December 2014 • employeebenefitadviser.com
The merger of health and financial wellness
How Mercer CEO Julio Portalatin and other top-ranked benefit firm executives set a foundation for growth
TOP
50 LARGE-GROUPBROKERAGES
TAKING THE LEAD
PLUS:
POISED FOR GROWTHMERCER’S PRESIDENT AND CEO JULIO PORTALATIN AND THE HEADS OF SEVERALTOP U.S. BROKERAGES SHARE THEIR STRATEGIES FOR SUSTAINED DEVELOPMENT,
ONGOING INNOVATION AND STAYING AHEAD OF THE COMPETITION
Consultative. Strategic. Trusted. Innovative. World-class. Julio Portalatin’s vision for Mercer is unwavering in its call to excellence. President and CEO of the New
York City-based international employee benefit consulting firm, Portalatin is focused on the opportunities that will keep Mercer at the top. In fact, as revealed in EBA’s first ever-ranking of the top large-group employee benefit brokerages in the United States, Mercer is head and shoulders above the rest.
In partnership with business intelligence data analytics firm miEdge, EBA introduces the first independent listing of top large-group employee benefit firms in the country to be ranked exclusively on health and welfare revenue. The listing is the only ranking of its kind using information not self-disclosed by the companies ranked. The list, based on Form 5500 Schedule A data submitted to the Department of Labor as of Nov. 7, 2014, shows Mercer’s in-force revenue of more than $190 million is nearly $32 million more than the next closest firm, Arthur J. Gallagher & Co. Note these revenue numbers do not reflect groups under 100 lives, government entities and church plans that are not required to file. Schedule C disclosures are also not included. See the full list of the top firms and their in-force revenue on p. 26.
Many of the firms in the top 25 have actually had modest declines in revenue in the last year, but this is thanks in large part to acquisitions. “When you do acquisitions, you have to focus a lot of time on integrating those acquisitions and you don’t necessarily get the uplift of the organic growth year over year for a period of time,” explains Mark Smith, founder and CEO of New Boston, N.H-based miEdge.
Although Mercer only experienced modest growth according to the Form 5500 data (0.35%), Smith points out the firm has not done as many acquisitions as others on the list, making its clear place in the No. 1 spot all the more striking. “To be that size and continue to be the dominant player in the marketplace is very impressive,” Smith says.
TWO WAYS TO GROWBut to maintain growth, Portalatin says, it’s imperative to
be able to grow both organically and inorganically. Mercer takes a consultative approach to the health and benefits
marketplace: “This means that we go way beyond the basic brokerage services and really act as a trusted adviser,” says Portalatin. “We’re always interested in adding firms that also fit that consultative broking model.” Such examples in the U.S. include Washington, D.C.-based Alicia Smith & Associates and Ft. Lauderdale, Fla.-based Mahoney & Associates, he says.
Willis, the No. 3 brokerage with -1.45% growth, is focused on a coordinated global growth strategy, says Jim Blaney, CEO, Willis Human Capital Practice. “We continue to refine our value proposition to drive organic growth,” he says. “We are also pursuing inorganic growth opportunities through the acquisition of focused, sophisticated businesses with strong franchises.”
He adds, “We look toward opportunities stemming from the consolidation underway in the regional/local brokerage space. The market is moving quickly and some regional brokers are seeking partners with broader platforms to help them deliver a more comprehensive set of solutions to clients.”
One of only a handful of firms in the top 50 to experience more than 20% growth in the last year, Fort Worth, Texas-based Higginbotham (No. 41 with 21.48% growth) is also embracing both forms of growth. “We’re as focused on organic growth as an organization as we are finding new partners to bring into the organization. We view that as a duel strategy,” says Rusty Reid, chairman and CEO.
Just as Mercer’s Portalatin speaks to the importance of being a trusted adviser, Higginbotham is also looking for partners that can provide what it refers to as “day two services.”
“Day one is the day that we place the insurance or the renewal with the insurance company, day two is all the other services that we surround them with: communications, technology, wellness,” says Michael Parks, chief operating
there is nothing more important to us than to deliver through very competent people
By Elizabeth Galentine
officer and managing director of financial services at Higginbotham.
