Tucked into the East Providence office of Troy, Pires & Allen Insurance, you’ll now find another firm, Shove Insurance Inc.
The two firms – both started in Pawtucket more than seven decades ago – earlier this year became affiliated and consolidated their staff and space. Shove moved in Jan. 1, said Peter Troy, a partner with Troy, Pires & Allen Insurance. The consolidation of space has allowed Troy, Pires & Allen to cut down on overhead costs and share some employees.
Such consolidation is a growing trend in the industry, according to Starkweather & Shepley Insurance Brokerage Inc. President and CEO Natale Calamis. His agency, the biggest brokerage in Rhode Island and the 90th largest in the nation, has acquired 17 firms in the last 20 years. Between 2004 and 2008, it hadn’t bought any firms, but acquisitions have “picked up in the last year,” Calamis said. Starkweather last year acquired both Preston Insurance Agency and Martha’s Vineyard Insurance Agency Inc.
At Troy, Pires & Allen Insurance, after Shove came onboard “they retained their agency name, but their employees actually became our employees,” Troy said in a recent interview. “We now service their entire book of business with our staff. So they’re kind of just a sales operation at this point.”
Everything from policy underwriting to changing the name of a mortgage holder on an insurance policy is handled by the same employees for both companies. The accounting and bookkeeping are shared, too, which meant that some employees were laid off.
“We didn’t need two bookkeeping operations,” Troy said. “And the economy is kind of forcing this – trying to find symmetry with these [behind the scenes] operations. With this agreement, we don’t need two computer systems. We’re able to consolidate a lot of our vendor needs into one operation.”
Calamis said some insurance industry analysts have estimated that the more than 40,000 insurance brokerages in the United States will shrink to about 25,000 by 2015. “And the last time [analysts] made a predication like that, it came true,” Calamis said. “So, we’re going to see a lot of movement as we [go] forward now.”
With each firm that Starkweather acquires, it makes a decision about bringing the agency into one of its offices – it has 13 – based on the “office culture” and whether it would be better suited as an independent office. But for a smaller firm, like Troy, Pires & Allen, bringing Shove into the same building was an easy decision, Troy said. “My square footage is a fixed cost,” he said. “My electricity and tax bill are all fixed costs. So the higher volume I can bring in the door certainly helps increase our profitability.”
Narragansett Bay Insurance Company, which since 2006 has focused on residential waterfront property insurance, could also benefit from consolidation, Chairman and CEO Stewart H. Steffey Jr. said. Narragansett Bay Insurance is trying to “do that one thing as well as we can. … We think if we do it well and if nobody else is doing it well, over time we’ll have a pretty good business.” So the company is actively looking to consolidate either parts of portfolios – it took over much of the waterfront portfolio of New York’s One Beacon insurance – or whole firms with waterfront properties. In just three years, it’s grown to cover about 10,000 policies.
Steffey’s firm originally had been Pawtucket Mutual Insurance, a multi-industry insurer that the state had to take over in May 2003. So Steffey and a group of investors bought and recapitalized the company for about $6 million in December 2005. They had the express aim of refocusing it to a single-policy market. “We had looked at different business opportunities in the Northeast and we saw increasing demand for a better product in the homeowners insurance,” Steffey said.
Refocusing the firm on a smaller niche market is something that many insurance companies have started to do, he added. “It’s actually a relatively new idea,” Steffey said.
Narragansett Bay Insurance has been profitable every year and its revenue has jumped from about $1 million in 2006, to $3 million in 2007 to $13 million in 2008. This year, Steffey expects revenue to top $35 million.
Troy, Pires & Allen deals with a much more diverse group of policies, including property casualty for residential and personal customers, business insurance and employee-benefits programs, including life and health insurance. For them – and Starkweather – the broader range of their policies usually offers some measure of protection against turmoil in one or more industries, Calamis said.
And consolidation also cuts competition between firms – that competition usually grows when the economy sinks and, for Troy, the current recession seems to be the “broadest” in terms of the amount and types of businesses that have been hit. That’s made insurance more competitive than he’s seen it in years, he said.
“The problem [in this economic environment] is that in order for me to get a new client, I have to steal them from another agent,” Troy said. “There just doesn’t seem to be a real new business in this local market. You don’t see people opening up stores or new operations for agents to compete over.”
But with the country and state in a recession, insurance is affected just like any other sector, Troy said. As policy sales have decreased – policies held by existing clients have fallen about 15 percent in the last year at Troy, Pires & Allen – the amount of total commissions has fallen. “We have clients who are contracts, and if they’re not working or have let go of employees [they] don’t need as much worker’s comp or liability or as many vehicles,” he said. “So we’re truly a barometer of all types of businesses.” •
