Banking on Insurance

REVIEW SUMMARY
Industry. Insurance brokerage
Company. Oswald Trippe and Company
Key. Large insurance companies are acquiring Florida insurance brokers in anticipation of a rebound.

When Gary Trippe founded his insurance brokerage company in 1982 from his kitchen table in Fort Myers, all he thought about for the first few years was the firm's survival.

As Oswald Trippe and Company flourished in the 1990s and early 2000s, Trippe turned his attention to planning for success by hiring skilled executives, expanding into North Carolina and creating an employee stock-ownership plan. At its height in 2007, Oswald Trippe reported $28 million in commission revenues from 12 offices in Florida stretching from Sarasota to Fort Myers, Naples and Miami. It also established four offices in North Carolina in recent years to diversify revenues.

Then the downturn started in earnest in 2008 and Trippe shifted back to survival mode, ultimately selling to BB&T Insurance Services, a subsidiary of North Carolina-based regional banking company Branch Banking and Trust Co. Terms of the deal in November were not disclosed.

Trippe says BB&T will bring its vast resources to the firm's back-office operation, enabling it to better compete for business that has been shrinking the last two years. “What's important is efficiency and automation,” Trippe says. “Technology is a big part of the future.”

The acquisition of Oswald Trippe further cements BB&T's presence on the Gulf Coast by gaining market share after acquiring failed Colonial Bank in August. In the Fort Myers area, “Oswald Trippe has a much deeper brand identity than BB&T does,” says Scott Greer, Southwest Florida regional president of BB&T.

When it acquires well-established insurance agencies like Oswald Trippe, BB&T keeps the name of the firm and drops the bank's letters in front of it. The firm is now known as BB&T-Oswald Trippe.

“We'd be pretty foolish to get rid of the brand they built up,” says Greer. BB&T is the seventh largest insurance broker in the country and operates more than 100 insurance agencies in nine southern states and California.

BB&T is acquiring insurance brokerage firms in Florida much like buying banks, making a big bet that Florida's economy will eventually rebound. Boosted by the Colonial acquisition, BB&T surged to become the fifth-largest bank in Florida by deposits.

Besides Oswald Trippe, the bank's insurance subsidiary now includes BB&T-Iler Wall & Shonter in St. Petersburg and BB&T-Wyman, Green & Blalock of Bradenton on the Gulf Coast.

New connections
Trippe, 66, personifies the “relationship business,” in which deep personal knowledge of each customer is key to capturing and retaining their business. BB&T hopes to tap into the vast network Trippe has built over nearly three decades in business on the Gulf Coast.

Trippe is well known for sponsoring numerous charitable events in the area that stretches from Naples to Fort Myers and Punta Gorda. The firm spends most of its marketing dollars on these gatherings instead of traditional advertising.

Once a year, for example, Oswald Trippe hosts the Blue Chip Award, a free luncheon for hundreds of customers, clients and executives that features a nationally known speaker. At this event, the firm recognizes independently selected companies that have faced adversity to achieve success.

Greer says managers of various business lines and geographic regions gather regularly to exchange contacts and Oswald Trippe's connections are invaluable. “There's still 19 million people in this state and they need banking and insurance,” Greer says.

But Greer and Trippe are quick to say that bankers and insurance agents don't directly sell each other's products. Bankers might suggest insurance to a client as part of an overall risk-management strategy, but they'll call in insurance colleagues to make that sale.

The immediate strategy for newly acquired insurance agencies is to show a seamless transition to new BB&T ownership, with the same people running the insurance business and no subsequent publicity of any changes.

Retention of employees that meet with customers and bring in new business is key. For example, Oswald Trippe President John Pollock will now serve as the agency's manager.
If they can retain good employees, competitors say BB&T's entrance into the insurance market on the Gulf Coast won't change dramatically because customers will stay put. “This is a relationship business,” says Bud Hornbeck, president and chief executive officer of Lutgert Insurance, an independent agency that has done business in Naples since 1953.

BB&T and other large financial organizations are likely to continue their acquisition spree because prices for agencies have dropped in the downturn, Hornbeck says. “You're going to be able to come in and buy an agency for a lot less than you used to,” he says.

Impact of the downturn
To understand the context of the sale of Oswald Trippe and other insurance brokerages, consider that insurance rates have been dropping and many customers have opted for less expensive policies. In this recession, some customers have closed their doors.

That's hurt agencies like Oswald Trippe, whose revenues consist mostly of commissions on the policies they sell for major insurance companies such as The Hartford. With 60% of their policies written for commercial customers, Oswald Trippe saw its revenues drop 10% annually for the last two years.

Complicating matters, Trippe's Cleveland-based partner, Oswald Companies, wanted to sell their 50% stake in the company to the employees, just as Trippe and his wife Gaye had done over the past 16 years.

In 2008, an agreement was reached whereby the employee stock ownership plan would buy Oswald's stake over a 12-year period. But as the downturn accelerated, employees saw their commissions shrink and bank credit became difficult for them to obtain. “It really impaired their ability to purchase the stock,” Trippe says.

With the outlook still challenging for the insurance brokerage business, Oswald Trippe hired MarshBerry in April 2009, a mergers-and-acquisitions consulting firm, to shop the company. “The board had six offers for the agency,” Trippe says.

In the meantime, also in 2009, Oswald Trippe consolidated some of its offices in Florida, trimmed its staff and sold its North Carolina offices to Aquesta Bank in October. Aquesta is a community bank in the Lake Norman area just north of Charlotte, N.C.

When it settled on BB&T, Trippe says finding the right cultural fit was part of the deal. He says BB&T shared the same values of honesty and integrity; it had good relationships with carriers, clients and employees; and the company offered career paths to the employees.

While Trippe says he has no regrets and declines to second-guess past decisions, he does acknowledge that he wishes the firm had continued as an employee-owned company. “Nothing is forever,” he says. “I do not dwell on the past.”

“It's really been a very good run,” says Trippe, who will remain with the new company to manage community and client relations through 2012. “I feel blessed in many respects.”

---

Soft insurance market forces consolidation

While that's good news for business owners who are looking for rate concessions, it's tough for insurance brokers who have watched commissions shrink with smaller premiums.

“We still have the lingering effects of the recession and that tends to chip away at the corporate insurance revenues,” says Guy King, president of M.E. Wilson & Co. in Tampa.

“In addition to the recession, we have a soft market in insurance,” King says. “The carriers have a lot of capacity and that means the pricing is very competitive.”

Most expect rates to stay low into 2011. Of course, on the property side, King says prices could change quickly if a major hurricane hits Florida this summer.

And rates in Florida aren't as low as they are in other states that don't hold as much risk for insurance companies. “They're killing each other,” says Al Purmort Sr., chairman of Al Purmort Insurance in Sarasota.

In addition to hurricanes and other risks, Purmort says insurance companies limit the amount of new policies they'll write in Florida because of the regulatory burdens. That holds back insurance brokerages that could write more policies, he says.

Consolidation is nothing new in the insurance brokerage industry, but activity has increased as revenues decline, agency owners reach retirement age and large increases in capital-gains taxes loom — meaning now is the time to sell your company if you are thinking about doing it in the near future.

Still, as big players get bigger, small upstarts see opportunity. “I see an awful lot of small startup agencies that I'm not familiar with,” says Bud Hornbeck, president and chief executive officer of Lutgert Insurance in Naples.