Virtually tied in the growth category with Higginbotham is Pacific Resources (No. 31) at 21.88% in the last year. The Chicago firm focuses on providing independent advice exclusively to the large employer, national account market. “We spend a fair amount of time questioning status quo. We tend to challenge conventional wisdom a lot, and while we do that we’re taking a client-centric focus in mind,” says Paul Rogers, president and chief operating officer.
FOCUS ON PEOPLEPacific Resources thinks of acquisitions
in terms of acquiring key people, adds CEO Paul Barden. Looking at markets that are underserved by the general consultant community, Pacific Resources wants “people who are successful in those areas to bring them into our organization,” he says.
Cultural fit is something Mercer looks carefully at as well, says Portalatin. “When you’re looking at the potential of adding value to your organization, it’s very important that there’s a cultural fit, that there’s obviously something we see beyond the numbers,” he says. “We want to be sure that we’re acquiring the talent also that is capable of meeting the standards of how we want our consultants to approach clients.”
Mercer’s growth is not just about providing more innovative services for the companies it serves, Portalatin says, but it’s also about innovating for the employees.
Jim Durkin, president of Gallagher Benefit Services Inc.,
a subsidiary of Arthur J. Gallagher & Co., and No. 2 on the list, agrees. “We made a decision a number of years ago that’s allowed us to build a business within Arthur J. Gallagher & Co. that focuses on helping our customers manage their
we go way beyond the basic brokerage services and really act as a trusted adviser
THE DATA SOURCE: WHAT IS MIEDGE? BY ELIZABETH GALENTINE
Launched in January of 2012, miEdge began as a prospecting tool that would allow its clients to access individual detail on an employer, brokerage or insurance carrier. Its analytic capabilities have evolved since then, allowing the New Boston, N.H.-based company to aggregate individualized data into a dynamic analytic database that is the basis for EBA’s top 50 large-group benefit brokerage ranking.
“We cleanse and normalize the data, correct things that are clearly wrong. We consolidate the data for things like when companies have done acquisitions, misspelled or multiple versions of their name. We have applied a lot of normalization logic and patent-pending algorithmic assumptions to the data to make sure that what comes out of it at the end is an accurate representation of what that particular carrier/broker/consultant has for in-force business,” says Founder and CEO Mark Smith.
The privately held company with 15 employees has more than 2,000 clients in all 50 states. Approximately 60% are
brokerages or consulting firms, 35% carriers and 5% technology providers, wellness consultants and a mix of other third-party administrators, according to Smith.
The former head of USI’s New England operations, Smith knows the employee benefit brokerage and consulting market. “We’re founded by insurance people that have also then created a technology company,” Smith says. “The technology, while complex, doesn’t work unless it’s grounded on the right understanding of the marketplace.”
The data miEdge works with, and the basis for EBA’s ranking, comes from Form 5500 Schedule A data submitted to the Department of Labor. “It’s a very powerful set of information to use for brokers, consultants and carriers for general business planning and prospecting purposes,” says Smith. “What we found is that many of our clients also want to know market trends, market analytics around a rollup of all of that data in an easy-to-use format that they can use to make some important decisions.”
most important asset, their employees,” he says. Internally, for example, Gallagher spends roughly 60 cents
out of every dollar the company generates on its employees, Durkin explains. “As an organization, we have to find ways to get the most value both for ourselves as well as for our employees out of those dollars we spend.”
Portalatin calls Mercer’s focus on people “foundational.” He adds, “We cannot let growth outpace our ability to build a global organization with that shared value of making sure that we’re innovating for our clients’ people. That certainly also influences our approach to acquisitions.”
Globally, Mercer’s health and benefits line is now the company’s largest single business. It generates around $1.5 billion in revenue globally, according to Portalatin. “This really speaks to the strength of our consultative brokering approach as a competitive advantage in the marketplace,” he says.
Meanwhile, with the highest growth percentage among the top five firms at 4.47%, Lockton (No. 5) stands out to miEdge’s Smith. “Lockton is impressive because they got to that number purely by an organic growth strategy,” he says. “They’re not buying agencies; they’re hiring people and winning business because of their value proposition. To me, that’s highly impressive. It’s wonderful to see.”
Mike Brewer, president, says any acquisitions are “very strategic and typically about the leadership in the office we’re acquiring, not necessarily about the business.”
What’s been “huge” for Lockton in terms of strategy, Brewer says, is defining the Kansas City, Mo. firm’s marketspace and to whom they wanted to appeal. “Then, we chose to build the resources that resonated within the framework of what we perceived our target market to be. And we also built those resources in a fashion where they’re affordable, accessible and responsive,” Brewer says.
