Integro’s BIG BANG

The recent launch within the past six months of Integro is a little like witnessing the Big Bang Theory of the insurance industry during the new millennium.

Integro, a global commercial brokerage that focuses exclusively on complex institutional risks, is a new kid on the block in Canada. Integro president and chief operating officer Peter Garvey, Integro CEO Robert Egan, and John Chippindale, president of Integro Canada, were all on hand to tell the story of the company’s genesis at the grand opening of Integro’s Toronto office in mid-November.

Garvey and Egan worked with Integro’s chairman and chief brainchild, Robert Clements, 72, to build Integro from scratch in May 2005. The firm now has offices in Toronto, Montreal, New York, San Francisco, Chicago, Bermuda, and Greenwich Conn. Clements is well-known in the world of insurance start-ups, having helped create ACE Insurance, XL Capital, Mid Ocean Reinsurance, and the Arch Capital Group.

IN THE BEGINNING….

To hear Garvey, Egan and Chippindale talk about Integro is to hear how a number of different market factors all combined to create a once-in-a-lifetime opportunity to build a global brokerage firm out of nothing. Call it the Big Bang theory of company creation.

For example, in the beginning, 10 years ago, there was intense market concentration of large global commercial brokerage firms throughout North America, according to Egan and Garvey. Without naming names, they allude to a buying frenzy in 1996-97, when Aon swallowed up rivals Bain Hogg in Europe, Alexander & Alexander in the United States, Minet in the United Kingdom and Jauch & Hubener in Germany. Not to be outdone, Marsh bought UK broker Sedgwick Group and US competitor Johnson & Higgins.

When the dust settled, three firms – Marsh, Aon, and Willis Insurance – together controlled about 90% of the US market share in the arena of complex risk. In Canada, one broker – Marsh – came to dominate the country’s market for insuring large-scale, institutional complex risk, say Integro’s co-founders.

“Right now, we have this confluence of events,” Garvey said. “There are only three large brokers that … probably split up 90% of the market share in this [complex institutional risk] segment. That’s a result of over-consolidation. It gets unhealthy.”

The consolidated marketplace was then exposed to an intense period of political heat. New York state attorney general Eliot Spitzer and the US Securities Exchange Commission in 2004 applied the pressure when they launched ongoing investigations into what they described as “anti-competitive practices” in the industry.

These consolidations and investigations started a series of chain reactions, Chippindale noted. “Bob [Clements], having been around the industry for a long time, had clients say to him: “Hey, I don’t really have any choice.’ He had insurance companies, which he had run, say: ‘Distribution is dwindling and we, as the insurers, are being bullied and leveraged to an unhealthy extent.’ Then he has friends and employees saying, ‘I’m not enjoying myself much anymore, working for these firms and all of the internalization: I don’t have enough time to spend with my clients.’ And he had a number of private equity people who he had been involved with in these ventures before, saying: ‘This industry is going through a paradigm shift and we want to be part of it.’ Very seldom do you see all four stakeholders wanting the same thing.”

And then, there was the blinding flash of an idea.

THE BIG BANG

All of the above dynamics, taken together, created the climate for the explosion of Integro on the scene, according to the company’s founders. Thanks to the above elements, as well as others too numerous to name, Integro founders were able to pull off the launch of a very new, very big global commercial broker in North America within a very short timeframe.

“Starting an insurance broker or agency is not novel,” Garvey noted. “There are tens of thousands of them. But starting one from scratch – with the design of being the scale that we intend to be – in relatively short order, in a few years, to serve the client base of the large, complex-risk institutional marketplace, is quite unique.”

Garvey said “the typical model” of building a company over the last several decades has been to “get a bunch of money, buy a bunch of agencies, put them together and take out costs, and declare victory. In fact, the brokers that dominate the world brokerage market got there that way; they just happen to be 100 years old or more. It’s rarely, if ever, done on that scale in any professional services business.”

But “in this area, it’s sort of ‘Go big or go home,'” Chippindale added. “You have to have the depth of experience. You have to have the infrastructure and you have to be able to service those high-end clients’ needs.”

And so, in less than three weeks, Clements, Egan, and Garvey raised US$325 million in capital to launch Integro. Egan said he thought it would take much longer than that; in fact, the group had planned to make a pitch in the corporate boardrooms of up to 15 US cities. They had even planned to go to Europe. As it turned out, said Egan, only once did they have to leave Clements’ office in Connecticut to raise the money.

