Outward Bound

Outward Bound

By Jean Gruss

Editor/Lee-Collier

In the peculiar Florida insurance market, there really is such a thing as too much business.

Just ask Gary Trippe. The 62-year-old founder and chief executive officer of Fort Myers-based insurance agency Oswald Trippe is now looking outside Florida to stay on track to double his company's revenues every five years.

Despite being one of the nation's fastest-growing states, insurers - and the reinsurers who back them - don't want to be overexposed to Florida. That's what insurance is all about - spreading risk. One obvious example is the risk from overexposure to hurricane-related property losses.

But hurricanes are hardly the only risks in Florida. Dangerously fast-rising property values and a litigious climate are other factors that limit the new policies that insurance companies will write here.

Oswald Trippe, which bills itself as the largest private independent insurance agency in Southwest Florida ($19 million, 2004 revenues), has contracts with about 30 companies to write policies, and many of them don't want to take on too much Florida business even though the demand is strong. The Hartford is its biggest underwriter, representing about 15% of the agency's policies.

To keep from being restricted, Oswald Trippe is going where insurers want to write more policies. It's starting with North Carolina, where it plans to acquire a small agency north of Charlotte on Dec. 31. South Carolina and Georgia are next on Trippe's radar screen. Mississippi, Kentucky and Tennessee are other states under consideration.

To help lead the company, Trippe has promoted John Pollock, a 37-year-old, 6-foot-5 former college basketball point guard who has risen through the ranks of the company. He's also hired Denis Bilodeau, a 29-year veteran of insurance giant The Hartford to start up the North Carolina operations and expand into other states.

Trippe is confident he can replicate his business model anywhere in the Southeast. After all, he has successfully grown his business from a single client in 1982 to 30,000 today and built 10 offices around the state. Trippe expects the company to hit $22 million in revenues this year. The goal: $50 million in revenues by 2010.

The OTC model

Oswald Trippe's business model is based on establishing personal relationships with clients and business partners. For example, it won't turn down any business, no matter how small the premiums.

"We want them to feel good about doing business with our agency," says Trippe. Even if the premium is a very small amount, "we look at it as the cost of marketing."

The company hardly ever advertises in newspapers, radio or magazines. Instead, it steers its marketing budget into charitable endeavors and encourages employees to join nonprofit and professional boards. Every year, for example, it sponsors the Blue Chip awards, a breakfast in Naples and a lunch in Fort Myers with hundreds of guests to highlight businesses that have overcome adversity. Although Trippe declines to say how much the event costs, the keynote speaker this year was former baseball player Dave Dravecky, who charges $10,000 per appearance.

Trippe says the company is careful to spread its business around all kinds of policies. No single client represents more than 2% of revenues. Personal insurance such as home and auto represents the agency's biggest book of business, 30% of the agency's revenues. The other books include small-business insurance (20%), condominium associations and residents (20%), large companies (20%) and employee benefits, such as health and life insurance (10%).

Oswald Trippe has grown in large part by acquiring smaller agencies where it wants to do business and by investing in staff. Naples and Cape Coral are two markets where it bought smaller agencies. Oswald Trippe funds the acquisitions from its earnings and doesn't borrow to expand. "It's not a capital-intensive business," Trippe says. "It's a lot of sweat equity."

In markets such as Sarasota and Tallahassee, it started offices from scratch. "The scratch is a painful way to go because it takes more time. You're going to lose money in the first few years," Trippe explains. It's also tough on employees charting new territory as they struggle to land new business. "You want them to have some successes and feel good about what they're doing," he says.

Trippe's is quick to point out that his strategy evolved over time. "For many years we didn't think about a model. We just thought about survival," he says.

North Carolina and beyond

Trippe plans to move outside Florida in much the same way by acquiring smaller agencies. In Bilodeau, 51, Trippe has an experienced insurance executive who was managing director for The Hartford's personal lines such as auto and home in the South and Midwest division, which encompassed 23 states. He took an early retirement after 29 years and accepted Trippe's offer to build Oswald Trippe's business outside Florida.

On Dec. 31, Oswald Trippe will close on a transaction to buy The Lake Insurance Agency, a small agency about 30 miles north of Charlotte with annual revenues of about $400,000. As it has in the past, Oswald Trippe will buy the firm with cash from its own earnings. It will acquire 51% of the agency over a five-year period and then buy the remaining 49%.

Oswald Trippe plans to grow the North Carolina agency to $1 million in revenues. As a rule, it takes $10 million in premium sales to reach that revenue goal. It also is the magic number for profitability, which for the North Carolina agency will take four years, Trippe estimates. "The business we acquire pays for itself," he says.

