grow," Harvey declares. One of those ways, he says, is what Assurex calls the "trustmark initivative," which is designed to increase the organization's visibility and name recognition. "We're doing space advertising on a wide scale, and we've created an attractive, sophisticated brochure," he says. "All of our partners now include the phrase 'An Assurex Partner' in their logos. We've been featured in several thousand articles in both regional and national publications, and we have a public Web site that's very active. We have a terrific newsletter that our partners can personalize. We've raised our visibility at RIMS (Risk and Insurance Management Society), and I was interviewed on CBS's MarketWatch." Assurex has been pursuing its trustmark initiative in North America for the past few years, Harvey comments. "It's something we'll continue to expand and accelerate, but now we're doing it on a global scale. We need to tell the world about Assurex."
Another initiative is aimed at helping Assurex partners find their bearings in the emerging world of electronic commerce. "We're looking at e-commerce and trying to figure out what our role should be there," Harvey says. "We really think our role is more in the arena we call e-service, which is facilitating communication among the broker, the client, and the carrier; and that's different from e-commerce. We're not as much concerned with selling insurance over the Web as we are about moving information to help our clients be better informed and to make the process more efficient."
A major challenge for Assurex, and another key initiative, is in the arena of sales management. For Harvey, who began his career in sales at Xerox, aggressive sales management is a way of life. "I understand aggressive sales management, and our Assurex partners agree with me that they, and the property/casualty industry as a whole, need to strengthen their sales management capabilities," he says. "Selling insurance isn't like selling Xerox machines, so what I have to teach them wouldn't be relevant. The wonderful thing about Assurex is, we have some partners who do this extremely well, and they can teach other partners how to become outstanding sales managers in an environment they understand."
It's no secret that the bottom has virtually fallen out of the middle market, and Harvey is keenly aware of the challenge this presents to Assurex partners. "The middle market has been a very difficult place for our carriers to succeed, and that is of great concern to us," he remarks. "The carriers need to firm their rates so they can make money; we don't want suppliers who are losing money. We need to work more closely with them and help them deliver to their shareholders a competitive return on investment. A 6% ROI, which is what shareholders received last year, is not competitive. We also need to help our clients understand the realities of the insurance business; that just as they can't sell their products at a loss, neither can our carriers sell insurance at a loss."
At its heart, Harvey observes, insurance is a relationship business: relationships between brokers and their clients and between brokers and insurers. At Assurex International, which seeks to bring together the best and the brightest of regional commercial brokers, it's relationships based on trust, integrity, and commitment that power the success of partners across the continent and around the globe. To the mega-brokers, a word of caution: Don't forget who triumphed in the standoff between the mighty Goliath and the nimble and daring David. *
The author
Elisabeth Boone, CPCU, has more than 25 years' experience as an insurance journalist.
Assurex International
445 Hutchinson Ave., Columbus, OH 43235-1408
Phone: (614) 888-4869 Fax: (614) 888-6378
Web site: www.assurex.com