I'm Ray Iardella, Head of Investor Relations at Gallagher. I want to welcome everyone to our fourth quarter 2019 Investor Relations meeting here in New York City, and those of you who are listening on the webcast. Each speaker today will be providing about 20 minutes of prepared remarks, and then we'll open it up for Q&A for those of you who are here in the room. For the benefit of those on the webcast, we ask that you please wait for a microphone before you ask a question. We have a couple folks helping out today that will be passing around the mics whenever you want to ask a question. Additionally, we just handed out our updated CFO commentary document, and we posted this same document to our website at www.ajg.com/december18materials. An 8-K regarding this information was filed this morning as well.
Before we get started, I'd like to make a quick legal comment. Some of the comments made during today's meeting, including answers given in response to questions, may constitute forward-looking statements within the means of the securities laws. These forward-looking statements are subject to risks and uncertainties that may be discussed today or described in our reports filed with the SEC or CFO commentary. Actual results may differ materially from those discussed today. With that out of the way, I'm going to hand it over to J. Patrick Gallagher Jr., our Chairman, President, and CEO. Pat?
Thank you, Ray, and good morning, everybody. Before I forget, happy holidays to all of you, and thank you for spending some time with us this morning. We appreciate it. Before we get started, too, I'd like to introduce someone in the back of the room. It's kind of fun to come to New York. In the back is Norm Rosenthal. Norm, stand up for a second, will you? I don't know how many of you are familiar with Norm, but illustrious history with Morgan Stanley and Arthur J. Gallagher Company. Norm, 46 years ago this coming May, is the analyst from Morgan Stanley who took us public and sits as a member of our board and a great contributor over this 46 years to the success of the company. Welcome, Norm. We're glad to have you.
Norm and I are the same age, and we just get older together. It's great to have you, Norm. The goal today is to kind of just do what we've done. As I look at the room, and I see an awful lot of faces that know the story very well, who followed us for many years, and then yet there are some new faces. For those of you that have heard the story over and over again, it doesn't change much. Today, we'll just update you on the things that you know about the company, the direction that we're going, and the four things that we're trying to do to continue to grow the company. For those of you that are new to the company, those four things are very simple. They've stayed the same for quite a long time.
We'll give you an idea of the strategy and how we're trying to address those four items. Those four items are very simple. I repeat these over and over again with our people everywhere I go around the world. I was just in Australia last week, and try to make sure that all 35,000 of our associates can literally stop anywhere and say, "What are we trying to do?" Well, the number one thing we're trying to do is grow organically. When you're growing organically, that starts with taking care of clients. You can't fill a bucket with a hole in it, and we repeat that over and over to our folks. When we've got clients, we've got to keep them, and then the thing is that we go out and aggressively seek to grow that book of business. That's number one.
Number two, as you all know, we're very active in the merger and acquisition space. Over the last 40-plus years, this has been a very important part of our strategy. People ask me quite often, how do you take 50, 60 acquisitions in a year and get them to join the firm and change their culture to become more like you? I think you'll hear a common theme as you hear our operating people today is that we really aren't changing the culture. About 90-plus percent of our due diligence is on the cultures of these firms, and if you don't fit, we try not to do a deal.
We really believe that we offer a unique offering in the marketplace, and if in fact what you're looking for is to just simply stay the way you are and maybe change names, in many instances, maybe not change names, it's not likely you're going to fit. What we're looking for are people that are excited about the opportunities to grow their business. This goes all the way back to the early days of when we first came public and we were doing poolings of interest. You don't need to sell. We don't need to buy. Together, can one plus one equal something like three, four, or five? That strategy remains the same today. Thirdly, incredibly focused on our quality and productivity. If you take a look at our margin over the last decade or so, we've had very significant margin improvement.
Behind that, what I'm as proud of as anything, is the level of quality that we deliver to our clients has gone up exponentially. I know that because we measure it. We have over 5,000 people now in our centers of excellence in India, providing well over 300 various services to our people throughout the enterprise on a global basis, and we measure that every hour what we're doing. One example, just certificates of insurance. I'll ask people when I'm on a panel with other agents and brokers, how many of you measure the quality of the certificates, which, by the way, for those of you not in the business every day, are very important to our clients. How many of you measure what that quality level is of the product you're putting out? Virtually none do that. We do.
We know that the certificates we put out are 99.9% accurate every hour, on the hour, every day, every single week. Why is that important? Because if you're a contractor and your cert's wrong, you get kicked off the job. It's really just one of those things that the quality is really important. Final, of course, is we do believe, and we think we prove this over and over again, that we have a very unique culture in our business. It's a culture that I'm really proud of that goes back literally 90+ years to my grandfather starting the company. I'll give you two examples of that before I get into each of these individually.
There's these new voices on Wall Street, and there's these new concepts on Wall Street that really have gotten a lot of press over the last eight, nine months. By the way, I'm supportive of this. One is ESG, this whole idea that we really ought to be somehow focused on what we're doing in terms of ESG and our environment and our governance. That's all good. We ought to be more focused as a group in terms of the commercial world on diversity and inclusivity. That's good. By the way, I've got this great idea, a new idea to hit Wall Street this year. We should have a purpose greater than making money, that our purpose as enterprises should be something broader than all we do is generate returns for shareholders.
I look at that and I go, "You got to be kidding me." This is not new thinking. This is what we've been about for coming on 100 years. When you go to The Gallagher Way, which I'll talk about a little bit more when we get to culture, and you look at Bob Gallagher's writing from 1984, the year we came public, 25 of those tenets, 18 of those tenets deal with our teammates. We're all cogs in the wheel. Every job is important. I wouldn't do what I wouldn't ask others to do. Fear is a turn off, et cetera. They're all about people. We didn't talk inclusivity and diversity in 1984, but that's what Bob was talking about. No second-class citizens. That's not what we have.
This idea that all people should be embraced, be able to find a place where they can comfortably bring their talents to benefit our clients and their fellow colleagues. This is a new idea? It's not. This concept that stakeholders beyond just the shareholders should have some reward for being part of the organization, that's a new concept? When we put together our mission statement, again, 1986, I was in that meeting, and we talked about who are our stakeholders, and we listed those stakeholders in our mission statement intentionally in this order. Number 1 is the client. By the way, we haven't changed a word of this mission statement since 1986. Number 2 are our colleagues. Number 3 are the insurance companies because we don't take risks. Those partners need to do well.
If we get those three right, and this is what I've been saying from stages for 40+ years, if you get those three right, the shareholders will benefit. I think that today we can look back on the success of the enterprise and say that's certainly been the case. Let me concentrate very briefly. I'm going to talk for about another five minutes, and then I'm going to open it up for questions, and we'll get to the meat of our presentation, which are our operating divisions. When you take a look at our organic growth, one of the things I didn't mention is our capabilities and the strength of our niche or niche operations. These are the vehicles that we operate in. If you go back 30, 40 years, we were very strong in public sector. We're very strong in religious not-for-profit.
Today, we have 30 of those. I will tell you that there is no competition we fear globally, and I know that when I'm in those meetings and I see our people working across these areas of expertise, we are second to none. We are really, really good. We have a tremendous focus on data and analytics today. Really, when I sit back and I look at the world and you see, just take the U.S., about 30,000 agents and brokers, according to Bobby Reagan, around the U.S. These are firms, not people. Those 30,000, number 100 last year of Business Insurance's top 100 brokers in the U.S., did $28 million of total revenue. That means that all of those under 100 are smaller than that, and then when you get to about 30, 50, 25, you start getting some real meat on the bones.
Frankly, those are our competitors. We know that 90% of the time when we're out competing in the marketplace, that's who we're competing against. We're not competing against Marsh, Aon, Willis. They simply do not have the capabilities and do not have the data and the analytics to compete in a future world. We're investing a ton of money in that, and you'll hear more about that. Cross-selling as an organization, this is a great opportunity for us. One of my biggest frustrations, again, organic growth. We know exactly what lines of cover across every division that we're doing with a client. Unfortunately, it turns out to be an average of about three lines per client, whether they're a benefits client or a property casualty client. Most clients will buy more than 10-15 items of insurance across their entire portfolio.
We know that we should be providing all of those. Great, great opportunity. We continue to hire producers. Over 500 kids, shouldn't say kids, young professionals in our internship this past summer in the U.S. alone. Add our global capabilities, add our global interns, we're probably over 600, 700 people that we're introducing to a business that, for whatever reason, still tends to have a negative connotation on campus. I believe it was PwC did a study this past spring, and something on the order of 4% of the millennials in the world, in fact, even take a look at insurance. All this adds up to a good year this year in terms of our organic growth, around 5%, and we feel solidly that next year should be about the same, something around 5%.
Mergers and acquisitions, one of the things I did not mention is again, when you look at who we're buying, you've got to look at that 30,000 in the U.S., three ways about the same amount of opportunities on a global basis. Our average acquisition runs around $5 million-$10 million. Back to this question is how can you integrate all these people? Well, if you look at our divisions and you'll see this today, we'll start with property casualty. We'll move into benefits. You'll see our wholesaling, and you'll hear about what we're doing in terms of claims and risk management services. When you look at underneath each of those, there are six, seven, eight divisions, not divisions, but regions within. If every region is doing one to two acquisitions a year, they add up pretty quickly.
