Differentiation Key To Successful Launch Of Integro, Observers Say

Business Insurance
May 15, 2005

By Sally Roberts

While newly launched insurance brokerage Integro Ltd. May give risk managers more options when it comes to choosing a global brokerage, observers say that its long-term success will depend on whether it can differentiate itself from its competitors.

And that will come from its ability to provide clients with access to high-quality and creative risk management and insurance services, not from its status as a startup firm free from ongoing industry investigations, they say.

Earlier this month, Integro’s executives announced they had secured more than $300 million in a private securities placement and were looking to hire “seasoned, expert insurance brokers” and begin serving large, complex risk management account            (BI, May 9).

The New York-based brokerage is being launched by renowned insurance company builder Robert Clements and fellow former Marsh Inc. executive Roger E, Egan and Peter F. Garvey, all of whom are well-established and have solid reputations in the industry, several observers say.

“The group putting this together aren’t vacationers; they’ve been in the insurance village basically all their lives, and they know how to transact business,” said John Wicher of insurance investment bank John Wicher & Associates in San Francisco.

At the end of the day, risk managers are looking for creativity in solving their insurance needs and that is what characterizes the individuals running Integro, said Mr. Wicher.  Mr. Clements, Integro’s chairman, “himself about singlehandedly is responsible for Bermuda” as a leading insurance center.

Integro executives say the launch of Integro not only gives risk managers more options in what they consider to be an underserved large-account market but also introduces a “fresh business model” for the insurance brokerage industry, which has been plagued by numerous regulatory investigations into illegal compensation practices.

New York-based Marsh & McLennan Cos. Inc. has been hit the hardest in the industry investigations.  It agreed to pay $850 million in restitution to clients earlier this year to settle fraud and bid-rigging charges brought by New York Attorney General Eliot Spitzer against its Marsh Inc. brokerage unit.  Several high-profile dismissals and resignations came in the wake of Mr. Spitzer’s suit, including the resignation of Mr. Egan, former president and chief operating officer of the brokerage unit.  Mr. Egan was not implicated in any of the wrongdoing.

Integro hopes to capitalize on the fact that, as a startup focusing exclusively on primary brokerage business, it is free from conflict of interest perceptions and unburdened by the regulatory investigations.

“We’re not only unencumbered by substantial fines and penalties and restitution funds and reputational damage, we’re also unencumbered by expensive legacy operating systems and unencumbered by unrelated business lines that distract management’s attention and deplete capital,” Integro President Mr. Garvey said in an interview with Business Insurance earlier this month. 

For the most part, industry observers say there is always room for more competition in the market, but they stress that success for Integro lies in what it will ultimately bring to the table for risk managers.  And they note that being unencumbered by industry investigations isn’t necessarily a selling point.

“I think, whenever an industry is going through significant turmoil, particularly with industry leaders, there’s always opportunity to fill voids and lack of confidence in the market with new players,” said Rob Lieblein, president and managing principal with WFG Capital Advisors L.P. in Harrisburg, PA.

While the opportunity may be there for Integro, the challenge going forward will be to show “what their value proposition is, why they are different and how they create value in the marketplace,” he said. 

Saying it offers a fresh business model clear of any regulatory investigations is not a long-term selling strategy, Mr. Lieblein said. “That’s a selling strategy for right now…not a selling point for 12 months or 24 months down the road.”

Buyers skeptical

Risk managers were skeptical about Integro’s proposition that it is unencumbered by industry investigation and had varying opinions about whether another brokerage is needed in the large-account marketplace.

With the launch of Integro “you’re probably adding choice, and that’s a good thing,” Mark Delillo, North American risk manager for Taylor Woodrow Inc. in Bradenton, Fla. “As far as not having anything hanging in terms of the investigations, I don’t know if that’s really a plus or a minus.  I think most (brokerages) have put it behind them, for the most part.”

“There is always room for healthy competition in any business, and the entrance of a new player should be of interest to risk managers,” said Susan Meltzer, assistant vp-insurance and risk management for Sun Life Financial in Toronto.  “It is our job to ensure that we are working with brokers who can provide the specific services required by our firms, and we should pay attention to new entrants.”

While Integro may not be burdened by restitution funds and class action lawsuits, all brokerages – existing and new – will be affected by the investigations, Ms. Meltzer stressed.  “The entire industry needs to respond to a new level of transparency with regard to income, services, and business practices,” she said.

Sherry Pixler, risk manager for Storage Technology Corp. in Louisville, Colo., said that Integro’s position as a brokerage unburdened by industry investigations isn’t particularly appealing to her. 

“I don’t see that as having anything to do with the risk manager’s selection of a brokerage house,” she said.  “I’d be looking at the services that the brokerage house is prepared to offer, and I would expect them to fulfill their obligation to me.”

Furthermore, Ms. Pixler said, she doesn’t see the need for another large brokerage in the market.

“I think there are still lots of good choices out there.  There’s not just the big three,” she said referring to Marsh, Aon Corp., and Willis Group Holdings Ltd.  There are all kinds of brokerages that can serve that market today, she said.

John Phelps, director of risk management Blue Cross & Blue Shield of Florida Inc., in Jacksonville, said he also doesn’t see the large-account market as being underserved.  “I feel we are very well served, and we’re a Marsh client,” Mr. Phelps said.

“As far as (Integro) not having any of the baggage, that might be good in their marketing materials, but the people that I deal with, I feel, are of the highest integrity and always have been,” he said.

Mr. Phelps noted, though, that if Integro were to offer something that is “a better mousetrap,” he would definitely take a look.

“I’m always on the lookout for things that are in the best interest of my company.  I doubt that they have that, though.  I think they’re just ‘another one,’” he said.

Positive reception

For their part, executives from Integro say the response from the market toward their startup has been positive.

“We’ve heard a fair amount of enthusiasm from potential clients of our firm and potential employees,” Mr. Egan, Integro’s CEO, told BI earlier this month.

“We wouldn’t be doing this if we hadn’t been encourage…by large users of insurance who would like more choice, by underwriters who would like a more diverse distribution system…and by brokers themselves who…would like additional choice about where to practice,” Mr. Clements added in the interview.