Valley insurance brokerage firms saw an average increase of nearly 10 percent in revenue in the past year, according to the San Fernando Valley Business Journal’s survey of the Valley’s largest insurance brokerages. Unfortunately for their clients, the growth came more from rising insurance rates than new business. “It’s not that the brokerages are writing a lot of new business,” said Sergio Bechara, president and CEO of Millennium Corporate Solutions, with offices in Glendale and other cities in southern California. “The (insurance) carriers are raising their rates.” Of the firms on the Largest Insurance Brokerage Firms list, ranked by revenues, top-ranked Arthur J. Gallagher & Co., second-ranked Wells Fargo Insurance Services USA Inc. and third-ranked Momentous Insurance Brokerage reported the highest revenues in the greater San Fernando Valley region. Arthur J. Gallagher, with four offices in the Valley area, reported slightly more than $97 million in revenues in 2011, a 16 percent increase from the previous year. The Sherman Oaks office of Wells Fargo reported $25 million in revenues on $390 million in business, an increase of 6.5 percent. Van Nuys-based Momentous reported $23 million in revenues, up nearly 3 percent. Insurance carriers set the rates, which are passed onto brokerage firms and their clients in the form of premiums. When the brokerage firms sell to policy holders, they either charge a fee or make a commission on the premium. “The premiums are going up, so our commissions go up,” said David Poms, president of Poms & Associates Insurance Brokers Inc. “Sometimes we reduce the commission to keep the business, but for the most part, premiums increase our revenue as well.” Brokers said rising rates have made the sales process more difficult. They have had to explain to clients why their rates are rising in some cases 10 to 30 percent even as the economy remains in sluggish revival mode. It also means they have to do more work shopping for policies on behalf of clients. “We represent 2,500 companies,” said Poms, “so at times like this we are doing a lot more work shopping the accounts, trying to get the best deal for our clients. There is a lot more work for everyone.” Poms said he brought three new people on staff in recent months to handle the increased workload. Depending on the type of insurance, premiums have risen 2 to 15 percent compared to last year, according to David Russell, an associate professor of insurance and finance at California State University, Northridge. Property insurance has increased due to more catastrophic losses, including natural disasters such as earthquakes, hurricanes and wildfires in other parts of the world, driving up costs for insurance carriers. “A hardening of the market has been expected for some time now and is overdue,” Russell said. Other cost drivers for commercial lines include higher medical costs impacting workers’ compensation insurance rates and the residual effects of a prolonged economic downturn. “When the economy is bad many companies cut back on the basics, including insurance,” said Pete Moraga, a spokesperson for the Insurance Information Network of California. “When unemployment is high, workers’ compensation insurers suffer because fewer workers need the coverage.” The increase in premiums for some commercial coverage will be stabilized by more workers going back to work as the economy rebounds, he added. Rising rates have opened up new opportunities for enterprising brokerages, but have also led to more industry consolidation. For firms in a position to buy, growth has come from acquisitions, said Tom Leach, president of The Liberty Company Insurance Brokers Inc. in Woodland Hills. “Due to the economy, a lot of the smaller agencies have had to sell to the larger ones,” he said, noting that buyers have benefited by paying a lower multiple for their acquisitions based on the softer market of years past. The business will be worth a lot more as premiums increase, he said. Liberty recently paid $1.375 million to buy the assets of the bankrupt Woodland Hills-based C.M. Meiers Co. Inc., which filed for bankruptcy protection in January. The two firms are now in litigation over the outcome of the auction through the bankruptcy court. The firm’s San Fernando Valley revenues grew 41 percent this past year to $8.3 million. The “hardening” in the insurance market also has created opportunities for brokers to add and expand their consulting and advisory services. Companies that sell workers’ compensation insurance have added extensive risk management services, helping clients manage their exposure to workers’ compensation claims. Poms & Associates has built an extensive business around such advisory work, as have Woodland Hills-based USI and Wells Fargo. “We help clients develop the right kind of incentives and wellness programs,” to hold down health plan costs, said Thom Lewis, regional CEO of USI. One by-product of rising rates is that such services are more in demand, especially by more sophisticated clients, added Millennium’s Bechara. As a result, firms that are able to offer advisory services have grown, while those not equipped to offer ancillary services have shrunk. “If you can’t provide loss control or claims management, you are pretty much antiquated,” he said.