For us to integrate something that's $5 million-$10 million is really not difficult. In fact, what I'm really proud of and doesn't get an awful lot of mention is that I try to call every single one of these acquisition partners once they've joined us. I don't get a chance anymore to meet them all prospectively. I call them up, and literally 100% of the time, what they'll tell me is, "I can't believe how great your folks are." They don't say to me, "Everything was fine until I met the lawyers," or, "It was great when I saw your trading people, but your HR folks suck." They don't say that. They say, "I can't believe it. Everyone I met was helpful. They bring us aboard. Our people feel comfortable. Yeah, there's confusion, and we need help navigating this bigger company.
Your folks are there for us." That's incredible. Our people are unbelievably busy with a pipeline that today has probably $400 million of revenue associated with dozens of term sheets that are either being prepared or signed, and every one of these folks that come aboard, we want them to feel, and we understand that they're selling their baby. The pipeline is solid. It's an unbelievable business, and we offer a distinct differential between our private equity competitors. If you want to join a private equity play, which very much starts with there's not going to be a lot of change here, that's a different opportunity than we offer, and we think that our advantage is the career pathing and the opportunity for that entrepreneur to move up with our vertical strengths to take on accounts that they would never have been able to take on again.
I talked about productivity and quality. Our margins improved substantially. Our retention rates, I think, are influenced heavily by our capabilities to deliver quality. Our margin improvements are directly related to those efforts, and I think that we'll see a continuation of that as we look globally and we continue to expand through acquisitions. We have more opportunities today to standardize, to robotize, to use AI, et cetera, than we've ever seen before. We have over 150 robot projects underway right now throughout the enterprise. Go back to what I was saying about our smaller competitors being able to compete, it's going to be very difficult. These services and what we're doing for clients are not just focused on the mega clients, the large accounts. We're now really driving these efficiencies and capabilities all the way down to what we refer to as VSME, very small enterprises.
You're going to see us market to those more. When I was running a branch, every four to five years, I'd sell them because they were like freaking flypaper. You'd get it all wrapped around you, and you couldn't service your other clients that really provided you profitability. Today, we can manage those accounts professionally, grow those accounts at a very nice margin in excess of 30%-35%, and we can provide great service to them. This all comes from harmonizing systems, doing things one way, being able to use robots, putting things in service centers, and dealing with the opportunities that brings from standardization to higher levels of qualities and efficiency. I've talked a lot about our culture in the past, that's our fourth main pillar of our strategy.
I've had many young folks, in particular in N.Y. over the years, say to me, "I read about this, I listen to you, and frankly, this culture stuff strikes me as bullshit. Why do you think that this is something that is strategically important when really you do 50-60 acquisitions a year? They come to you, they get capabilities, that's great. You pay them well or they leave." That's not true, by the way. We pay them well, but we don't have a lot of turnover. The fact is, I think that the culture, the older I get, the more I realize is probably the single most important ingredient in our success. I think that's probably true for most successful companies that you see around the world. There is something inherently positive and important about the culture that people come to.
The way I explain it to our management team is, let's face it, we don't own anything. We got a building in Rolling Meadows, we got workstations and computers, and that is it. We got 35,000 people globally across every time zone that pop up in the morning and decide to come to work taking care of our clients. By the way, if 35,000 people don't pop up in the morning and choose to be here, we don't have a product. We better do something right every single day about making sure that those 35,000 people, A, want to be doing the right thing for our clients because they're excited about that, and B, show up to do it.
You don't have a client, and that all 100% is what turns into success for ourselves and back to our shareholders, and that's what gives us the sticking power for our clients, and the whole thing is a virtual circle. That's what you're going to hear today, over and over again, and those of you that have been in the room many, many times over the years have heard this story, and I think you'll find that it stays consistent. The opportunities only continue to grow for us. When I step back and look at, again, our capabilities, and I see what we provide our young people coming into the industry, when I see what we're doing for our clients, and how we're making that stickier because they're getting better and better service, how we're analyzing what it is we're doing.
People like you buy this, here's why. These are the type of claims that we're seeing in your industry, why your umbrella limits probably aren't right at 15, maybe would be better at 50. Those are discussions the smaller players just simply can't have. That puts us in a spot, I think, to tell all of our teammates that we talk about all the time, that we're just getting started. I'll stop flapping my gums because all my teammates know that if I really get on a roll, they won't get a chance to talk, and I'll take some questions here. Elyse? Elyse? Oh, wait for the mic, yeah.
Thanks. Elyse Greenspan, Wells Fargo. My first question, Pat, on organic growth. You said around 5% for the year. Just to clarify, you guys were at 5.8% through the first three quarters, I'm assuming you're just kind of saying Q4 should be consistent with the year to date?
Yeah.
Maybe that's closer to six. Is that correct?
Yes.
Okay, great. You said 5% next year. Sounds like you're also kind of saying you see the same environment in 2020 as 2019. Is that true? Can you give us a little bit more color, like how do you see domestic versus international growth as we think about Gallagher had a really good year this year-
Yeah
up against some pretty tough comps in 2020 versus 2019.
Yeah, I feel really good about the year. Let's face it, we're getting the benefit of some tailwinds. The market comes and it goes. If anything, probably as it relates to the press and what have you, I've been maybe more bearish on the market turn than some of my competitors or some of the analysts. I do see, and I continue to see this, that we're not in this ubiquitous market that is a market. It all goes up, or it all goes down. We're in cycles within the market. Right now we are seeing firming in cycles like transportation, D&O medical malpractice, where we still see cycles in workers' comp being a little bit soft. Nonetheless, on the overall, the rate environment is positive for us. That does two things though, that we also have to recognize.
Number 1, it puts our people into an overload when it comes to work. What used to take a phone call, an email, and a quick bit of dialogue to place a property placement of a quarter of a billion dollars is not going that swimmingly easily anymore, that creates an awful lot of work. Frankly, as prices go up and people get a little disenchanted with that, it creates more competition, which again creates more work. There's mixed results from a firming market, by and large, it is something that favors us. It's a tailwind.
If you take a look at our organic growth, I'm very, very proud of the fact that typically over the last number of years, when we're reporting on a quarterly basis, not just annually, we'll typically be number 1 or 2 in reported organic growth, which is not a GAAP number, it's hard to compare, against our competition. We get up every day as a pretty aggressive sales and marketing company and recognize that nothing happens till someone rings the cash register. Yes, I feel good about organic next year.
Thank you. Pat, on acquisitions, have you seen any shift among the appetite of the sellers to go to strategics versus financials? Just curious with all these private equity vehicles out in the marketplace, if there's any slowing down of their success rate versus what you guys are doing.
Oh, gosh. I wouldn't say slowing down, I wouldn't say speeding up. If you take a look now with the private equity players, if you went back a decade, there were probably three of us that had $1 billion of total revenue in our industry. You had Marsh, Aon, Willis, and Gallagher, four of us. Soon after that, Brown. Now there's 10, 11, 12 of us, that people are sweeping up, as you might say, Hoovering up the industry a bit. I wouldn't say that there's a greater move afoot to strategics. I think there's just greater opportunity for enterprises to sell. We're hearing now, I think this is a fair comparator.
That if you kind of graphed it and you said, "Okay, I'm a private equity player, and as I'm going to sell something to you or I'm going to try to buy you, and my level of change that I want to create in your enterprise is near this axis, which is zero." No change. I don't even want you to change your name. I'm going to give you $20 million. You're going to put it in the bank. You're going to turn around, and you're going to say to your folks, "Hey, young folks, still got a great opportunity. We're still selling insurance as the Jones Agency. We're going to do great." Mr. and Mrs. Jones have done really great. Now we've got $20 million in the bank, and then we want to go to Florida to live. In the meantime, things are just the same.
Versus, on that very same matrix, a lot of change. We really like you to consider which verticals do you really want to specialize in, if any? Where can you be accretive or additive to those? We do want you to work on our agency system. That's a given. That's not a matter of, yes, I'm going to do it or no, it isn't. And we do want you to work with our centers of excellence in India, because that's how we do work. That's how we get our certs out, that's how we get our proposals, that's how we check our policies. That's how it's going to be. When you look at that matrix of change, and you look at the people who are selling today, who are primarily baby boomers that started these businesses themselves, that's where the competition falls.
Frankly, I would say probably more fall towards the zero change. Which is, again, part of how we sort out, because culturally, frankly, if you have no interest in change and you're selling your firm, you're a little bit bipolar. I mean, why would you sell and have no change? If that's really what you want, these businesses, these folks are not hurting for money. There are no tag days for these people that have built good independent agencies. There are still those out there that are working very hard to perpetuate, and a number of those will be successful. I think there's a good balance. Frankly, this is a sales game. We line up our prospects just like you would sell an account. We talk to them about why we think for their people, for their own capabilities, joining us is better.
We're very happy if they prefer stock as opposed to cash. Most of them want cash. We're very flush with cash. We can do that. The fact is, I think we've got a track record that says, "Why don't you join us? Why don't you give your young people a real career path? Why don't you help us build our vertical capabilities, our niches, and we'll all move up the ladder together?" Those that buy that program are the ones that join us. Brian?
