Start-Up Stories: How New Agencies Are Competing

A Crop of Newly-Formed Agencies Is Defying the Hard Economy and Soft Market

The independent insurance agency system is enjoying a resurgence. For years, the number of agencies in the country had been declining but that trend, while not reversed, has been halted. The number in 2008 was 37,500 — the same as in 2006.

That number is from the 2008 Future One Agency Universe Study sponsored by the Independent Insurance Agents and Brokers of America, Trusted Choice and several carriers. The study attributes the stabilization to two key trends: fewer mergers among larger agencies and a new phenomenon of more start-up agencies. Eleven percent of the agencies involved in the study were founded after 2004, and about four percent as recently as 2007 and 2008.

Not surprisingly, most new ventures are small; few if any have the resources of, for instance, a giant like Marsh, which is behind one of the new agencies. But the new agency entrepreneurs are not small in ambition. Insurance Journal interviews across the country reveal these agency entrepreneurs have big plans and, in some instances, are showing promising early results.

New York: Marsh & McLennan Agency

New York-based global insurance broker Marsh, accustomed to handling large accounts, announced in October that it is setting up a separate retail agency to go after a share of the $80 billion in premium paid by smaller and emerging growth firms. According to Jack Butcher, president and CEO of the new retail venture, Marsh & McLennan Agency LLC will be separate from Marsh’s insurance brokerage.

The target market will be firms with revenues between $50 million and $75 million.

Butcher has in mind cities where he wants to launch the new retail operations but he isn’t going public with them yet. “When we do operationalize, when we do go live, this will be a national agency, meaning, I do expect to have a footprint that will be attractive to carriers who are looking for an effective distribution model,” he told Insurance Journal.

He said Marsh will “almost certainly” be looking to hire producers to staff these locations in early 2009, in addition to using current employees. It will also be looking to acquire agencies. Marsh has named as chairman of the new agency, David L. Eslick, who most recently was CEO of USI Holdings, where he negotiated more than 50 acquisitions over five years.

Florida: VanDyke Norman

Kevin VanDyke and Andy Norman only opened their agency last November but already they are thinking big.

VanDyke knows what it’s like to think big, having been with a $130 million wholesale nursery. The insurance and risk management issues he dealt with as chief financial officer and president of that firm piqued his interest in owning an agency. “I always felt like I could offer people help based on my experience buying insurance,” he told Insurance Journal.

Norman was a producer with a local independent agency, Thompson Baker Agency, in which his father used to be a partner. Norman joined the agency in 2002 right out of college. Over the years, as he gained experience, he also grew impatient for the next phase in his insurance career. “I saw what it was all about and decided… that I wanted to be an agency owner. My previous employers kind of thought that too and they encouraged it but they weren’t on the same timeline that I was on.” They were thinking ownership in maybe five years. “But I decided I want it now,” said the 30-year old Norman.

VanDyke and Norman did not know each other when each contacted a local health agent about the possibility of teaming up with him for property/casualty. That agent played matchmaker and the two ended up partnering on their own agency, VanDyke Norman, which opened in November in St. Augustine. They are using their own savings to fund the start-up.

Their first task was to lure carriers. “I’ve contacted my contacts from the last seven years and my father’s contacts over the last 20 years and we’ve been able to get some contracts we might not have been able to get otherwise,” said Norman. Norman thinks carriers are more willing to take a chance on new agencies in a soft market. “They’re trying to grow also. Their exposures are down, the premium is down so they’re looking to take a chance on guys like us who are willing to write with them.” They still have one gap in their carrier roster to still fill; they are looking for a market for their agribusiness accounts.

Their market, the Jacksonville metro area, is dominated by two established commercial agencies but they like their own odds against them. “Candidly our brand new agency has more producers than either of them. I think there’s a sense in a lot of agencies where they may have great customer service and back office but they don’t have the production. That’s all we do right now is produce. If we’re not getting new business, then we’re not doing anything,” said VanDyke.

Norman believes that the struggling economy actually works in their favor because employers are reviewing every expense trying to save money. “We’re probably getting more looks from people shopping than we would in a normal steady economy,” he said.