It’s led to an “extraordinary” retention rate, he adds. “Part of the reason for that is we’ve also always made sure that we were taking great care of the people that we expect to take great care of our clients. Our associate retention rate is phenomenal,” says Brewer. “There is nothing as disconcerting to a client as having a lot of turnover within their client service team. I think that’s part of the reason that we’ve been able to grow the way we have.”
Mercer is highly focused on sustainable strategies as well. One of the first things Portalatin prioritized when he became CEO of Mercer two and a half years ago was to “make sure we had strategies that were sustainable.”
STRATEGIC IMPERATIVESWith that in mind, Mercer has “rallied around four strategic
imperatives that really underpin our current and future direction,” he says. They are:
1) Building broader client relationships. “We have ... built some very strong relationships with our clients. They are often very vertical in nature and they only encompass one or two of the solutions that we offer,” says Portalatin. “Since we do
THE TOP 50 LARGE-GROUP BROKERAGES IN THE U.S.
26 Filice Insurance Agency $10,043,297
27 McQueary Henry Bowles Troy $9,451,218
28 Digital Insurance $9,386,656
29 Hodges-Mace Benefits $9,306,672
30 Lubin Schwartz & Goldman $8,987,556
31 Pacific Resources $8,726,185
32 True3 $8,720,601
33 Employee Benefit Solutions $8,667,108
34 Buck Consultants $8,651,114
35 Oswald Companies $8,472,429
36 McGohan Brabender Agency $8,421,155
37 Hylant Group $7,875,798
38 William Gallagher $7,866,014
39 Frenkel Benefits $7,853,553
40 Seabury & Smith $7,833,798
41 Higginbotham Insurance Agency $7,685,538
42 Robert G. Relph Agency $7,208,166
43 Capital Benefit Services $7,207,358
44 Burnham Benefits Insurance Services $7,032,382
45 Kistler Tiffany Benefits $6,641,305
46 M3 Insurance Solutions $6,402,122
47 Bolton & Company $6,267,453
48 Sequoia Benefits $6,211,770
49 Assurance Agency $5,936,003
50 The Plexus Groupe $5,859,230
BROKER REVENUE
1 Mercer $190,452,622
2 Arthur J. Gallagher & Co. $158,581,563
3 Willis $128,145,990
4 USI Insurance Services $114,540,309
5 Lockton Companies $111,505,417
6 Marsh & McLennan Agency $102,550,050
7 Aon Consulting $96,739,251
8 Wells Fargo Insurance Services $86,762,224
9 HUB International $67,808,936
10 Alliant Insurance Services $64,884,177
11 NFP $58,549,215
12 BB&T $57,745,883
13 Towers Watson $41,483,112
14 Brown & Brown $41,430,112
15 CBIZ Benefits & Insurance Services $25,733,482
16 Hays Group $23,924,232
17 Kelly Benefit Strategies $20,482,572
18 Corporate Synergies Group $20,032,419
19 Holmes Murphy & Associates $19,475,846
20 Edgewood Partners Insurance Center $15,298,640
21 Woodruff Sawyer & Co. $13,129,159
22 AssuredPartners $11,979,860
23 Associated Financial Group $10,600,510
24 Mesirow Financial $10,282,576
25 J. Smith Lanier & Co. $10,223,421
CONTINUED FROM BOTTOM
believe that our solutions are world-class, we want to make sure that need the clients have for those solutions is something that Mercer can [fulfill]. So broadening client relationships is a big piece of our strategic imperative.”
2) Driving and delivering profitable growth. “Profitable growth allows us to stay innovative. It also allows us to invest in the business and to invest in client solutions,” he says.
3) Invest in our people. “There is nothing more important that we have available to us as an organization than to deliver through some very competent and well-supported people;” says Portalatin, “developing them and constantly putting them
at the leading edge of intellectual capital.” 4) Always make sure that we are looking not just to deliver
but to outperform in that delivery. “Outperforming what our clients’ expectations are, outperforming the competition in the space is very important to us as we measure our success going forward,” he says.
Client needs and market forces will cause shifts in the future, Portalatin adds, “but these four strategic imperatives will remain our core pillars going forward, and we believe will serve us well to really stay on the leading edge of all the changes taking place.” EBA
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