Author: jhyman@jeffhyman.net

Marsh & McLennan Cos is the global leading broker. I have tracked Marsh since 1978 and over this past weekend, I updated my annual Business Insurance rankings on revenue growth from 1978 – 2018.

Below is the link to my article.

https://www.linkedin.com/feed/update/urn:li:activity:6564184826205782018/

Recently, I was speaking to a group, and a question came up about benefits communication and I was asked,

“when did insurance companies, enrollment firms, and brokers start having discussions regarding “benefits communication” to their clients?”

I knew I had the attached picture from 1972, so I knew it was as far back as then. While I don’t know the exact answer to when, I do know the following;

When firms communicate the value of employer benefits to employees, satisfaction with their benefits package more than doubles.

The debate is most likely, which is the best way to enroll benefits? Is it,

1. Carrier rep
2. Independent agent
3. Enrollment firm
4. Call center
5. Online enrollment
6. Other method

I would love to hear your opinions regarding this. Go to www.jeffhyman.net and leave me a message.

#benefitscommunication #employeebenefits #HR

Welcome everyone to our week 26 Leadership Speakers Forum. Today, we are in Louisville, Kentucky, and our guest speaker is a thought leader who has an impressive background in many different sectors. I first met our guest speaker in 1995, when we both worked at GE. He is a recognized and respected insurance executive with a proven track record of developing and leading the execution of business plans and sales strategies that deliver top-line growth and bottom-line profitability. 

Please welcome Jeff Hyman. Thank you, Jeff, for joining us. Thank you, Rob, for the invite.

I look forward to speaking with the 1,200+ online members of your group.

Jeff, I know that you are a big believer in the topic that we will be speaking on today. Let me begin with the first question.

Do you need a title to be a leader?

No. I believe that anyone can “learn” to lead. Leadership is an attitude, not a title. Early in my career, I was eager to take on job tasks that others would run from. Some of my early leaders asked me, “Jeff, why do you volunteer for so many projects?” I’ve always had the desire to learn more and to lead.

What does it take to be a leader?

I believe that a strong leader is a servant-leader. If you’re a strong leader, you put your team ahead of you. Your team is a priority. Your leadership is to expand your team’s efforts, rather than showcasing your own. If your team succeeds, then you succeed. The best leaders I’ve worked for over my career deferred to their team, made their team first, and put their company first.

You have spent most of your career in the insurance sector. Was that by design?

My father was in the industry for over twenty-five years. At a young age, I inspired to join my father in the industry, so I knew early on that I was heading this way. I was fortunate to be able to work in the same office with my father before his retirement from ING.

What did you learn about yourself on your way to becoming a leader?

I have spent my entire career being a student in the insurance industry. My first senior leader said that you had to have five key things to be a strong leader;

1. Be genuine
2. Don’t be afraid to seek out the advice from others
3. Be very decisive
4. Treat everyone fairly
5. Be very transparent about your core values and principles and state them often

I share those, and I would add two of my own that I believe, Never stop learning and don’t be afraid to take the risk. I don’t know of any senior leader who hasn’t failed somewhere along the way. It happens, and hopefully, you learned something that will help you in the future.

My first leadership role in 1990 was not a success because I still wanted to be in the C-suite closing business. A six-month review showed that I was still being a salesperson and hadn’t transitioned into the leadership role that I had assumed. That opened my eyes and became a guide for my future as a leader. The following year, I hit 151% of my target bonus by leading versus selling.

In the employee benefits segment, what changes are you seeing? Are you seeing new producers entering this segment? What advice would you give them to become leaders?

The employee benefits industry is facing major changes from a talent standpoint. In many firms, many of their leaders are in their late 50s and early 60s. As a result of their current bench strength, the broker segment has seen an increase in producers and consultants moving from one broker to another to fill those roles. As a result, we have seen an increase in lawsuits between brokers over talent, leaving one firm for another firm.

Regarding new producers, I believe that the industry will see a much different type of producer moving forward. The producer will be more advanced in technology, hungry to prospect, and eager to become a subject matter expert in their chosen line of business. Also, I think you will see stronger training programs throughout the industry that will fast-forward new producers that will prepare them to grow revenue quicker. Broker firms have got to invest in their own human capital. Turnover in firms is very harmful in many ways.

My advice about becoming a leader is simple. Stay focus on the job you’re doing; you will get noticed. Become a student of your craft. Don’t stop after the last chapter of a book. Instead, pick up another book and start reading. Show leadership skills even if you’re a producer, a client manager, or a claims person. Get engaged with others within your area and in other departments. Block off thirty to forty-five minutes a day to read about something that will help you better understand your job, company, and your industry. One of the most important things along your journey is to reinvent yourself constantly.

Your job is to not to repeat the past but to use it to grow your future. We are in an evolving industry, so stay ahead of the learning curve. That’s how you grow professionally and become better prepared to be a leader.

You have reinvented yourself throughout your career. Tell us about what drove you to do that.

