The survival of Integro Insurance Brokers revealed the need for a brokerage that focused on the most complex corporate risks.
By CYRIL TUOHY, managing editor of Risk & Insurance?
In July, Peter F. Garvey, co-founder, president and CEO of Integro Insurance Brokers in New York, spoke with Risk & Insurance? Managing Editor Cyril Tuohy. Garvey, a former executive at Marsh, launched Integro in May 2005.
Q: You started this company just a little over five years ago and it's been quite a ride. What were your highest and lowest points over the past five years?A: The high point is that we did have a vision for a client-centric model for complex risks in the marketplace, and we've achieved that.
We've moved that concept from vision to reality. What's gratifying now is that the clients that have supported us are not only renewing their programs with us, a fair number are expanding their existing programs with us significantly. Our renewals are even better than the pace we set for ourselves. Clients with large, complex risks are looking for valuable advice and other analytical services a broker can provide them. Clients are looking for support beyond the act of simply procuring insurance for them. We offer those solutions to them.
As for the other end of the spectrum, our lowest point over the last five years, it would have to be--like everyone else--not having had the foresight to anticipate that in first couple of years of our existence we would be faced with the worst economic environment of our lives. This deep economic downturn required us to regroup, retrench and refocus.
Q: Is the company where you believed it would be at the five-year mark?
A: Yes. We have a strong and growing book of business. Our clients are staying with us and in fact, increasing the amount of business they are doing with us. It was critical to refocus the business on the reality of a measured disaggregation and still achieve success. I would also note that we have not needed any additional capital subsequent to the $300 million plus raised to fund us. We still have a substantial amount of capital remaining along with a significant cash reserve. We also have no debt, which makes us unique, and we're profitable; so we can pay operating expenses out of profits.
Our balance sheet is strong, and we don't need any additional capital to sustain profitable growth. Much of our growth is coming from existing clients giving us more work. And existing clients are referring us to new clients. That's the best vote of confidence we can have.
Q. About 12 to 18 months ago, Integro pared its staff in reaction to the coming downturn. How many people left the firm during that period and have they all been replaced?
A: Yes, we did adjust our staffing levels. We're now back to where we were following the adjustments. It will be two years ago in September that we made those adjustments, and our growth since then has us adding back the number of staff we lost.
Q: What have clients been telling you they want most from their broker when it comes to information technology?
A: What clients need is project management support, real-time information, and storage capacity for that information. Those sorts of technology platforms are common these days and all Internet based, which in our industry they tend not to be. If you're a roll-up, you need a conversion platform or some kind of translation medium or capability. The majority of technology expenses in a roll-up model is maintaining what you bought. Real money is spent in maintaining those systems. With some of them often obsolete, it's just a question of making them work well enough to avoid a massive reinvestment. Any roll-up is going to be a challenge.
Q: What are some of your clients telling you they are most frustrated about, or what is it that keeps them up at night and how are their demands changing vis a vis what they want or need from brokers?
A: We're in the midst of a soft market now so clients are less concerned about affordability than they might be in more difficult pricing environments. Of course, they still want competitive pricing. The thing that does come up quite often is marketplace stability. There are new entrants with new underwriting strategies and so with new carriers there's always some disruption. The market appetite for risk isn't an issue, but that doesn't mean that the appetite for risk from one carrier to the next isn't changing from one year to the next. An issue that frustrates clients is why does it have to be so hard for some of these clients to collect from their carriers when losses happen? That brings us back to the issue of what is the impact on clients when brokers reduce staff in critical client service areas.
Q: You've repeatedly stressed that there's room in the marketplace for an alternative to the "big box" broker. Do you still believe there is a market for your alternative model?
A: More than ever. We did $67 million in revenue last year. The first six months of this year have been terrific and have exceeded our high expectations. The alternative model I'm referring to is client-focused, recognizes that people matter, focuses on organic growth vs. roll-up strategies, and emphasizes the importance of quality service as opposed to transactional services.
Q: You've staked a claim on managing complex risks for large clients. Is this still the case?
A: It is. The traditional brokerage growth model is one of acquisition. That's certainly true of Marsh, Aon and Willis.
The difference with our model is that we wanted to follow more of an organic growth model because in the segment of the market we're looking for, clients are more concerned with service, the quality of the experience and the specialty area of risk.
It's much more of a technical sale. The specialty area of risk is much more important to the buyer. Our idea has attracted talented, skilled, motivated people with strong technical expertise based on the premise that the business model for large complex risks offered by the large brokers is one that has suffered from over consolidation. That model has been followed by disaggregation, a steady, consistent and material disaggregation.
Q: You've talked about organic growth, but it's also true that Integro has made some acquisitions in the past. What is the strategy behind the purchase of the Kelly Agency, for example, a personal lines agency, and placing it within Integro's Private Client Services group? Do you have plans for Integro to buy more specialist brokers?
A: We think this is entirely consistent with our focus on complex risk. Individuals or their family office managing significant risk also want advice and methods for managing risk surrounding what they own, be it a yacht, an art collection or aircraft, We're not a roll-up model but we will make acquisitions. We seek good people, period. We're not buying their business because of the premium or commission income.
Q: What sort of opportunities has the crisis in the financial services industry over the past 18 months created for a commercial lines broker?
A: The whole issue of scale and the ability of bigger shops to produce better results is overblown. The pushback you get from the bigger firms often is that the smaller firms can't do global programs. The counter to that is that you don't need to own offices around the world to do the best job. There are plenty of regional and local brokers in those countries. The local administration of a global program isn't a big deal and there are plenty of networks to whom you can outsource the placement while managing the day-to-day service.
If you need a lot of on-the-ground service in those countries, 'the big-box' brokers contend they are the best anywhere. Our position is let's dig a little deeper. It's worth taking a look at who else is out there. So many of these things aren't really thought through well. There's a distinction between serving a client and serving a customer.
Q: What is the thinking behind Integro's expansion into Canada?
A: In Canada, there's the same kind of over consolidation that insurance buyers suffered in the United States. We're doing well there. It was a slower start, no question about that. But it's now been five years plus that we've been there and people trust. Our Canadian operation has had a fantastic six months. We're in Toronto, Montreal and Vancouver.
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