Salesman Norman even sees not having much business on the books as an advantage at this stage. “We don’t have to think about having this account coming up on 3/01 that has to be renewed or that we can’t focus on new business now because we’ve got all these renewals in a soft market,” he said. He acknowledges that renewals are a “problem” they might welcome in the years ahead.

Eventually personal lines could be 40 percent of their business but for now they are both concentrating on commercial accounts. Norman can’t go after accounts from his previous agency but VanDyke is mining his former business contacts and they both have lots of friends to call upon. VanDyke is zeroing-in on agriculture and agribusiness, landscapers, contractors in general and professional liability. Norman is utilizing his expertise in the condominium association market and is more of a generalist in the businesses he goes after.

Within three years, they aim to be leading an agency with at least $10 million premium. They may not get to $10 million by selling alone so they are also in the market for acquisitions; the preferred candidate would be a commercial book or program with roots in northeast Florida, according to VanDyke.

If they could change one thing about the early goings-on it would be to have an agency management system fully operating. They got sidetracked by a potential agency acquisition and only recently bought a system.

Being owners of a fledgling agency has meant adjustments for both men.

For Norman, it’s meant appreciating every sale more. “I do my little commission dance even for the small ones now,” he said.

VanDyke has had to adjust to working in a downscaled environment. “The main thing is for me is I used to run a $120 million business with 400 employees and now I run a company with a partner and a staff person,” he said.

“Basically he’s got to get his own coffee now,” Norman quipped.

Tennessee: Chattanooga Insurance Agency

Having been both a captive agent and a producer in an independent insurance agency, John Witty knows the feeling of bringing in business and being paid well for it. But for him the experience was not totally satisfying.

“I realized having the income stream is nice but it’s nothing like owning your own business,” Witty said.

Last September, Witty opened his very own Chattanooga Insurance Agency.

It’s not the first time he has gone out on his own. Before he was in insurance, he worked for a department store. When the owner sold that business, Witty opened his own retail store. “I’ve always had an entrepreneurial bent and I’ve always known that no matter what I do at some point I would do it on my own,” he told Insurance Journal.

To find carriers, he talked to people he knew from his years in the business. “I just had to say to them, ‘Take a chance with me. I can’t guarantee you a half million dollars the first year but I will guarantee you my best effort and I can offer to quote you first.'”

His contacts have come through. Witty now represents MetLife P&C, Encompass, Old Dominion, National Grange and Progressive. He still wants another personal lines carrier and two commercial carriers.

Witty can’t go after the accounts he wrote at his former agency but with 385,000 people in the Chattanooga area, there are plenty of prospects. He is direct mailing seven particular zip codes and getting good response.

Chattanooga has a number of other agencies. Witty said he is never the only quote on an account but he is confident he can compete for a number of reasons.

First, several local agencies have consolidated with banks, which don’t have interest in some of the smaller premium accounts he likes. He is writing business owners policies (BOPs), retail stores, small contractors, professional office buildings, along with some artists.

“We have an arts community here that has been growing over the last five years. There’s a lot of money going to painters, sculptors, welders. We’ve got some really nice things happening there,” he said.

Also, Witty feels his prospects will relate to him. “I’m a bit older. You tend to write the people you associate with,” he said, suggesting that for his customers, it’s not all about price.

Perhaps Witty’s best decision was locating his agency downtown in a business incubator park run by the Chattanooga Chamber of Commerce. To qualify for the subsidized rents in the park, entrepreneurs must have a business plan that includes insurance and they must agree to stay for three years. Witty is the only insurance agency in the park and his marketing materials are given to every prospect for the park, which has attracted 65 start-ups. “I didn’t know that this was going to be as good a location as it has been… I can have the opportunity to write 30 businesses as they move in and out,” he said.

Chattanooga is not immune to the economic downturn. Witty talks about accounts that can’t now afford to put down the 40 percent deposit required of a new customer if they shift their business to him. “They want to come with me but can’t right now,” he said.

To finance the agency, Witty is using a home equity line of credit. His bank reduced the term of the loan from what he originally planned. “It cut my time frame in half,” he said.

Right now, Witty is getting help from his wife and one of his daughters, a teacher by training, so that he can get out and sell.

Within two years, Witty sees his agency writing about $1.5 million in premium and hopefully qualifying for revenue sharing with a few carriers. In five years, he says he’d like to see perhaps his son and daughter working in the business and the family enjoying a nice lifestyle.