Brian Meredith from Baird. Pat, the market's probably been the strongest I've seen it, the price of market in the 15 years I've been following you guys and the industry. What turns it the other way? What are you looking for as potential signs where maybe the market is overextended, pricing is hurting accounts too much? What ends this?
Well, again, this is a better market than we've had. If you go back to the 1970s, we had hard markets, soft markets, hard markets, soft markets. There was really Pardon?
I was in grade school.
Shut up, Brian. I mean, I talk about all this great stuff that's going on, the question that usually comes up somewhere from one of the young faces in the audience is, "How long do you want to keep working?" Shut up, Brian. The fact is that when in the past cycles, balance sheets crashed, people realized they were in real trouble. All rates went up. Rates were going up, they had to offload business. You had cancellations left and right, even including accounts that were really good accounts. That's not what we're seeing. We're seeing that people recognize today where their lines of coverage are in trouble, both geographically and by line of their writing. When those markets get to a point where people recognize they're making money, they will soften, and that's why comp is soft.
Now, when I say soft, is comp dropping 15%-20%? No, people want the line. Why do they want the line? It's a long-tail line. Takes a long time to pay out the claims. They get to keep the money. They're investing that money. Not at much return today, which is a problem. Nonetheless, they're getting a return on that money while they slowly pay out the claims that they're also making money underwriting on. When you see transportation and safety and distracted driving improve, when you see claims counts starting to go down, I don't think you're going to see tort inflation go down. I think if you start to see those signs, then those lines will soften when people recognize, "Hey, I can make money." Where are we? That's line by line, geography by geography.
We have very smart underwriting companies that know when it's time to move in, and I think you'll see that. I think you'll see whether it's coastal property in ILS. The ILS money kind of slowed down for a bit. It's coming back nicely. People are looking for those returns, especially in today's environment. When capital flows into lines that they think they can make money on, look, it's a risk business. These investors, I thought ILS was probably going to be a one and done. Give us a big hurricane and these people are going to go, "My bonds are gone." They'll reload. They know. It'll just be, I think, when people know they're making money. Yeah.
Hi. Ira Rognan with Roth Rognan Tax.
Rognan.
Just curious, can you follow up on Elyse's question? Constructive environment here in 2019, about 6% organic growth, 5% for next year. Is that just a conservative measure, or do you see things actually slowing down into next year?
I think it's a conservative discussion.
Okay.
Thanks, Brian.
Hey, Mike Zaremski, Credit Suisse. Could you elaborate on your initiative to target very small businesses? We did a quick survey of micro-businesses, and it seemed like the consensus was that most of them didn't feel like they had a lot of handholding. This wasn't AJ. Gallagher specific. Maybe you can elaborate-
a way to better serve and target micro businesses.
Yeah, I can. In fact, that's a great segue. I think you're trying to get the hook from me, right, Ray? You want to keep working here?
Nope.
Okay. Those of you who know me know I'm teasing him. One of the things we found in our surveys and work is that part of the problem with small accounts is that they weren't getting any touches. When we look at the way we were handling them in our branch network, just doing them because, as I said, they were flypaper. I'm going to do your account, Uncle Sam's got the bar down the street, would you please handle Uncle Sam's business? Yeah, we'll do it, we've got it, we're never going to call him, right? You look at that stuff and it doesn't really add up to making any kind of profit margin, so it even gets further pushed aside.
By being able to centralize more of that business, to look at it, use the insurance company's service centers where possible, but also build out our own service center, we have over 100 people now in Las Vegas that handle U.S. business. What we found is, surprisingly, it's the opposite of what you'd think. We are touching those clients now to a greater extent than we were when they were just locked in our branch network. Guess what? They're appreciating it, and they're staying with us, and they're extending their lines of coverage with us. Now, the model is different. They don't have Mike. They don't get to say, "Mike's my guy, and would you please have Mike call me back?" What we're saying is, "Thank you for your call. Okay, we see, Pat, your stuff's up in front of me. How can I help you?
By the way, 6, 7 months from now, or 4 months from now, Pat, your renewal is coming up. We'd like to add some lines. Are there other things that you're doing?" We're finding that they appreciate that. What you're going to see with us is probably not a major move into electronic trading that's only done over the internet, where you see, oh, we've got to do the XYZ biz-cover, wazza-bazza, because no one wants to talk to anybody anymore. Even very small accounts, they like to have somebody from time to time they can talk to. You get one level up from that, and there's definitely a connection to the people that are handling your account. When you start getting assets, you're going to want someone to help you as an advisor. All right. Well, thank you very much for being with us.
I'll be around all morning, I think you'll hopefully have a great time learning a lot more about what we're trying to do. Thanks, Ray.
Thanks, Pat. Next up, we have Mike Pesch. He leads our U.S. Retail Property Casualty business, the next 30 minutes are yours, Mike.
Thanks, Ray. As well, I think this thing is working. You guys can hear me back there. I'll follow a similar cadence to Pat, and I will talk you through organic growth, M&A, productivity and quality, and then finish up with some culture. I'll give you some perspective right now, though, about the business for those of you who are new here. What I'm responsible for is our retail property casualty business here in the U.S. Like many of us in leadership roles within Gallagher, I started at Gallagher in 1991 as a summer intern in college, then came on board full time as a producer, have been a branch manager, run regions, spent some time in M&A, and now my current role within GGB US, leading our retail property casualty operations.
The business itself, in 2018, we finished about $1.4 billion in revenues. Like you heard from Pat, it grows organically in those mid to high single digits. Runs a very comfortable margin at around 30%. We're broken up into 10 regions. You heard Pat talk about how we go about doing M&A. We've got 10 regional presidents, one of whom is here today, and nine others that are out there every single day building relationships with potential candidates that might want to sell their businesses to us. We also have about 75 branches that they're responsible for that report up into those 10 regions. The business that we work on, you heard Pat talk about that SME business.
I tell you, we touch everything from personal lines into small business, and I'll address, Mike, your question a bit more about small business as I get into our strategy and organic growth. We define small business at about $5,000 in compensation to us or below. We touch personal lines, we touch small business, mid-market, upper middle market, and then risk management accounts. If you slice us down the middle, I'll tell you that most of our accounts are in that mid-market to upper middle market. What does that mean? To us, that means usually they don't have a very sophisticated risk management team handling or buying or procuring the insurance on an everyday basis. The CFO, potentially even the CEO or controller, is responsible for that. Why is that important? It's important because those folks, as you might guess, wear many different hats.
They're not just buying insurance for a living. They're doing a lot of other things for their companies. That's important to us because as we build out our framework, as we build out our value proposition, as we'll say, we need to address those kinds of needs that those kinds of buyers have. They have specific needs around claims and loss control that maybe a big risk management account, again, we also serve those customers as well. They have their own people to do that. We have to constantly be looking for ways to add value to those customers who don't necessarily have those internal resources. It's a consultative sell for us. In essence, we're not just transacting business. You heard Pat talking about small business. Yes, we're doing that, and we're in that space in a fairly decent sized way.
When you look at our mid-market and our upper middle market, it's not just simply go out to the marketplace, get me the cheapest quote, and come back. It's about how do you drive cost out of my business? What are the things that you're doing on an everyday basis to help me and my company get better at what we do? I'll get into that when we start talking about organic growth. That's our business in a nutshell. Again, like you heard from Pat, we're having a pretty good year organically, and we anticipate much of that to occur in 2020 as well. I'll talk about, as I get into organic growth now, a bit of what I'm seeing in the marketplace and how that is affecting our overall growth and what it's causing us to do from a renewal standpoint and how we're addressing that.
Let's talk about value proposition. For us, we define our value proposition under what we call CORE360. CORE360 is basically our value that we communicate to our customers. It's based on six, what we call cost drivers. This is anything from literally going out and getting quotations from the marketplace to helping our clients through uninsured or uninsurable claims. This is helping them through contractual liabilities. This is helping them through uninsured exposures that they may have and everything in between. This is more than just simply, like I said earlier, going out and getting a quotation for our customers. Why is that different? Well, I think for us it's different because 85%-90% of the time when we compete, we compete against someone who is smaller than us.
Oftentimes, those smaller brokers don't have the infrastructure, don't have loss control claim people to be able to go out and help their clients or help their prospective clients address what's really causing the problem and what's really causing them to have losses on a day in and day out basis. That becomes part of our differentiating model. That becomes part of how we, when we're talking to that CFO, can show them how we're going to impact the cost that they're spending on insurance or on risk management every single year. Within CORE360, we have very specific niches. These are industry focuses. Industry-focused areas like construction, like transportation, where we have niche leaders, niche managing directors who are there to help and support all of our producers grow their books of business in those verticals. Why is that important?
Well, to us, I think to our clients, it's important because our clients are getting more and more sophisticated around what kind of expertise do you have that'll help me make sure that my business is properly covered and properly addressed from a risk management perspective. Take a construction account. You can't simply wake up in the morning, if you're doing general business every single day, and call in a construction account and handle it properly if you don't know anything about the construction business. Yes, you may be able to get lucky and do it one time because you went out to the market and got a cheap quote. Sustaining that business over the long haul can be very difficult.
