Even as it helps banks gobble up insurance agencies, Marsh, Berry & Co., the Concord, Ohio-based merger and acquisition specialist, is helping some of the stronger independent agencies on its books stay unaffiliated.
Six months ago Marsh Berry formed Encore Capital LLC, an investment company that solicits investment dollars from insurance companies. The goal is to use the funds to shore up the stronger agencies on its client list. Encore expects to have an investment pool of up to $125 million by yearend.
The chosen agencies will be among the better-performing companies that already use Marsh Berry's consulting services, according to company president Larry Marsh.
Insurers may recommend agencies to invest in, but Marsh Berry - which maintains a data base of industry performance information and detailed information on agencies it has worked with - will select the agencies.
"We'll only pick the highest quality agencies," Mr. Marsh said.
Mr. Marsh said his company had to find a way to help its better-performing clients grow, or else it would suffer later. By using insurance company capital, Marsh Berry helps insurers build new or stronger ties with agents that are already strong sellers, Mr. Marsh said.
Insurance companies that participate in the program are required to make a five-year investment and stand to earn annual interest rates tied to the five-year Treasury note, said Sandy Elsass, a managing director of Boston-based Encore. In turn, the agencies will repay the investment with balloon payments to Encore after five years.
Independent agents are generally cash-strapped, with $1.2 billion of capital among roughly 22,000 insurance agencies, Mr. Marsh said.
That makes it difficult to grow and compete when consortiums and banks with deeper pockets that are consolidating agencies, he said. Within 10 years, Mr. Marsh said, the number of independent agents will shrink to 10,000.
"Banks are having and will continue to have a huge impact on that by acquiring some of the biggest and best agencies in the country," he said. In fact, Marsh Berry did little work with banks until about five years ago. Now banks on either side of the deal account for nearly two-thirds of Marsh Berry's merger and acquisition work, Mr. Marsh said.
Valerie Jordan, principal of Jordan & Jordan Associates, a Belchertown, Mass.-based consulting firm, said Marsh Berry's investment fund is interesting.
"This would be almost like a life preserver for the independent agents to upgrade their technology," she said.
Marsh Berry would not disclose the names of its insurance partners. But interest has been strong, with two of the companies investing up to $25 million each and 12 more companies committing to investments, Mr. Marsh said.