Even though the contract hasn't closed, Oswald Trippe already is jumping into a charitable endeavor. It has pledged an undisclosed amount for a new swim club in the town of Cornelius, N.C.

Ideal buyout targets

The ideal acquisition target for Trippe is a family-owned agency where succession is in doubt - those where the children or other family members don't want to continue the business that their parents or relatives started. Trippe has seen some good opportunities in Charleston, S.C., for example. In 10 years, Trippe estimates his company's revenues from other Southeastern states will match or exceed the business generated in Florida.

The competition in North Carolina and other Southeastern states differs from Florida only in that companies such as State Farm and Allstate write a greater share of the policies. State Farm, Allstate and others write policies directly for businesses and individuals and don't sell through brokers such as Oswald Trippe.

Nonetheless, Trippe says there are plenty of opportunities to pick up new business that the State Farm-type companies ignore. For example, it can write policies to insure such assets as expensive homes, antique cars or offer broad umbrella policies that don't fit the mold of direct insurance writers.

One advantage that helps his firm, says Trippe, is that Oswald Trippe employees now have an ownership stake in a successful outcome. Trippe, who started Oswald Trippe at his kitchen table in Fort Myers in 1981, has shifted most of his 50% ownership stake in the company over the past 10 years to the 160 employees through the creation of an employee-stock-ownership plan (ESOP). Longtime business partner Cleveland-based insurer Oswald Cos. owns the other half of the agency. Today, Trippe and his wife Gay now own 10% of the shares of the privately held company.

How the hurricanes will affect insurance rates

Gary Trippe, who founded Fort Myers-based insurance brokerage Oswald Trippe in 1982, recently discussed the impact of rising premiums on businesses and consumers.

Here's an edited transcript of the conversation.

What is the impact of the hurricanes going to be on Florida residents and businesses?

We believe all the storms will have a 20% impact on the global capital of the insurance industry. The early reports indicate that out of about roughly $80 billion in losses, about a third of that is coming out of reinsurance. That means about $25 billion will be paid by reinsurers. How is that capital going to be replenished? We believe Bermuda, where much of the reinsurance is placed, will bring in capital. We already know about $10 billion has already come into the Bermuda market.

It's important to have new capital coming in because we need to have sufficient capital to keep rates down. The reinsurance cost - reinsurance is insurance for the insurance companies - will drive the rates that we all pay as consumers. Anytime you have demand exceeding supply in any product, then prices go up, and that's what we're going to experience here in Florida.

I believe we'll see homeowners rates increase in the 25% to 40% range. Business insurance for those businesses that have high property values will see premium increases of 25% at a minimum. But in business insurance there are other exposures that you incur. Workers' comp, effective Jan. 1, will go down 13% on average statewide, so you'll see a reduction in that line. Some of the others - casualty, general liability, automobile - will be relatively flat.

We're also going to see the deductibles moving up percentage wise. If it was 3%, it may go up to 5% for windstorm related. In some areas it may go up to 10%.

Are the rising premiums you're talking about going to be one-time increases?

That's what they're going to experience on their renewals in 2006. With reinsurance today being negotiated on annual contracts, you can't forecast what may happen. If we have a good year next year and don't have hurricanes, then possibly you won't see any increases. If we have another year in 2006 like 2005, then it's entirely possible you'll see more increases. It's not a gradual increase; the consumer is going to feel this impact every single time, and it's going to be all at once.

What should the role of the state and federal government be in all of this?

There are some proposals out there. The Republicans have a proposal and the Democrats have a proposal of how they would like to see either the state or the federal government involved in hurricane-related catastrophic losses. There are some proposals that would have it look like the federal flood insurance program, for example. But it's really too early to tell.

At what point will the burden of insurance be too much to bear and businesses decide they don't want to be here anymore? What's the threshold?

I don't know what the threshold is. The economy today is so strong in Florida that the businesses are able to absorb and pass on the costs. Having said that, if you're talking about the impact it might have on our ability to attract new workers to this area, that's going to be a challenge.

Is there any end in sight to rising health-care premiums?

The challenge that I see in the health insurance business is that we really don't have any competition. We basically have three quality companies writing business in Southwest Florida. When you take away the competition, then there really isn't any motivation for anyone to move and be creative. So we're all concerned.

I think the health-savings accounts are going to help. We're doing more as an agency in working with our clients in health-savings area. But it's just another way of transferring the cost.

There are no easy answers, and I don't see anyone stepping up to tackle it.

-Jean Gruss