South Dakota: GSN Insurance

GSN Insurance in Madison, South Dakota just opened its doors on January 5 but already it has a veteran staff, a stable of loyal customers, and a carrier roster that would be the envy of many long-time independent agencies.

GSN owners Scott and Nancy Gusso may be new at running their own agency but they are hardly new to insurance. Each has nearly 20 years experience in insurance. Most recently, Scott was the producer for Wells Fargo Insurance in Madison and Nancy, general manager for Northern Plains Insurance in nearby Watertown.

The couple got married a few years ago and even during their courtship they would muse about how great it would be to have their own business, according to Scott.

Scott was employed by Wells Fargo Insurance 14 years. Then one day early last November, Wells Fargo told him it was closing its Madison operation where he was the lone producer. Meanwhile, Nancy had become disenchanted with her long-time job in company management. Clearly, change was in the air because the two didn’t hesitate on their next move.

“Within minutes of them giving us the notice that they were closing the office I knew I was just going to start my own agency,” Scott said. “Everything kind of came together so maybe it was meant to be.”

The day after he was given notice, the two began calling around for carriers. “We were successful with some 90 percent of them gaining a contract,” said Scott. Today GSN represents Western National, Columbia, Auto-Owners, Safeco, North Star Mutual, State Auto, Progressive, and has contracts with key surplus lines brokers.

The Gussos are counting on these providers to help them target middle market commercial accounts, between $50,000 up to $130,000 in premium, as well as ones in the $5,000 to $10,000 premium range. They are also writing personal lines and some life and health.

Among their clients will be some of the people and businesses in Madison, a town with about 6,500 people north of Sioux Falls, that Scott has been serving for years at Wells Fargo — where he built a book of about $300,000 in commissions. The Gussos approached Wells Fargo about buying Scott’s book but they thought the asking price was too high.

“Ultimately we made the decision that we’ve got enough customer loyalty that we can retain 75 percent of this business without blinking an eye. So we decided not to buy it and it’s coming in the door anyway,” said Scott.

As for financing, the Gussos had saved some money to put into the business. They also convinced Wells Fargo to lend them some funds.

They expect to have about $250,000 in revenues within two years and close to double that within five years. They also have some other goals in mind, according to Scott. “In five years, we’d like to have a couple more employees and be able to take some vacation in the winter.”

Texas: Bridge Insurance Partners

Jeff Turner had long harbored ideas on how to operate an independent insurance agency so when he and his business partners Tommy Saxon and Ryan Perry opened Bridge Insurance Partners in Dallas a little more than a year ago, they immediately put those ideas to work. The ideas are paying off. Within a year they have grown the business they bought from their previous employer, Fort Worth’s Higginbotham and Associates, by more than 100 percent.

Lifelong friends, Turner and Saxon had leadership positions in Higginbotham’s Dallas office in late 2007 when they negotiated to buy their books of business. Perry joined them from Sleeper Sewell Insurance Services, also headquartered in Dallas.

While the agency is a “generalist to some degree,” the firm is targeting a half dozen industries. The areas of concentration include health care, with an emphasis on medical malpractice or professional liability for surgery centers, hospitals and other health care provider organizations; real estate; private equity; manufacturing and wholesale distribution; life sciences and certain construction accounts.

Bridge was able to secure financing without much difficulty. “We really had no problems raising money,” Turner said. Between a bank and investments from three clients, Bridge was able to secure working capital for the first 15 months of operations. They approached only one bank, Dallas-based Park Cities Bank. “We went to them with a business plan and an explanation of what we did and the book of business that we would be acquiring from Higginbotham,” Turner said.

The partners also were successful in securing carriers. “We feel really fortunate that every carrier we approached said ‘yes,'” Turner said. “We were really specific with the carriers we chose… Our thought was we don’t want everybody, but carriers that we know we can be faithful to and give a lot of business to. That approach worked really well.”

The economic downturn has not yet hurt business but it could affect the agency and its clients going forward, Turner said. As they are new in business, he and his partners would need financial partners for any acquisitions “It has the potential to slow expansion,” Turner said.

Profile of New Agencies

Source: 2008 Future One Agency Universe Study sponsored by the Independent Insurance Agents and Brokers of America, Trusted Choice and several carriers.