CHICAGO-BASED HUB INTERNATIONAL Ltd., one of North America’s largest insurance brokerages, is poised to get even larger as it embarks on a new acquisition strategy. Hub is targeting firms that have carved out niches in the insurance industry.
This strategy means continued growth for the firm’s Canadian managing general agency (MGA) subsidiary, Hub Financial Inc., based in Woodbridge, Ont., which has contracts with 5,000 to 6,000 active insurance agents across Canada.
Although economies of scale are beneficial for MGAs, Hub’s kind of industry consolidation raises questions about how big MGAs can become while still providing effective oversight and support that meets the needs of individual financial advisors.
“MGAs are becoming monolithic,” says Jim Ruta, president of AdvisorCraft Media and Consulting in Toronto. “MGAs were created to avoid the bureaucracy of the major insurance companies. But now, [MGAs] have become so big that they’re forced to recreate the stuff they were hiding from in the first place.”
In early October, Hub International announced the creation of a new subsidiary, Specialty Program Group (SPG), which is responsible for developing strategies to acquire MGAs and expanding the U.S. company’s reach into specialty business.
Although acquisitions have always been a key component of Hub International’s growth strategy – it has acquired an average of 24 firms per year over the past 10 years – the new subsidiary will help to narrow that strategy to focus on acquiring firms with specializations in areas that have strong growth potential, says Chris Treanor, president of SPG.
“We want to be more strategic about the assets we buy, and how we organize them and operate them,” Treanor says. “I’ll be working with the rest of the leadership team to identify areas where we think we should invest more heavily in certain specialties and grow our retail platform in those specialties.”
Specifically, Treanor says, Hub International will target MGAs that have developed expertise in certain types of insurance or within certain industries. That kind of specialization is valuable, he says, because clients more frequently are demanding advice that’s customized to their individual needs. Business owners, for example, have unique insurance needs compared with other clients.
“What it really takes to be successful, beyond just being that trusted advisor,” Treanor says, “is having deep knowledge and expertise that you can bring to that customer. If you’re trying to serve customers in 20 industries without the ability to bring real expertise to those customers, someone else who can provide that expertise will beat you.”
Although SPG initially will focus primarily on the U.S. market, the new subsidiary eventually will explore acquisition opportunities on this side of the border as well. Specialty businesses already are on the radar of Hub’s Canadian operations as Hub International pursues growth, says Lawrence Lineker, president of Canadian operations with Hub International.
“[We’re] looking to acquire businesses that have a distinct differentiation, a specialization,” he says. “Specialty business tends to outperform our generalist business by a pretty healthy margin.”
Lineker says he foresees strong growth opportunities for Hub Financial in the Ontario market in particular.
Hub Financial’s new acquisition strategy comes amid a wave of consolidation in Canada’s MGA space. Many MGA owners have decided to sell their firms as they approach retirement age and because factors such as growing compliance responsibilities and higher carrier production requirements have made competing with larger firms increasingly difficult for small MGAs.
The downside of that consolidation, Ruta says, is that it reduces advisor choice: “You have fewer options, fewer places to go and fewer alternatives to what you’re doing.”
However, he adds, consolidation also can benefit advisors, because larger organizations typically have more resources and the ability to provide more comprehensive support.
Lineker says the prospect of joining a company as large as Hub Financial certainly appeals to many smaller MGAs and their brokers.
“We have the scale and capabilities of an international brokerage,” he says. “We bring to the table a tremendous amount of investment resources.”
Furthermore, by acquiring other firms, Hub Financial has been able to continue to expand and enhance its suite of advisor resources, says Terri Botosan, president of Hub Financial.
“We are always looking for ways to improve the experience that our advisors are having,” Botosan says. “And we don’t pretend to know everything or that our way is always the best. So, one of the biggest things we get from these acquisitions is being able to see how others are doing things, and bringing the best of both worlds together.”
For example, Botosan notes, when Hub Financial’s acquired Richmond, B.C.-based Complete Brokerage Services Inc. in 2013, Hub gained a new training and education program that has been expanded and made available to all Hub’s Canadian advisors. In addition, acquiring Ontario-based MGA Partners Inc. in December 2014 bolstered Hub International’s mutual fund offerings significantly, doubling the size of its Hub Capital mutual fund dealership.
“That [acquisition] has allowed us to really reinvest in that business,” Botosan says. “We see our mutual fund dealership as one of our biggest opportunities for growth.”
Botosan admits that there are challenges associated with the aggressive pace of growth Hub International has experienced. These include difficulties in integrating newly acquired firms and in providing tools and support that meet the needs of such a broad spectrum of advisors.
“We have so many different types of advisors to cater to that what we have to offer on our platform [is] very broad,” Botosan says. “Sometimes, the biggest challenge for advisors is wading their way through everything we have to offer.”
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