Our niche managing directors are there to help and support our producers to make sure that we're addressing specific things that those industries are facing on a day in and day out basis. One other way we address organic growth is by maintaining and continuing to build strong relationships with our insurance carrier partners. The Council of Insurance Agents & Brokers, we attend it. It's held in October in Colorado Springs. We have about 20-25 meetings with our top insurance carriers. Those carriers, many of whom you've heard me talk about in the past, Smart Market, are on our Smart Market platform. Smart Market is an electronic way for us to trade with these carriers. We have about 20 of them up and running on Smart Market today.
If you think about it, in our world, we have about 1,400 producers. For those 20 carriers to be able to connect with 1,400 people on a day in and day out basis is very challenging. What Smart Market does is it helps them understand what are those producers working on, what's in their pipeline, what's in their book of business, and how can I properly align my appetite with what they have in their book of business. Again, when we talk to our clients, back to that whole value proposition, what is the go-to-market strategy that our competitors have? Well, their go-to-market strategy is whoever knocked on their door, whoever they know, whoever relationship that they have locally in that area. If they're in Des Moines, Iowa, or Cincinnati, Ohio, those carriers that are based there, those are the relationships that they have.
Smart Market allows us to see the entire playing field and allows our producers and our carriers to see the entire playing field of what we have in terms of our book of business, in terms of our pipeline. Our goal is to never miss an opportunity to align the carrier's appetite, our top carrier's appetite, with our clients and what they have and what they need from an insurance placement. If that makes sense, that to us is kind of like the Uber of insurance. It's connecting a willing seller and a willing buyer through an electronic platform. It served us well from an organic perspective. When I look at those 20 carriers, we're growing with them at upper single digits to double-digit rates because there's efficiencies, there's effectiveness that's baked into it. Organic growth, we talk about product development.
You've heard me in the past talk about our Advantage suite of products. The Advantage suite of products is basically we've gone to a handful of carriers. Lines of coverage that we knew were sometimes misunderstood, things like cyber, things as simple as umbrella. In a simple umbrella placement, there's upwards of 12-15 endorsements that can be added to every one of those placements. For our producers, we've gone out, found six, seven carriers that are willing to supply us and our placements with those endorsements on every single placement. So it's better coverage for our clients, it's better for the carrier because we're ultimately going to have them with more of our volume, and it's better for us because they're sharing a bit more compensation for us at the point of sale. We now discover that we have about 80 different products that we provide.
We're studying internally. Gallagher culture is very entrepreneurial. A lot of our producers go out to the marketplace, find a specific need that they want to address for their industry or for a product line. We have about 80 different products that are not Advantage products, but different kinds of products that our people have built in the marketplace, the ability to now use that as sort of, you heard Pat talk about a white space opportunity. I'll give you an example. We've built a product for active shooters. Active shooter coverage, which is a very important topic in this day and age. For a lot of commercial businesses, a lot of public entities, for them to need to have that as a way to address that potential exposure. Again, that's part of that whole concept of white space. Pat talked about it.
Sell about three lines of coverage to our customer. Sometimes it's because they don't have to buy the coverage, but they may want to buy the coverage. They have to buy general liability. They have to buy property. They have to buy workers' compensation in most states. They don't often happen to buy things like cyber. It's incumbent upon us to show them and demonstrate to them that they need it. By having things like the Advantage suite of products, which has best-in-class coverage to address all the things that they may need around a cyber placement or the things, like I mentioned, around active shooter coverage, it's really important to our customers, and it's really important to our producers to help support them and convince our customers that they need these lines of coverage. Let me talk about the market for a minute.
I heard some of the questions before about what's going on in the marketplace. I would tell you that as much for us, it's around, we think, rational and opportunistic pricing. What I mean by that is I think our carrier's data and the information that they have on their own books of business has become so good that they can look inside their book of business and understand where they need or will need more profitability, where they're seeing trends. When we say this is a hard market, I would disagree. I think it's a hardening market in ways where certain lines of coverage and certain geographic areas or certain industries are experiencing rational and opportunistic pricing. What does that mean?
I think, you look in property and you can read all the studies that are done out there, anywhere from 5%-10%, depending upon what's occurring. Casualties in that mid-single digits. Workers' comp's still about flat to down. Auto, still a challenge in that upper single digits to maybe double digits. Again, it's rational and opportunistic pricing. We're not seeing it uniform across the board, and we're not seeing it on every single account. What are we doing about that? Well, for us, it's really important that we communicate to our client well in advance. We go through what we call a strategic review process with our customers.
When you look at a window of time, if we've had that customer for that length of time, from five to seven to 10 years, typically speaking, if you go back far enough, the pricing that you'll see is on par with what they're looking to get from a pricing perspective today. They're returning to pricing that is in some way, shape, or form is five to seven years old. If you tell a client a story and they understand it from an organic growth perspective, Pat said it, we can't fill a leaky bucket. We've got to maintain our retention at high levels. We do. We have about 95% retention.
In this kind of market, it's about communicating effectively and consistently, and we do that through the strategic review process, making sure that our clients understand, and we're educating them along the way about what's occurring in the marketplace. Why is the market this way? Why am I facing these kinds of increases? What are we going to do about it? What are we going to do about it with you within CORE360 to address this for next year's renewal? Because again, like Pat said, we can't fill the leaky bucket. We've got to make sure that our clients are well aware of what we're doing for them to make sure that if they are getting increases, if they are seeing increases, we're taking invasive action to prevent it from occurring in future years. On to M&A.
One thing I failed to mention, Pat talked about it, the use of our own data. One of the other ways that we think we're gaining market share is through the use of our own data, and we have a platform that we call Gallagher Drive. Gallagher Drive is exactly what Pat was talking about earlier. Taking our data, and as an intermediary, it's often thought that intermediaries through the Internet are sometimes the most exposed to being replaced. What we're seeing now is that the intermediary is actually really important in the transaction. We possess the information on our clients to be able to tell them what others like them are buying, how much they're buying, what they're paying, what limit they're buying.
Through our platform called Gallagher Drive, our producers and our clients can actually see inside our book of business To understand what others like them are buying and how much and what they're paying for it. Getting back to that whole filling the leaky bucket, it's about educating your customer. If you can educate your customer through technology and through data, it becomes a much more smooth and easy conversation when you're talking about potential rate increases or potential changes in coverage terms and conditions. On to M&A. We did about 14 deals year to date here in the U.S. When I look at M&A, talked about we have 10 regions. We have a lot of people out there knocking on doors. We knocked on over 600 doors just through the first six months of this year, and we did 14 deals.
That tells you we're talking to a lot of folks. Pat said, the number one priority is that we get the culture part right. If they're interested exclusively in getting a check and leaving everything the same and not adopting Gallagher Drive, not adopting the Advantage products, not being a participant in Smart Market, that, for us, really is a no-go. We want them to be a part of what we're doing to drive value to our customer, because I can guarantee you one thing, they all care about their customers in some way, shape, or form. If they don't want to do anything to change what we think the customer's demands are today and what they're going to be, then we really don't want them part of the team. We always say you got to kiss a lot of frogs in our industry.
If you got 29,000 independent agents and brokers out there's a lot of them out there. We got to get the culture part right. We think our pipeline is just as strong as it's ever been. When we look at deals, our average size deal, you guys have seen it out there, anywhere from about $5 million-$10 million of annualized revenues. We've looked at larger deals. We do smaller deals. When we can get a small tuck-in operation of $2 million of revenue, get our arms around them, get them into our niches, get them a part of our existing branches, make them feel comfortable with the process, we believe it works out well for everyone. Productivity and quality. Pat talked a bit about it and talked about certificates and things of that nature.
Back to small business, that really was our first step towards making sure that we were efficient and effective, making certain that if we were going to have this business, which we have a fair amount of it in that $5,000 and under, that we were handling it effectively and efficiently. We've used our offshore resources to make sure that we can handle that business effectively. We've built our own service centers internally. The next generation of that is having a bit of a digital experience for our customer. Pat said, I'm not sure we're going to get 100% of the way where they're not talking to or speaking to a human. But in the interim, what is the digital journey?
How can we connect them in a way to purchase their insurance so that it's not simply about picking up the phone, filling out an application, that there is some digital journey, and we're in the process of building that out right now. We think we've become as effective and as efficient as possible in the current model, and we're looking at the next generation of how we handle that account so that we can be as productive and have quality in that space. We think that there's a journey for that process if we can make a digital experience more interesting to that middle market customer as well. That CFO that I mentioned earlier that's got to fill out five different applications for D&O insurance, it's very difficult.
This industry, in some way, shape, or form, works pretty hard to make the renewal process difficult for our customers. We're trying to make it easier, and we're looking for digital ways to make that communication with our customer, how they transact their business much smoother. Again, there will always be a personal element to it. We're taking on, from a productivity and quality, a similar journey that we did with select and small accounts to personal lines. We're looking for opportunity to do what we did with our small commercial business, with our personal lines business, because just like small commercial, we get more of it every year. We grow it organically, but we also buy a lot of it.