“We never left Bob Clements’ office but for one trip, which was across the town, in Stanford, to see GE Asset management, which turned out to be an investor of ours,” Egan said. “Quickly, the capital came to visit us. They all wanted to meet with us. They all wanted to talk to us. Bob Clements’ reputation for start-up insurance operations – going back to ACE, XL and most recently Arch – is such a great reputation….We had tremendous support. We were oversubscribed. [According to one report, the group received offers of support from 75 outside individual and corporate sources]. We could have raised $1 billion if we wanted to.”

Integro’s universe is expanding quickly as a result.

LARGE-SCALE RECRUITMENT

The company is already well into a large-scale recruitment process designed to lure some of the best and brightest commercial risk brokers. The hiring process has also been rapid-fire, in part because Integro is taking on publicly-traded competitors who already have between 25,000 and 60,000 employees worldwide, Garvey noted. Egan said the company plan is to start with 225 employees by the end of this year. Next year, the target will be to have between 500 and 600 employees; five years from now, Integro is looking to employ about 2,500 employees worldwide.

“That kind of scale has never quite been done,” noted Egan. “And also what’s unique about it is that we’re not buying smaller agencies and pushing them together – the so-called “roll-up concept.” We’re not doing that. Our strategy is a kind of hyper-organic growth. I call it as rapid assembly of talent.”

It doesn’t take much time to notice that many of the senior executives now involved with Integro have spent some part of their careers working with Marsh. In fact, Chippindale and Integro’s three founders, Clements, Garvey, and Egan all have past experience working with Marsh. In terms of branding, Garvey was asked, was there a concern that the new project would simply come to be viewed as a brand called “Marsh Lite”?

“When you have a market in which one competitor has a significantly dominant share, which is the case in Canada, or even in the U.S. – where one has a more than 50% market share and the other two split up another 40% – the professionals you hire are going to reflect the market shares,” Garvey said. “One of the guys we hired said, ‘I’ve worked for seven different brokerages and I’ve never changed jobs until I joined Integro.’ That’s indicative of what [the market has] deteriorated to and why this is an opportunity…”

In Canada, Integro plans to expand into the Vancouver and Calgary markets. In the U.S., they are planning to expand into Los Angeles and Houston, among other states. As of press time, the company’s presence expanded into the United Kingdom, where Integro acquired Humphreys Haggas Sutton & Co. Ltd. But while Integro plans to expand the number of their offices, they do not plan to diversify into other lines of business such as small commercial or personal lines.

STAYING FOCUSED

The idea is to provide focused service only in the area of large, complex institutional risks. How will Integro differentiate the services they offer from those of their competitors? Garvey answered: “The three we are competing with do that [serve the area of large, complex risks] and do that quite well, or else they wouldn’t have the market share that they have. But they also do employee benefits, asset management, and underwriting management. And some of them may do underwriting, personal lines, or affinity businesses. They have this draw on their resource allocation, which feeds the businesses that have the greatest near-term growth potential. They are major publicly-held firms. None of them are managed by insurance brokers.”

The point is, Garvey said, within a company that serves multiple insurance segments – or within a company that serves both insurance and financial segments – the commercial risk division of the company is competing for valuable resources within its own company. Theoretically, this creates the potential for some divisions of the company to thrive while others languish. “If you are in the insurance brokerage division, which is focusing on large institutional clients, you are in competition with all of the other [company] divisions when you are looking at IT investment, or if you are looking to expand your hiring, or you are trying to hire some experts in loss funding or claims advocates, or [if you are doing] some of the other things that your clients need or that you need to be able to serve them well,” Garvey noted. “But you’re not going to get them if there’s some other business that [the company executives] see as growing faster, or that they want to nurture, or that they want to round out and diversify their book of business.”

So where does that leave Integro if it wants to diversify in the future? Right now, said Garvey, Integro has plenty of opportunities for growth without going outside the commercial complex risk segment. Egan said in the far and distant future, he could see the company’s expertise spilling into the reinsurance sector. Although don’t expect to see ‘Integro Re’ start up in the immediate future, he added.

“One slight deviation (in Integro’s plan) could be a venture into reinsurance,” Egan speculated. “But reinsurance I view as [also dealing with] very large and very complex risks. It’s a similar segment to me. So aside from reinsurance, do I ever think we’ll go into a middle market and small commercial personal lines? No, I don’t think we will. This segment that we picked is vast; it’s very, very large. We are new to it.”

In other words, there’s still plenty of room for expansion in Integro’s commercial universe.