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In selecting a broker, size doesn't matter Business Insurance - 20 July 2009

Does size truly matter when it comes to choosing an insurance brokerage?

This question has been debated for years, and the answer would seem to be, “No.” That is evident in the fact that sometimes very large, complex organizations use smaller firms. Size can correlate to service capabilities, particularly when it comes to handling risks in multiple countries, but not even the largest brokerages are equally adept at everything a client might need. A longstanding argument in favor of smaller brokers is they can give top-notch service, with attention from the highest level of the firm.

Simply put, there is more than one way to measure the size of any organization, insurance-related entities included.

For example, insurance companies often are ranked by the amount of net premiums written, but they also can be grouped by assets or policyholder surplus. Depending on the measurer's perspective, all of those are significant ways of sorting insurers.

Brokerage firms are a little different, but here too there is more than one way to stack them up.

An insurance buyer looking at brokers might consider their gross revenues, organic growth or EBITDA (earnings before interest, taxes, depreciation and amortization). Investors might consider market capitalization or the compounded annual growth rate, though market cap applies only to publicly traded companies.

Business Insurance for decades has ranked brokers based on their revenues from consulting and placing risk management and employee benefit programs for their clients. On page 14 is a chart showing the world's largest brokers by this measure, and the center spread lists the 100 largest brokers of U.S. business, measured in the same fashion, except looking exclusively at such revenues derived from U.S.-based clients.

Four years ago, rumblings from several quarters in the insurance marketplace suggested that brokers might be looked at another way: by the amount of revenue derived solely from placing coverage. BI researched this point and found some interesting differences among the brokers. We called this “pure placement,” and it is one way of ranking brokers based on their fundamental business. Here is how such a ranking would look based on 2008 data reported to BI:

Business Insurance believes pure placement does not reflect the full role of a broker, which is to provide advice before, during and after the placement transaction. That advisory role is intrinsic to what good brokers do.

Risk managers polled recently by BI said “size doesn't matter” and is “not the driving force” in choosing a broker. They said “depth and quality of services,” “knowledge and expertise of their people,” “the right people” who are accessible and “access to insurance markets” are more important. Also, “culture and relationship,” “ability to leverage technology” and ability to “serve as an extension of the risk department” trump size.

A broker can be No. 1 in more than one way, but the best brokers are those that are tops with those who matter most: their clients.

New flow at Misk raises concerns By Eid Al-Harthi, Arif Al-Shehri and Abdul Majeed Al-Asmari [Saudi Gazette]

JEDDAH – Sources have said that “large amounts” of water have appeared at the surface of the construction waste material pit in Al-’Asla Valley despite authorities pumping out 45,000 cubic meters of water a day from the nearby Misk sewage reservoir to address the water level and relieve the pressure on its embankments.

The contaminated water has, sources told Okaz, been flowing from the tons of waste material and construction refuse and flowing towards nearby residential districts after the northeastern area of the dump – located close to the Misk back-up dam - filled up with water.

The sources said that the water presence was due to an error on the part of the Mayor’s Office which ordered the opening of the dam’s lower pipeline to lower the water level, causing thereby a “considerable flood” of sewage.

The problem was met, the sources said, by using bulldozers to move earth at the construction waste pit to block the flow, leading in turn to water filling the periphery of the pit.

Ahmad Al-Ghamdi, Director of Public Relations and Information at the Mayor’s Office in Jeddah, said that everything was being done to address the situation which he now described as “reassuring”, and denied reports that the backup dam had sustained a crack due to water pressure.

Local residents, however, remained skeptical after visiting the dam on Saturday to check the situation first-hand.

“The statements from the Mayoralty are just to keep us calm,” said Abdullah Al-Qahtani, a pupil at a local secondary school. “They said the same sort of things about the garbage dump fires. School colleagues Abdullah Al-Zahrani and Ahmad Al-Amri agreed.

“Lots of students didn’t go to school on the first day back as we’d heard that the backup dam was close to collapse,” they said. “Everyone living east of the highway is worried about the lake bursting.”

Locals are also appealing to authorities such as the Presidency of Meteorology and Environment, the Mayor’s Office and Civil Defense to put them at the top of their list of priorities and identify alternative locations for accommodation should the danger not abate.

“The television is showing even more rain falling on the region and particularly Jeddah, and there are sites on the internet warning that the backup sewage lake could collapse at any moment,” said local resident Saud Al-Muttairi. – Okaz/SG

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