I have always had the appetite to know as much as I could about different segments within the insurance industry. I’ve worked in the life, health, med supplement, annuity, employee benefits, voluntary benefits, and medical segments. Also, I worked in three specialty areas, credit insurance, vehicle service contracts, and reinsurance.

As a consultant, I have provided consulting services in the employee benefits, voluntary benefits, and auto insurance segments. I have also provided consulting services in the private-equity world for PE firms who are acquiring insurance brokers.

I’ve always been willing to take on challenges that others may not want, and it has prepared me for different roles.

You have spent time in the auto insurance segment as a consultant. Why are auto insurance rates continuing to climb?

I believe that over the last four years, we have seen record-setting natural disasters, a huge increase in distracted-driving accidents and the increasing rise of high tech-loaded vehicles that are expensive to repair, so that has contributed to the rate increases. These factors, coupled with the fact that insurers have failed to turn an underwriting profit in recent years—despite year-over-year rate increases—indicate that drivers will continue to pay more for car insurance in the coming year.

I recently spoke to a group of investors who are looking to acquire an auto insurance carrier, and I discussed with them the current challenges in this space. The losses since 2014 have led to a 7.2% rate hike across the ten largest auto insurers in 2017. This rate increase followed a year in which eight of the ten largest auto insurers reported a negative underwriting profit.

Actuarial science is not perfect. None of us in the industry can accurately predict when it comes to national disasters.  Last year, natural disasters caused massive losses for insurers. Preliminary reports estimate that the November 2018 wildfires caused more than $123 million in auto and nonresidential insurance claims. You also had hurricanes Michael and Florence, which pummeled the Southeast in the fall of 2018, caused between $7.7 billion and $14.6 billion in insurance losses.

An additional contributor to future rate hikes is the increased frequency in car crashes attributed to distracted driving—caused in large part by more people using their phones while driving. The National Highway Traffic Safety Administration (NHTSA) reports that 2.443 million people were injured in distracted driving crashes in 2015, which is an increase from 2.217 million people in 2011. Insurers respond by raising rates to make up for the increase in insurance claims they have to pay out.

I’ve looked at data regarding fatal crashes in 2016. My findings below are the five largest percentage of claims for fatal crashes;

Driving to fast for conditions was 17.8%

Driving under the influence was 10.8%

Failure to keep in proper lane was 7.5%

Failure to yield right of way was 7.0%

Distracted driving was 6.2%

There will always be mistakes, especially as a leader, both mistakes you make, and others make. How do you handle those?

Everybody makes mistakes. That’s not the problem. The problem I see is not recognizing and owning them. If you take ownership, you’ll get the credibility from your team, your company, and all who are associated with you.

Jack Welch told us at a GE management event that he, nor any other leader should fire someone for making a mistake but he would fire them if they didn’t own it, and if they didn’t have a solution to fix it, so it doesn’t happen again. I share that same thought.

Would you like to share some final thoughts with us about leadership?

Its been said by many CEO’s and other senior leaders that leadership is a learned skill, and I agree with that. You can learn it. A leader must recognize the team is more important than they are.

I would say that once you make a decision, you have to own it from the top down. A strong leader gets out front and drives the message to gain buy-in across the company. Dan Amos, CEO of Aflac Incorporated, has always done a great job in this area. He gets out front early on and drives the message and gains the buy-in across Aflac and the investment community.

Leadership skills are useful outside of a typical 8-5 workplace. Take on leadership roles in professional associations or other causes that you believe in. There are so many areas where you can showcase your leadership skills.

Strong leaders don’t get mired in blame, negativity, or office gossip. A strong leader remains focused on what’s important. Positivity can be differentiating in some corporate environments.

When it comes to your reputation, how you do things matters more than what you do. Your ability to get things done right will depend upon treating people right.

Employees admire strong leadership, especially in times of crisis. Think of three examples of how you led by example in a time of crisis.

A leader’s responsibility is to always do right by the people he or she leads.

In a world of growing uncertainty one thing is certain: We have a need for critical thinkers who can size up the situation, realize the potential where others may not, and seize opportunities through prompt decision making.

Critical thinking is the ability to evaluate options, weigh alternatives, and make better informed decisions.

You need to get comfortable with operating in an environment where change is constant and rapid decisions are required.

As prescription drug prices continue to rise, so does CEO pay. The 25 highest paid CEOs are listed below.

This morning I lost a special person in my life. It’s not often that someone has such a profound impact on your life, but Ronald Agypt had that impact on me. Eleven years ago, I met this man at 7:30 am for breakfast in Columbus, Georgia for a job interview. Little did I know that my life would be changed forever.