Typical insurance agency, if it's $10 million, probably has about, if I were to look at an average insurance brokerage firm, middle market, a couple of big accounts, about 30%-40% of their business is in the middle market. Another 20%-25% is in that small commercial, and then about 10%-15% is in personal lines. When we buy these agencies, we get more personal lines. We've got to be able to have a platform to do it in a productive and quality fashion. Then onto culture. Pat talked a lot about it. It's important for us as it is with every division in the organization. Mentioned our internship program.
In the U.S., we'll have about 200 of those 500 in retail P&C business, 200 of those 500 interns in 2019, and we'll have a similar number, probably a little bit more in 2020. It's our lifeblood. It's how I came into this organization. It really helps us perpetuate our business, perpetuate our books of business. We also rolled out a couple of years ago, a program called HireRight, where we have gone out and systematically looked for people who have a pedigree in selling or communicating directly with a customer in a sales atmosphere but don't have an insurance background, and then we coach them, guide them, put them through training to get an insurance background, and that's been extremely successful. These are people that have reached clinical in their industries and want to transition into the insurance industry.
We've added over 100 of those folks since about 2016 as part of our producer ranks. I'll leave you with a couple stories on culture. On a business side, I report out every week, every Sunday morning, on our top sales from the previous week. It gives me great pride to do it because I get to see what's going on in the business. I get to see what we're writing, who we're writing, and so forth. When we start to track it, about 60%-70% of the time, those large accounts, these are accounts that generate over $50,000 of revenue to us, are not simply just one person. It's either two people or a team of people that are producing these accounts. Why is that important? I think it's important because of this.
There's nothing that Pat could say, there's nothing that I could say that says going forward, everyone will partner with someone else in the organization when they write a piece of business. Our people naturally want to work together. They naturally want to work together because they recognize the expertise. They're collaborative in nature by who we recruit and who we buy. As a result, when we're in front of a client, it's not simply about that one cowboy out there who has a relationship. It's a team sale, it's a team atmosphere, and I think that speaks to our culture of collaboration. Then the other thing I'll tell you, just from a giving back standpoint, because a lot of the independent agents that we buy are very ingrained in their local communities, and it's very important that they continue to do that.
We have an internal app that we track and communicate with each other, kind of like an Instagram sort of thing. Every week, there's stories of how Gallagher is giving back to the community. I was just down in our Houston office and celebrating how we're giving back through Christmas gifts to local children. It's a great thing to see when we attend our Power of Gallagher, one of the central focus points of that is giving back. We have typically a charity that we're sponsoring and selling socks or selling something else. It's extraordinary how much people will dig deep in our culture to give back to their communities. Again, I think that speaks to the kind of culture we have and the kind of people that we recruit. With that, Ray, I am done with my prepared remarks.
I'll take any questions that people have. Yeah, Ryan.
Ryan Tunis, Autonomous. With a lot of accounts, I'm guessing we're on either year two or this will be the second or in some cases the third year of trying to put through a rate increase. How does the conversation change, I guess, when you come back a second time versus the first? Is it easier? Is it now that the ball's rolling and you've got the client understanding that these carriers aren't making enough money, that when you go back again and say +5, +10, whatever, they get it? Or are they saying, "You did this to me last year, I don't want it again?
Yeah. It's a fair question. I think we started to notice sort of a big pivot on July 1st of this year. There was definitely some very specific cases of hardening in the market before that, but we really saw a real significant pivot in July. It hasn't been the three-year scenario for most clients. In those particular cases, that's where that strategic review process becomes really instrumental. I always tell my producers and my young producers specifically, typically in our world, there's no bad news. There's just poorly communicated news. A CFO can understand something if you've walked him or her through what you've done to address it, what was your strategy, and then what are you going to do going forward. It's that same cadence every single time.
You've really got to lean on if they're getting rate increases in multiple years, what's the root cause of it? If you haven't addressed the root cause, whether it's a loss control thing or it's an exposure thing that they need to address, that's where you find yourself in maybe a difficult conversation. Again, that should all be addressed well in advance. Do we get it right every time? No, but we constantly monitor. We actually measure branch by branch how many of our strategic reviews are getting done, because we want to make sure that 120 days before the renewal or more, our clients are hearing and seeing what's going to happen to them. Again, I think if you're communicating effectively, it usually creates a smoother renewal than maybe you might expect.
Then just one follow-up on M&A. Sometimes I think for us reading the press releases, the M&A feels a little bit random. I guess strategically, what are some of the niches you're trying to fill out? Are there geographies? Are there certain product holes? When you're thinking about what you might be looking at in 2020.
Yeah. I'll tell you, I think that way sometimes as well. When you look at a map, you're like, "Why are we there?" The reality is, when you look at the 29,000 independent agents and brokers, there's not a lot of them that are singularly focused on one thing. If you said, "I want to grow in construction, so I'm going to look at all the construction brokers exclusively who are construction brokers." Yes, they're out there. In fact, we purchased several of them over the last couple of years because we think construction is a really good business to be in. We're really good at it. We've got a lot of support in that area. There's just not a ton of those 29,000 that are singularly focused on one industry.
When you buy an agency, a lot of times they'll have one producer of that $10 million agency who's focused on construction. They may have one that focuses on healthcare. You get sort of this melting pot of producers, and that's where you channel them into our niches. For us, it doesn't really matter geographically where you're at. You can be, again, in Des Moines, Iowa, you can be anywhere as long as and technology helps support that more than ever today. Our ability to connect with each other and get information and share resources together is easier today than it's ever been. Geographically, I don't really care where you're located. If I can find that firm that has a unique focus, yeah, those are firms that we really would love to have, assuming the culture is a match.
The reason why there isn't any sort of what seems on paper to be any strategy is because we're looking for the cultural fit, and then we're going to fit them into our niches and our products and services once we get to know them and we get them on board. Yeah. Elyse.
Thanks. Mike, during your presentation, you spoke about Smart Market. I believe you've spoken about that throughout a bunch of these presentations. Can you just give us a sense, how much has that added to organic in 2019? Longer term, how much could that initiative, which is to try to sell more products to a current client, how much could that, over the long term, be additive? Do you guys kind of run those types of figures so we can think about
Yeah
what it's generating now versus long-term aspirations?
I'm not sure we share those numbers specifically. I will tell you that the strategy is such that we're not interested in growing it to be 75 or 100 carriers, because then it becomes dilutive. The goal is to really we wanted national carriers or specialty carriers that fit our book of business. If we have a construction book of business and we think that there's a carrier that can really add some value from an architects' and engineers' standpoint, because they have a specific appetite for that and a specific product built for that, we may add them to Smart Market in a lower denomination to specifically help us target and build out our architects' and engineers' practice within our construction practice. It's not going to be about having, like I said, 75 or 100 carriers on the platform.
It's about being as strategic as we can. The names that you would see on the platform are going to be your national carriers, because they touch all of our offices. There are going to be specific carriers that have very unique appetites. If I had to, again, I told you 20, I don't think there's much more than 25 carriers, 27 carriers that we'll have on that platform overall. There is a ceiling on that in terms of the carriers that we add and then the compensation that they pay us to be the privilege to be on that panel or to be on that platform. It's not going to be one that's going to be exponential.
You mentioned digital initiatives, next gen. That's a 2020 initiative?
Yeah. We've got some outside firms that we're working with and internally to, again, making the renewal process more simple. I use D&O as an example, if you've been in this business, you know that every D&O application is different and every carrier has their own version of that application. For us to be able to streamline that through a digital experience to make sort of like that TurboTax environment where you answer the question once and it gets populated everywhere else, either through robotics or through the technology, that helps the process. When I go renew my D&O policy, again, 85%-90% of the time, we will compete against someone smaller than us, and that small broker goes into that client and says, "We're going to renew our D&O.
Here's the seven applications I need you to fill out." We say, "We're going to renew your D&O, and there's no applications for you to fill out because everything's already been pre-populated based upon what you told us last year. I just need you to check yes or no whether things have changed." That's a different kind of experience, and you can drive that in certain lines of coverage like D&O, and I think you can drive that in select. Because again, a florist is very similar whether they're here in New York City or in Chicago. Can we make that purchasing process and that submission process more simple? I think we can.
Time for one more.
Okay.
Are we reaching the point in the market where the insurers start saying, "Look, prices are firming, and now we're going to have to start cutting back on the commission because we don't want to share all the upside with you guys?
Yeah. Potentially. Not for us, I don't think. One of the organic growth strategies I didn't mention is commission adequacy, and so we look at it every single week, every single month. Every branch manager, every producer gets it down to the line of placement, and we look at it by comparison to their peer groups, what they're doing. Yeah, as you can imagine, they haven't done it yet, but if I were a smaller broker and this was going on, and I knew that was one of the levers that they could pull to get more profitable, I'd be fearful. When you have the kind of size and leverage and the information to help support what others are paying us, you can use that to your advantage. We look at that very closely.
There's not much more in the way of upside to that because We've shared that information with our production staff, so they understand where they're being fairly compensated. We certainly want to protect any downside, that's what we're doing right now, to directly answer your question.
Got it. One other one. Are you seeing a shift from retail into wholesale, just as carriers change their appetite?
