After 50 years in the insurance business, J. Patrick Gallagher Jr. has seen a lot of change in both the industry and the company that bears his last name.
Having joined the market when it was common for large companies to buy insurance coverage, Mr. Gallagher in and later led Arthur J. Gallagher & Co.’s effort to provide a more sophisticated approach to insurance purchasing for its commercial clients.
Developments also included the growth of claims handling services for buyers, which the company first developed in the 1960s.
Mr. Gallagher also led one of the most successful expansions ever by an insurance brokerage, helping as a producer and later as a manager to grow the company from a largely Midwestern brokerage into a multinational risk management and professional services organization.
In 1972, when Mr. Gallagher joined the company as an intern, it reported $3.5 million in revenue and had 141 employees, according to Business insurance”s directory of insurance agents and brokers, and the ranking of the 20 largest brokers in the United States did not. In 1995, when he was named CEO, Gallagher was the 8th largest broker in the world, with $412 million in revenue and 3,739 employees. Last year, Gallagher reported nearly $7 billion in brokerage revenue — more than $8 billion for the entire company — and ranks as the world’s fourth-largest broker, with about 40,000 employees, more than half of whom are based outside the United States.
In recognition of his achievements at Gallagher and his leadership position in the industry, Mr. Gallagher with Business insurance Lifetime Achievement Award during the US Insurance Awards event in New York at the end of September.
Mr. Gallagher puts his start in the insurance industry down to luck.
“Our industry in general is one where people either fall into the business or they’re born into it. However you get here, you’re lucky,” he said. “I look back and I say, ‘How lucky was I?’ I was born into a company that my grandfather absolutely loved.”
His grandfather, Arthur Gallagher, worked as a bookkeeper for a major agency, before opening his own store in Chicago in 1927, selling insurance for Hartford. His three sons all joined the business and developed the company into a commercial brokerage house.
One of the defining moments in the company’s history came in 1962 when it established its third-party administrator, Gallagher Bassett Inc., and developed a pioneering self-insurance program for Beatrice Foods Co., a client it had won from a much larger broker five years earlier.
Mr. Gallagher first worked at the brokerage at the age of 14 during his summer vacation in 1966 as a file boy, traveling into the Chicago office with his father; he immediately liked the work environment and the people he worked with.
He later attended Cornell University, where he studied political science and government, and returned to the brokerage house as an intern in 1972.
In 1974, he graduated, married and joined the company full-time as a commercial line producer, focusing primarily on mid-market business. He was assigned a small book of business, which covered his salary, and began to build it up.
“It was tough, but I started to get traction,” he said. “It’s a story that remains today: you have to put in your fees, you learn your craft, you learn how to qualify leads and understand what potential customers actually need instead of just trying to sell them a product.”
In 1977, Gallagher returned to Cornell in his professional role and won the university’s account. He still has the line on his office wall, he said.
“I had gone back to Cornell and had a chance to call their finance department. They bought all their coverage first dollar—it was kind of crazy—and we managed to show them how to use retentions, which at the time was still kind of modern thinking, and using a TPA,” he said.
Forty-five years later, the university is still a client with a multiline retention and Gallagher Bassett as a third-party administrator.
TPA continued to evolve and in the 1980s it evolved into a company that offered its services on a stand-alone basis, beyond its core base of Gallagher brokerage clients.
In addition to developing large retention operations, during the 1970s Gallagher developed expertise in non-profit, public sector and religious institutions, which it maintains today, and enjoyed rapid organic growth.
Mr. Gallagher also advanced to become unit manager with a handful of producers under him before being named branch manager of Gallagher’s Chicago operation. He held that position when Gallagher went public in 1984.
At the time of the IPO, the brokerage had $63 million in revenue and the offering raised about $13 million. The capital allowed the company to pay out some long-term shareholders who retired and start its now multi-year acquisition strategy.
“The drive was to give those who had contributed to our growth their due and to give us a currency to grow the company with acquisitions,” he said.
Since going public, Gallagher has made more than 500 acquisitions. While the deals have included some large firms, hundreds of tuck-in deals involved small brokers.
“We were growing pretty quickly with acquisitions, and we were plugging people into positions that a lot of us weren’t necessarily trained and ready for. It was learning on the job: learning to make acquisitions, learning to manage them,” he said.
Gallagher took on increasing levels of executive responsibility after the IPO. In 1986 he became vice president of operations. In 1990, he was promoted to president and chief operating officer, and took over from his uncle Bob Gallagher as CEO of the company five years later.
The acquisition strategy was and remains simple, Gallagher said. “Let’s go out and find people who run really good companies in our industry and, if we like them, let’s try to convince them to sell to us and nobody else. That’s it,” he said.
The company has always been focused on culture — the 25 tenets of “the Gallagher Way” describe the company’s approach to business ethics — and attracting the right companies into the culture has always been key, he said.
“We have to recognize that an entrepreneur who has built a $10 million business is damn good at what he or she does, and in order for them to want to join us, I try to call every one of them to thank them because they chose us,” he said.
In recent years, the acquisition strategy has seen the company grow into a significant international operation.
Gallagher began its international operations in London in 1974, and about 10 years ago began targeting some large companies in other English-speaking countries. Among other deals, in 2013 and 2014 Gallagher bought the insurance brokerage business of Australian conglomerate Wesfarmers Ltd for more than $900 million and Canadian brokerage Noraxis Capital Corp. for nearly $400 million, in addition to the Giles Group of Cos. in the UK for around $360 million.
“All these markets are made up of a lot of small brokers, agents. We thought we could create a good home for them and do what we’ve done in the US there, which has turned out to be true,” Gallagher said. “It wasn’t an exercise in planting flags, it was an exercise in expanding our income with an international component.”
The biggest deal to date was also international – the 2021 purchase of Willis Towers Watson PLC’s reinsurance business.
The deal transformed Gallagher’s reinsurance brokerage business from a medium-sized broker to the world’s third largest. It also helped its retail business and provided insights into the dynamics of the wider insurance and reinsurance markets and the capital available in the sector, Gallagher said.
Insurance brokers are still a big business that facilitates the operation of all other businesses, he said. But it is surprising how many companies have left the sector, he added.
In 1985, a year after the IPO, Gallagher was the eleventh largest U.S. brokerage house and Marsh & McLennan Cos. Inc. was the largest. All other companies in the top 20 have since left or been absorbed by competitors, with several combining to form what is now Aon PLC, he noted.
“Everybody gave up, which is crazy. It’s the biggest deal on the planet,” Gallagher said.
And there are great opportunities for young people to enter the sector, he said. Gallagher’s internship program has grown into one of the largest in the industry.
“I am very proud that the company had 500 trainees this summer; I think there’s definitely a day when we’ll have 1,000. We’re looking at ways to be more proactive with community colleges, but my God this business is amazing,” he said.