Were rife on the sidelines of the WSIA Annual Marketplace 2023 in San Diego last week, E&S Insurer can reveal.
In a preview of the event, this publication suggested there was mounting anecdotal evidence that the global giants have been eyeing a return to the US wholesale space.
Such a move would come almost two decades after the trio divested of their in-house wholesale arms in the aftermath of Eliot Spitzer’s 2004-05 probe into broking practices. The inquiry didn’t directly target the wholesale business, but the moves at the time were viewed as defensive as the retail giants refocused on their core business.
It would also come amid a prolonged period of generational growth in the wholesale sector, with revenues – dominated by the big three of Amwins, RT Specialty and CRC – surging amid record volume of business flowing through the channel to E&S carriers.
With the E&S sector now on course to go well beyond the $100bn premium mark this year – and the amount placed overall by wholesalers thought to exceed that including lines where admitted paper is used even when not placed by a retailer – it accounts for more than 20 percent of the overall US commercial insurance market.
That share has more than doubled in a relatively short period of time.
And the revenue – and profit that accompanies it – effectively represents leakage directly from retail brokers, which have increasingly been outsourcing their placement to wholesalers, especially in the recent hard market where admitted capacity has retrenched.
Multiple wholesale and E&S carrier sources last week said Marsh and its parent Marsh McLennan had been considering a formal return to the wholesale space by effectively adding transactional brokerage capabilities to the intermediary’s existing Victor Insurance Managers MGA platform.
Although the current state of plans could not be confirmed, sources familiar with the matter said that the use of Victor had recently been among the options being considered by its parent company.
Marsh is already understood to have had some form of internal wholesale capability through an in-house unit established to place some risks directly with E&S carriers in the US.
But the formalisation and building out of the capability would represent a significant move to recapture some of the business currently passed to wholesale brokers.
Sources have suggested that the strategy could initially focus on the middle market business currently sourced through the firm’s fast-growing Marsh McLennan Agency, which has been a highly active acquirer and consolidator of independent agencies in recent years.
Aon is also understood to be actively contemplating creating a true wholesale capability, although it is unclear at this stage whether the firm is targeting a meaningful acquisition or an organic build.
And WTW’s drive into specialty industry verticals in the US under Michael Chang is already understood to have included attempts to transfer some business placed through wholesalers to direct placements with E&S carriers.
The growing retail-owned wholesaler trend
Through their recent strong growth trajectory, Amwins and RT Specialty (as part of Ryan Specialty) have laid claim to be differentiated from rival CRC in part because of their independence. CRC is both bank-owned – for now – and has retail broker McGriff as its sister company.
But in the last few years there has been a surge of activity from other retail brokers to buy or build wholesale operations.
Of course, some – such as Arthur J Gallagher’s Risk Placement Services (RPS) – are significant in size and longer established. Brown & Brown, Hub International and USI (US Risk) are all among those larger, more established retail brokers that have bought or built wholesale capabilities of some scale.
A more recent development has been the wave of fast-growing private equity-backed retail agency consolidators also launching wholesale operations.
These have typically started out by aggregating fragmented wholesale businesses acquired as part of retail acquisitions – both of transactional brokerages and MGA or programs businesses.
Now, several are taking on an identity of their own.
Acrisure – the fastest-growing of all retailers in recent years – is in the process of consolidating its wholesale operations into a single platform.
Meanwhile, World Insurance Associates last year announced it was consolidating its wholesale business into a new unit called Novatae Risk Group, and AssuredPartners launched Accretive to bring together its in-house wholesale businesses.
The majority of the new wave of retail-owned wholesalers are arguably fishing in a different pond from the big three wholesale giants and the global retailers that use them.
But RPS would already be seen as a direct competitor of Amwins, RT Specialty and CRC in some areas of business, even if part of its portfolio is sourced directly from its parent.
And the prospect of the big three retailers looking to divert a portion of their business currently placed through third-party wholesalers into an in-house operation is bound to lead to concern among market incumbents.
Off-the-record views canvassed from established wholesalers at WSIA were naturally defensive of the strong positions built by the big three as they capitalised on the post-Spitzer divestments by the retail giants.
One senior executive was damning of the efforts by second tier retailers to launch “sub-scale, sub-par wholesale brokers”, arguing that it would ultimately water down the sector’s proposition.
Some carrier sources were also protective of the status quo.
Although an acquisition of one of the wholesale giants would not be out of the question for a global retailer (and notably there are some question marks over the long-term ownership of at least one in Truist and Stone Point-owned CRC) it would require a huge cheque, and the options for potential acquisitions are very limited.
But it was suggested that to build operations with the depth and quality of Amwins, RT Specialty and CRC would be a huge undertaking, even with the resources of the global retail giants.
And there were questions raised over whether such platforms would bring value to the sector.
“Amwins, RT and CRC have built really good professional wholesale brokers that provide expertise and capacity that’s not readily available – they have a good value proposition,” said one senior executive.
They highlighted the dramatic improvement in areas like data and analytics as well as placement capabilities, and the creation of proprietary products and access to exclusive capacity that has proved valuable for insureds in the current hard market environment.
“What they get paid relative to what they do is actually, in my opinion, a bargain,” they added.
On the other side of the debate, a source at one of the big three global retail brokers suggested wholesalers are “overpaid in the value chain”.
“Everyone is trying to figure out how to capture the value given to the wholesalers. As the market has grown, it has become more of a needed answer,” they argued.
The global retail giants wield significant power, and have the ability to leverage inward placement relationships with dual-distribution carriers to potentially get more direct access to their E&S platforms that currently distribute through wholesalers.
Marsh and Aon declined to comment on this article, WTW could not immediately be reached for comment.
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