Yeah, I think probably Joel will address a bit of that in terms of his volume. You do see that, especially on the property. The good news is we've got some pretty great trading partners, including one that's part of Gallagher in RPS. Yeah, you definitely see that. Again, in those cases, we've pre-negotiated terms and conditions from a compensation standpoint. When you're on a retail direct basis, the theory is you're making more money, you can actually work together collaboratively with the wholesaler if you have the kind of volume to make sure that everyone is getting a fair piece of the pie.
Great. Thanks, Mike. All right. Next up, we have Tom Gallagher. He leads our global property casualty brokerage operations. He's going to spend his 30 minutes talking about the international side. Tom?
Hey, everybody. Thanks for joining us this morning. As Ray said, let me open up happy holidays to all of you. It's great being here the week before the Christmas season officially ends. I'm asked to actually talk about our business outside the U.S., and the simplest way to think about our business outside the U.S. for the most part is we're trying to build a business globally that reflects our business in the U.S. What we do right now in the U.S. in terms of organic growth, mergers and acquisitions, operational effectiveness, and our culture is the same thing that we're trying to do around the world. Let me dimension it for you a little bit. This is Ray's eye test. I can't ever read it, but I'll try. U.K. retail business.
It's a $350 million, $400 million business for us in the U.K. at this point in time. Our business is set up into practice groups, regions. Our business is focused on middle market. We've got teams that are selling to large accounts, and we've got process to drive our business into small service centers, in service centers for our small accounts. Tom's exactly the same way that Mike is doing it. It's the process that we use to drive our business around the world. Over the course of the last nine years, as we did the Heath Lambert acquisition in mid-2011 to today, our business has grown exponentially in the U.K., and there's still tremendous opportunity for us to grow there. What you need to know is that the systems, the process, the methods that we use in the U.S. are being effectively implemented inside the U.K.
On top of the $400 million that we have in retail business, we have a specialty business in London. That business is more wholesale than anything else. $300 million of revenue, and that is largely global placements that have to come into London. We trade around the world with that team all the time. In fact, we're the largest trading partner for our business in the U.K., and this year that has grown 19% for us. Our own internal selling to ourselves. That comes as a consequence as we continue to build out expertise in London, and it comes as we continue to expand by mergers and acquisitions around the world. Think about this fall as we've made an investment in Renomia, Central and Eastern Europe.
This is a very large independent broker in Central and Eastern Europe that we will begin to trade much more significantly into our own offices. What we've just completed in a minority interest in India, that marketplace is on fire in terms of being able to grow businesses that will trade into the London marketplace, and we'll continue to grow there. It's not just the U.K. We've got a $200 million business in Canada, and we've just made significant change in Canada by taking on one of our guys who's run a business and asked him to step up into a leadership role there to help us really drive what we're doing in the U.S. He's English, so he's acceptable to the Canadians. All right? He comes from a background of being in the company since 2010.
He's very well represented with the company, I'm completely confident of his ability to help us continue to move ourselves on the journey to do what we do in the U.S. Go to Australia and New Zealand. In Australia and New Zealand, our operations are $350 million between the two. That's where we finished last year. We've got organic growth this year. We've got a great business in New Zealand. That's a country of about 4.5 million people, and we dominate that marketplace. Largest broker in the country. Australia, we're top five broker, implementing all those things that we have done in the U.S., in the U.K., in Canada. The Gallagher Service Center, Smart Market, Gallagher Drive. We're investing in internship programs, doing things that we have to do as an organization to continue to drive the retail business around the world. Let's talk about organic growth.
Mike talks about it. It's the same exact thing that we've been doing in the U.S. Same exact thing. We know that we have to have feet on the street who can actually sell, and we measure it every single month. We're really conscious of what are we doing inside of each of our businesses around the world, driving more people who can actually go out and create relationships. That happens anywhere in the world, and we measure it. We know what we're selling virtually on a daily basis. Mike does his weekly shout-out to the team in the U.S., we know what we're doing in the U.K., Canada, Australia, and New Zealand. We know everywhere around the world. We've got the detail and the information about it. We've talked about CORE360 a little bit today, and other times we've talked about it a lot more.
CORE360 is one of the bases by which we try to differentiate ourselves from our competition. Go back to the statement that said that we actually compete 90% of the time against people who are smaller than us. How do they differentiate themselves? They differentiate themselves by, "It's me, it's John, I'm really good. I've been around a long time." CORE360 tries to embed inside of our business, for all of our brokers around the world, the opportunity to say, this is why we're different. This is why being with Gallagher makes a difference. Smart Market, we've touched on it a couple of times. Our guys in the U.K. are clamoring. We've really rolled this out in the U.S. aggressively over the course of the last year.
Again, Smart Market and Gallagher Drive are the vehicles by which we look inside of our own information to provide greater opportunities for our clients. As Mike said, it's the Uber and Smart Market pairing the buyer and the seller. In Gallagher Drive, it's using our internal data to be able to enhance the information that we're providing to our clients. Our team around the world is dying for this to be rolled out to them because they recognize the power of our own data and the opportunity for us to use that. Product development. Mike talked a little bit about cyber. We've got a guy in the U.K. who's maybe one of the great terrorism experts around the world. He used to be in the British military. His name is Bomber Bassett. That's his nickname.
This guy can provide great information for our clients around the world about their assets and how they're exposed to terrorism, and provide supporting insurance products behind it. It's the kind of thing that our guys are very creative, developing opportunities to sell new lines of cover, developing expertise around the world that we can transport to our people and our teams around the world. Think about the Gallagher brand for a moment and what we've done in the U.K. in terms of the rugby. The opportunity for us in the U.K. and rugby is being able to associate our brand in every local community in the country. We've got significant presence in every one of those towns that has a rugby team. It's not just the towns that have rugby teams, it's in the newsprint every day.
If you go through any of the papers in the U.K., you pull it out, and it's called the Gallagher Premiership for rugby. That's hugely important in terms of brand positioning for us. Our teammates used to go into businesses and saying, "Who are you?" Nobody asks it anymore. If you go to a rugby match today, you wind up looking at the rugby match, and on the perimeter of it are flashing signs. They're not as sophisticated as we have in the NFL and in Major League Baseball, but they're flashing the signs, Gallagher Insurance, your local insurance broker. All of our guys are doing that in the U.K., using it. Establishing brand opportunities for ourselves in Australia that can be just as powerful. These make a difference, make a huge difference to our team.
We're constantly going through the internship program and bringing people into the company that can help us be the next generation. Pat talked about it briefly, 500 people in the U.S. this past summer were in the internship program. We're not going to hire half of them. However, we're going to hire a lot. We're going to hire many of those. Five years from now, we know that we will have about 50% of them still inside the company. Every single year, we're planning for our future. We're taking that from the U.S., implementing it in the U.K. and Australia, just as two examples, Canada as well. In the U.K. this past summer, we've gone from zero to 25 pure interns, and we're trying to double it again in the U.K. as we come into 2020. Mergers and acquisitions.
The question was asked, are we having opportunities in terms of mergers in Gallagher that are differentiating ourselves, the strategics versus the private equity? Pat said, "If you just want to remain the same, then you won't come to us." I will tell you very quickly, there's such a change happening with our ability to use our data, both inside the U.S. and beyond the U.S., that the conversations are very different than just we can offer 13 times or 14 times. It becomes, how do I take care of your team and provide them with career opportunity as well as take care of your clients long term? It's a very different discussion for us. Go globally. I touched on it before. We continue to expand regions. Why? Because that's where the future is.
Central and Eastern Europe, India, there's no question about the opportunity for those economies to continue to grow at a pace that is faster than Western Europe, North and South America. Much smaller insurance footprints in those places, granted, but they will continue to grow. South America, we will do bolt-ons. Europe, Scandinavia in particular, we've just completed a bolt-on, Proinova. U.K., Stackhouse Poland earlier this year, Jones Brown in Canada. A very strong pipeline of opportunities for people to actually join our platform. As we continue to build brand, and as we continue to differentiate ourselves in the process, we have an opportunity to continue to build why Gallagher. Productivity and quality. Touched on it at the onset. We're trying to do exactly what we do in the U.S. The Gallagher Service Center is all over the U.K., Canada, Australia, New Zealand.
Haven't gotten it down to Latin America, but someday we will. Someday we will. The principles behind what we've done in the GSC, we will continue to chase down in South America. It's the opportunity to leverage the excellence and the expertise that we have that make a huge difference. All across the world, we've re-established what we call our Target Operating Model, so that we can actually package all of our information and our process the same way. If we can package our information and our processes the same way, we absolutely know that we can pull the data from that and enable us to use that in an effective manner for our clients. That's the miss for the private equity. That's the miss for everybody behind us.
There's so much opportunity for us in the future as we continue to expand our operations around the world by harvesting the data that we have everywhere. Finally, culture. Mike talked about our communities. I see it beyond just the U.S. I see it everywhere that we are. Our teammates around the world love to be part of their communities, and we encourage them to spend time taking care of their communities and giving back to their communities. It's now 2 years ago, I can't believe it already, but you may remember that we actually put out a challenge to our team that we do 90,000 service hours in our communities during our 90th year. I think we did 112,000 community service hours at that time. That didn't go away because we took the challenge away.
