It’s quality not quantity for Gallagher, says CEO

Still viewed as one of the US’s biggest retail brokers A J Gallagher is looking to make its mark on the international market, but that does not mean the rapid opening of branch offices across the global, according to its president and CEO.
Pat Gallagher has been in the market for 35 years and described insurance broking as “the best job in the world”. The world however does not seem to realise his company is not confined to the US, and it is an image he is determined to change.
“We have 12 percent of our staff and 12 percent of our business outside of the US,” he says. “We are committed to the opportunities that the international markets such as Europe, Asia, and Latin America bring. In fact if anything the US market is shrinking and you only have to look at the changing shape of the global economy to see that regions such as Asia are exciting for the insurance industry.”
Gallagher acquired a 38 percent stake in the Caribbean’s biggest independent brokerage recently – CGM Group – and Mr Gallagher says there is every likelihood that in the future that stake will be increased.
“We are keen to grow but we will do so by recruiting quality businesses and teams,” he explained. “We are not going to look to increase our international operations by simply sticking pins in a map.
“We may have a different model to some of our peers but we believe in building a network in which we can partner with quality regional broker partners which can deliver high levels of service to the client.”
Mr Gallagher believes the world is ever riskier, but that is good news for the market.
“We work in an industry where the contracts are renewed every year and on the whole a company would rather not pay their staff than fail to pay for their insurance. A riskier world is good news for the broker and good news for the underwriter but firms have become more sophisticated in their insurance buying and therefore are more demanding.”
The soft market is hitting the brokers though.
“In the first quarter of this year our organic growth rate was 1%,” he says. “It highlights the issue of the softening rates in the majority of classes.”
Mr Gallagher adds that his firm has provided their clients with details of their remuneration on every policy sold since January 2006 and he believes it is only a matter of time before his peers are forced to do the same by the regulators.
“If I was a client I would ask how much my broker was earning and if they hesitated for one minute I would go somewhere else. I believe we have to be transparent and we have to tell our clients what we are getting paid to provide the services to them.
“I have found that they are sophisticated and already have a good idea what their broker is receiving and they are also aware of the value you brig to the transaction.”
He said he fears for the future of the smaller general brokers as the burden of regulation continues to increase, and argues that while regulation has driven professionalism and transparency in the market, it has also increased the costs for intermediaries.
“I believe the future remains good for the larger intermediaries who have emerged strong from the challenges of the past few years,” he explains. “However I think that it will be tough for the smaller players.
“Firstly there is the cost of regulation. Then they are now faced with a more sophisticated buyer who is looking for more from their broker. Additionally they are faced with finding the cost of investing in experienced and talented staff but because of the softening market they are doing so with less revenue.”
Mr Gallagher continues: “I can see in the future that smaller brokers will have to be niche and that the small generalist broker will no longer be able to survive.”
Soft market conditions have seen A J Gallagher look to reduce costs and while it will continue to work towards its aim of shedding 400 jobs by the end of the year, it has not abandoned its internship programme which will see 160 new young staff brought into the firm both in the US and beyond.
The sale of Gallagher Re to Aon does not signal the end of the Gallagher’s ability to meet its client’s reinsurance needs.
“We still have the ability to provide the cradle to grave solutions that our retail clients require,” he adds. “We just took the decision that we were not going to seek to compete with the big reinsurance brokers over the major treaty business. We have always been involved with what people have in the past described as the ‘alternative solutions’ and we will continue to do so. However we can see some of the treaty business moving towards the investment bank sector and we are not and do not want to be an investment bank.”

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