Ronnie exuded humility, kindness, gentleness, generosity, respect, humanity, passion and valuable insight. Ronnie was both a visionary leader and a catalyst for making big, impactful changes occur. (Carpe Diem)

If I could sum Ronnie up in one word, it would be grace.  He was unstinting in the amount of time and advice he was prepared to give, he gave me unfailingly good and thoughtful advice on a broad range of topics and always asked how I was doing,

Three weeks ago, we were on the phone having one of our many catch-up calls when he broke the news to me about the status of his cancer. He showed once again the resiliency that he had. He said, “Jeff, I’m not going to make it. The medication is no longer working, and I have a short time remaining. I told Ronnie how sorry I was to hear the news and I wish I could do something to help. He said, Jeff, I’ve accepted the news and I’m ready for that day to come. I’ve lived a great life with a great family and been blessed with many friends around the world, like you. It’s been a good fight, and I’m comfortable with the decision.” We chatted some more, and he could tell that I was in tears and he said, “Jeffrey, it’s ok.” I knew then that he knew that he fought a great fight and he really was comfortable with his decision.

To Kim and the boys, there is nothing that I can say about my friend that you don’t already know about your husband and father. His legacy will outlive us all and so will his memories and great smile.

Ronnie, I will see you again my friend.

Jeff Hyman

The insurance distribution segment is made up of more than 30,000 brokerage agencies with many medium- to small-scale agencies. Many of are often lacking the financial or technology infrastructures of larger competitors, and in many instances, the agencies are populated with agents nearing retirement.

The average age of brokerage executives is 60 years old, and the U.S. Bureau of Labor Statistics indicated that nearly 700,000 insurance professionals currently are 55 years old or older. In addition, 400,000 brokerage employees are expected to retire within the next five years. In 2017, there were approximately 1.1 million insurance agents, brokers and service employees in the United States according to industry data.

Private Equity Growth

Private Equity backed funding is nothing new to the insurance brokerage segment, but it has been very prominent over the last seven years. Mergers and acquisitions of insurance agencies in 2017 totaled 604, a 31 percent increase over 2016 according to industry data. In 2017, private equity/hybrid buyers accounted for 382 transactions, 63 percent of the total, compared with 56 percent in 2016.

M&A activity in 2018 was very strong although I believe when the final numbers are reported for 2018, the number of acquisitions will be slightly less than 2017, but the private equity-backed acquisitions will most likely exceed 60 percent.

Early indications are that eight of the top 10 buyers in 2018 are private equity-backed firms compared to 2008 when only four of the top 10 had private equity funding.

In 2016, private equity-backed companies completed 55% of all broker acquisitions. Nine out of the top 10 acquiring companies across 2015 and 2016 were private equity-backed firms. Gallagher & Company was the only public company on the mega-buyers list.

Between January 01, 2010 and December 31, 2016, Gallagher completed almost 300 acquisitions. In 2017, Gallagher completed 39 transactions, more than half of which were within its US retail P&C and benefits operations, and in the first half of 2018, the company made 18 acquisitions, and 12 in the 2nd half of 2018.

You don’t have to look any further than Caledonia, Michigan-based Acrisure to see the positive impact from the right private equity funding partnership. Greg Williams, founder of Acrisure, has become the most prolific acquirer in the U.S. Williams and his team made over 100 acquisitions in 2018 and has made more than 400 acquisitions since 2013. Williams acquisition strategy has grown Acrisure’s annual revenue from $650 million to $1.5 billion in two years and increased the company’s enterprise value to more than $7 billion today from $2.6 billion in 2016.

Acrisure has plenty of “dry powder” after a $2 billion investment by GSO Capital Partners and Harvest Partners SCF LP, both based in New York City, and Switzerland-based Partners Group late last year, so I expect that Acrisure will be active in 2019.

Industry data indicates that private equity firms’ “dry powder’’—the amount raised by firms that is not yet invested—is slightly over $1 trillion, according to a report in December of 2017 by Preqin. This is a clear indication that there is plenty of private equity funding available and no obvious ending in sight for the continued M&A activity and valuations.

Should I sell or Not?

Private equity firms are the new bankers for insurance brokerages. The valuations right now are at an all-time high, and that’s good for the seller. While price is important, a strong culture fit is critical too.

The last four years has seen the value continue to increase. Looking back to 2015 activity, the average base selling price was a pro forma EBITDA multiple of 7.6x  and based on the early data on 2018 sales and my personal knowledge of over 90 closed deals; the multiple increased to about 8.71. That means that the potential maximum payout for the 2015 sellers could reach 10.31x and the 2018 sellers could see a pro forma EBITDA multiple of 11.01.

With over $1 trillion of “dry powder” available, the next few years will see a lot of M&A activities.

As an user of miEdge, I am very happy with the health & welfare, property & casualty, and retirement solutions that miEdge offers. The attached video will recap a meeting I had today with a national firm talking about their U.S. Strategy. They were impressed with my level of knowledge about their U.S. book of business, and understanding how they should attack certain other carriers and brokers book of business.

I owe thanks to Mark Smith and Darin Vick at miEdge for their partnership with me over the last three years. The access to accurate and current data gives me, and other miEdge users The Ultimate Unfair Advantage over those who are not willing to invest in their business. Trust me, if you are not using miEdge, other brokers and carriers who are will be knocking on the doors of your accounts soon with a wealth of intelligence.

Thank you Mark Smith and Darin Vick!