Our teams still are committed to their communities in much the same way today. The business just continues to be involved and being responsible into those communities. The other thing that Mike talked about was the opportunity to cross-sell and serve our clients, the team aspect of it. We've got so many great examples right now of our team around the world working together. We just had a huge win that we actually took an account, a business was sold in the U.S. to an account that was owned by an Australian business. Our teammate did such a great job in the U.S. that we were able to get her to provide us an introduction to the parent company in Australia. Last month, we had the opportunity to bid on the entire program and took it away from one of our large competitors. It was a great win.
It was a great win, except they had me on video, and I'm not very good on video, just as an introduction and a commitment to them. The team did a terrific job, and it's a great credit to the service that we're providing in the U.S. and our ability to link our businesses together globally. This is happening all the time. All the time. It just continues to build on itself. With that, I will end my remarks and say, does anybody have any questions for me? Who's ever got the mics?
You mentioned Smart Market and Gallagher Drive. Where are you in terms of the U.K. and international rollout?
Smart Market and Gallagher Drive will both happen in the U.K. in 2020, first half of the year. Canada, it's already rolled out for Smart Market to some extent. Gallagher Drive will go at almost the exact same time in Canada. It'll be late 2020 to 2021 before we get to Australia and New Zealand for both.
Do you expect a nice little boost to organic from those? Are there any challenges in trying to incorporate it on a global model versus the-
I think rather than call it a boost to organic, I would rather call it an opportunity to provide greater retention for our team. I'm confident that if we can align the right market with the right account, we're going to have a good match. I'm confident that if we can differentiate ourselves in terms of why, what clients like you are buying, what are the limits you need to buy, what are the coverages you need to buy, that we will do a better job of serving our clients. Do I see it having an impact immediately in 2020? No, over a period of time, it'll continue to impact retention rates significantly.
Thank you. I think Mike had talked about high single digit, low double digit organic growth in U.S. retail, about 30% margins. Can you talk about your equivalent?
The equivalents, in the U.K., our business is growing at least that. Strong organic in 2019. I expect that 2020 looks to be similar to that as we go forward. You look in Australia, there is a good, strong rate structure in Australia, but New Zealand, even though we've just had the volcano, rates are not continuing to firm. They're stable in New Zealand at this point in time. I think it goes back to the commentary that what we see are hardening and softening both by geographies and by classes of business. Canada this past year, very strong organic. I expect that to continue. They're having the first firming market that they've had in I've been in Canada for 16 years, and it's the very first time I've ever seen any firming in any class of business in Canada at all.
I'd expect that to continue for at least half of the year next year. Margins. Our margins are solid around the world. Hang on a second, let me pull those. Right now, U.K. retail is improving beyond the 20% margins that we talked about at the end of 2018. There is improvement in 2019. Australia's better than that. Canada margins look very good, north of 25%, and in New Zealand, the margins are excellent.
Could you provide an update on how the JLT Aviation business has been running from a growth perspective since that deal closed?
I could not be happier with the team that we have. It is a sensational group of people who are unbelievably committed to their clients. We have not experienced significant defections inside of our business at this point in time. We've not experienced significant loss of business at this point in time. We've written some new business. These guys are unbelievable. Think about what's going on in the marketplace right now in the London marketplace. We have two new ventures that are each looking to be in the aviation business in a strong way. Our team has held together during the course of the last eight months. They're committed, and they're great. Really proud of the work that they're doing.
You got to take it day by day. I don't think that there are going to be any surprises, negative surprises, in terms of our team at this point in time.
On the flip side, JLT Marsh, a pretty big transaction. Have there been people that Gallagher's been hiring on talent that you've been able to take from that deal? Have you noticed that impacting your own organic growth internationally?
It's interesting. We've not taken a lot of the, if you would call it, the production teams from the Marsh JLT other than our aviators and a couple of others, pockets where it works out. Particularly where we're very strong, and the perception is that they're not that strong. The reality is that those other ventures in the U.K. are offering a lot of money, and people are just jumping on it, see what happens with it. They take the risk. For us, where we've been fortunate is that in a number of situations, you've had strength to strength in terms of support. Really good admin people inside those businesses that can help us in operations, where they had to ultimately make a decision, are they going to be doing operations inside of Marsh, or are they going to be let go?
We've picked up a couple of great talented people from that. In terms of trading people, we've not tried to have a raid on Marsh at all.
Time for one more question.
Maybe you can touch on the M&A environment or remind us how fragmented or not fragmented some of these areas are. Are multiples going higher? Is there a lot of PE involved? Thanks.
Sure. It is interesting. When you look in the U.K., instead of 20 years of roll-ups, we are tracking and identifying well in excess of 1,000 independent agencies. Of all the geographies around the world, that is probably the priciest place in terms of retail businesses. In Canada, you are looking at a significantly smaller group of agencies that are available. You have got competition largely from HUB International and from BFL. Get into Australia, New Zealand, get into Latin America, get into Scandinavia. There are tons of opportunities of brokers for us to merge with over the years without as much competition in it. What happens is, you have to have the infrastructure to be able to support them and the regulations that come along with them.
By virtue of our size, we have been able to continue to build out all the support that we need in terms of regulation. Okay.
Thanks, Tom.
Thank you.
Next up, we have Bill Ziebell. He runs our employee benefits and HR consulting business at Gallagher. The next 30 minutes are yours, Bill.
Great. Thank you, Ray. Good morning, everyone. I was just thinking about some of Pat's earlier comments, I realized that in a couple of weeks, January, will be my 20th anniversary of joining Gallagher in suburban Detroit. I think back to that time, back then, we probably had around $60 million in revenue and a handful of offices only in the U.S. I think forward where we are today, we have 100 locations, four different countries we have employees operating in, 3,500 employees, $1.1 billion in revenue last year. We basically handle any employer anywhere in the world and their needs. It's pretty exciting stuff, to be a part of that journey. I'll talk a little bit more about that again, when I come back to the culture side. When you think about our business today, we run mid-20s margin.
Our retention rates are mid-90s, our organic is also mid-single digit as well. We're bullish about our future as we go forward. Earlier, there was a question about, are you looking for something specific in a niche or something else to build out? I want to tell you about the things we've been doing over the last 20 years in terms of building our business and what we look for as well. When I first joined Gallagher, I would go out as a producer, calling on employers out there, we had an advantage in the Michigan market because we had a lot more stuff, if you will, than a lot of our competitors. We were actually more nimble than the larger employers. We had a lot of fun selling and growing that business.
That idea of thinking about what our clients' needs were has been something that's been part of Gallagher my whole time I've been here. When you think about what employers are going through, what they deal with every single day, there's a fight for talent. Everybody who's got any kind of skills has choices, right? You think about today's environment, the economy is booming in most of the countries in the world. Unemployment levels are at a record low in U.S., Canada, U.K. is thriving, Australia. When you think about that, and also the fact that we're really facing, for the first time, a multi-generational workforce. Boomers are still working. We now have millennials as the largest segment, and the next generation following them, and I always forget what we call them, they're going to be even bigger than the millennials.
As an employer, trying to fight for that talent, it goes way beyond what they do in terms of employee benefits. Benefits itself is certainly very, very important, what we do for our clients. We keep asking ourselves, what else can we do for our clients to help them? Back in Michigan, back in 2000, we had other services we could help them with, and it was appealing to that employer that they knew that they could grow with us, that we could help them, even if they didn't need that service today, knowing that they were partnering with somebody that could do that. As needs arise over the last 20 years, we come across different opportunities and go out and target and try to find merger partners that would actually help us build our value proposition.
We realized early on, for example, that we were always being asked, "How much should I pay for this position? How much do you pay somebody in Mexico that has an MBA and is bilingual? How much do you" We're looking into compensation things all the time. We acquired and invested in an HR and compensation practice. As time goes on, you realize that more and more, for example, voluntary benefits, employee paid benefits, are becoming more and more important to employers, part of a strategic offering to their employees. We've gone out and invested in voluntary specialists, businesses that all they do is voluntary. Enrollment, best-in-class, state-of-the-art enrollment capabilities with call centers that take the burden off of back rooms of our HR clients. This list goes on and on. We wanted to be able to help our clients that are multinational.
We invested in a multinational consulting practice. We've done a couple of those. Now think about this for a second. As you're fighting for talent, if people don't understand the value proposition you're bringing to them, then you're wasting your money. You're not getting the full ROI. We've been acquiring communications business, internal communications business, to help those employers get the most for their dollar, whether it's salary, incentive plans, benefit practices, retention things that we could do, 401 and other retirement schemes. We have been more and more with very large employers and all throughout the size from small, mid-market, and large, helping them explain their value proposition to their employees as well as candidates. Again, one size doesn't fit all.
You've got somebody in their 20s, and how they want to learn, what's important to them is far different than it is to me in my 50s. We're trying to help them navigate that side of it. I'll give you another quick example on an acquisition. A lot of our smaller competitors still do it this way. We were guilty of it going back about six years ago ourselves. As you all probably are aware, one of the key drivers in medical is pharmaceutical spends. Technology and everything else, the dollars on those continue to go up. There's been a rise in pharmacy benefit managers, PBMs. They're very big out there. They're part of the acquisition world, the consolidation going on out there in the industry.
They have a lot of power, a lot of strength in what they do, they actually do drive costs down for the employer clients. From our side of things, trying to be an advisor to the employer on which PBM to go to, which one to choose, is more and more complex. What we would used to do, what our smaller competitors still do, is you do a spreadsheet, you'd look at some of the drugs, you'd do something that would look at the discount off of average wholesale price. You spread that sheet, you go, "Okay, well, that's the one that's going to win." Oftentimes, costs did not go down. Costs would go up because the PBMs are really smart and really sophisticated in their contract language and measurements of units.
Everything was very complex, it was a little bit, you squeeze the balloon here, it would go bigger somewhere else. We did an acquisition, actually, here in Northern New Jersey, nearby, that had a growing, robust pharmaceutical practice. All they were focused on, with people that came from the PBM industry, was helping employers drive those costs out and do a lot with it. Today, that business, because we keep investing in hiring and doing more with it, is over $30 million in revenue for us, we're helping employers of all sizes drive these costs down. I'll give you some statistics that when I look at it, I find amazing, but it's absolutely true. This year, we will have found half a billion dollars in savings for our clients. Think about that. Half a billion. Just from going through the process.
What we do is we do an RFP to the PBMs, we get into the contracts, we dig deep. That sophistication is not available, isn't out there for our smaller competitors. We're constantly finding these opportunities. Here's what's even more startling to me. After you've gone through this RFP process, after you've negotiated with the winning PBM found savings put it in place, we go back and audit, we still find additional savings. We found $6 million this year on in-force PBM plans because they weren't following their own contract. This is something that has a lot of value, we continue to invest in that area because it's a very important part for our clients. When we're looking at growing from a merger side of things, we look at folks, as you heard before, fit. Do they have cultural fit?
Are they going to work well with us? Also, how are we going to help our clients? Does it help us strategically because we're going to be helping them with another location, or they have an expertise that we didn't have previously? These are things we look for on the merger front. That's really important things for you to remember what we're building here. As we talk about, go back to the organic side, again, look at your own selves and where you work today. You get a salary, you probably get a bonus, you have some incentive plans, you have a benefit package, you have a retirement scheme of some sort, whether it's a 401 defined contribution or a pension. All of these things are part of your value proposition that you're getting from your employer. That's what we do for our clients.
We have something like 43,000 employers counting on us, who have something like 23 million employees that we're advising on, in some form or fashion, on their benefit or compensation. We're really excited about what we do in that regard. Data drives decisions for our clients. Back in 2000, we were always using our larger competitors' surveys, using their data. A little embarrassing that we're trying to talk about who we were and how great we were, but putting somebody else's name on that. Part of our investments in the acquisitions allowed us to get the capabilities to run our own survey. The National Benchmarking Survey is now the largest in the industry, and we have such great information from that.
We not only help employers in verticals, get to know how their competitors are doing in terms of benefit plan design, we also can help get strategic answers. What are you intending to do? What are you thinking about doing the next couple of years as well? We know from doing Net Promoter Score surveys of our clients, in which we get scores that far exceed the industry norms, which are normally around the mid-30s. We're exceeding 82% in terms of Net Promoter Scores. They like us for our strategic thinking, for the value that we're bringing to the table. We do a lot with our thought leadership. It helps us open doors. It helps us keep our clients, and they know that they're working on new ideas, staying ahead of the competition in terms of what else they should be doing in this fight for talent.
You heard Mike talk a bit more about how we get more of that information into the hands of our producers. We're coming out with apps, taking the survey information, make it very easy to show a client while you're sitting with them or a prospect, how they compare to employers like them as well. These are the type of tools that we're also investing in on the organic side. You heard Mike and Tom talk about CORE360, looking at the total cost of risk for them, into their clients. We have a similar but little bit different value proposition because we're looking at all the levers that an employer goes through to attract and retain their talent. From our surveys, we know that's number 1 priority for most employers out there.
Keeping costs down is falling to number 2 and sinking as this fight for talent is going on. We will continue to do a great job of driving costs out, but we're also trying to help them figure out what else they need to attract talent into their organization and keep them and engage them and help get them more productive in their organization as well. The organic side is really big for us, what we started doing is coming around with something called Gallagher Better Works. It's where we take things like organizational well-being and as well as physical well-being for the employee, financial well-being. You might have heard it often, getting kind of a buzzword these days. There's connectivity to all these. We're helping our clients move away from the siloed decisions.
This person does the 401, this person over there does the medical life disability. We got somebody else doing the voluntary, we have somebody else completely, definitely doing the compensation side of things. We have an example of a client. It's an interesting one, but it brings everything together, if I'm hoping I can share with you. This is a spinoff from a major Midwest university. I won't use any names, but they're primarily known for their MBA program, and they're really big into this little company they had formed inside the university was all about data in terms of stock prices, and they're selling this now, and they're bringing the revenue in, but they're having a hard time keeping their talent because they get about 100 people, a lot of smart folks working here.
When you think about what they can make on Wall Street or somewhere else versus what they were making at a university. They had made the strategic decision that they wanted to see if they could feasibly do it, but they ended up making the decision to spin it off, be able to retain the revenues, if you will, but having its own P&L, its own business, to be able to compete for the talent they needed to be successful. We're talking about 100 employees. Okay? Typically, if you're just looking at the benefits as a broker, probably generate $30,000, $35,000 in compensation annually for the broker. We went up against all the large players in this one because of the opportunity, what was going on there. We won it because we were more nimble. We had all the resources they need. Compensation consulting.
What should we be paying these folks? How should we be paying these folks? The retirement plan, going from an institutionalized program from a university to now a commercial, for-profit 401 plan without skipping a beat. We helped them with their engagement, with their other core benefits, et cetera. We're going to earn $458,000 on this spinoff this year because we're able to bring the Power of Gallagher, all of our capabilities to this 100-employee group. Smaller competitors would never be able to compete with this because they didn't have the capabilities. They haven't made those investments. The larger ones could not bring the nimbleness and bringing it all together holistically for this employer. Those are the types of examples where I'm so bullish about our future as an organization because of the investments we've made over the years, the acquisitions, the mergers, and our expansion of our capabilities.
More importantly, it's about how we all bring it together as a team. Bless you. Bless you again. Moving on to productivity and quality, as you heard everyone else talking about previously as well, I'm going to talk about our small group effort on the benefits and on our side. We have something around $60 million of small group, and our definition of that is less than 50 employees. Because while the ACA was formed and all the small group definitions, we've been going with that state by state. By doing these centers of excellence, we've been able to drive out almost $6 million in costs. By the way, our renewals have gone up from the mid to high 80s retention rates to now 94%. I have to disagree with Pat. He said that we're running quality of 99.9 in the small group.
This year, we're only at 99.7%. I'm kind of joking, but we actually do measure this stuff, it really does matter. These smaller employers are looking for value, we're adding additional lines of coverage to these same clients because in the past, they weren't getting attention. We are growing this business. We're open for business in small group today, we're doing quite well in that area. As an example, doing a better job for our clients by standardizing, centralizing, and doing a better job delivering quality to our clients. Lastly, we want a culture for our division as well. You've heard a lot of the same stories already, but we're very proud of our people. Fit does matter. I personally walk people out of our organization for violating code of ethics, things of that nature. It does matter to us.
More importantly, how we work together is really important. Earlier, you heard about our intern program, but they become externs. They come onboard. I know organizations, we've seen them out there, that they see all the other producers in their organization as competitors. "I want to get that prospect. I don't want to share that." "I'm not going to help that young person because that person could take my job." On the flip side, at Gallagher, we have a lot of folks in their 50s, 60s, 40s who are mentoring our externs, teaching them, helping them win. Instead of competing with them, they're celebrating when they get their first BOR. It's exciting to be a part of that. We are very collaborative. We do a lot to celebrate our wins and promote and develop our talent of all ages throughout our organization.
We hear it all the time when we recruit someone from a competitor, "Wow, it really is different here. People are really willing to help." We're excited about that. We are very passionate about maintaining that. One more story I wanted to go back to the 20 years ago, talking about culture. If you think about this, I have eight regional presidents. Four of them came to Gallagher from a merger process. One of them was an intern, one of them was a stay-at-home mom, raising her children, came back into the industry. We promote the right people, we give career opportunities, we stay together for a very long time. John Neumeyer, who's in the back, he runs New York here for us, the Northeast. We've been working together since 2004, he came from MetLife before that. We work together, we stay together.
The guy who leads our M&A on the benefits side, he used to be with BenefitPoint. He was a vendor calling on Gallagher. When we find somebody that we like, we know that they fit us culturally, they work hard, they're effective, we get them, we keep them. My leadership team has been working together for a very long time, we're a little bit boring that way, but we like it. We're stable, we're steady, we like working with each other. We have a lot of fun together. That really resonates with me in terms of describing our culture. Those are my prepared comments. Open up for any questions you might have. Put the microphone up here.
Are clients asking about the potential for Medicare for All? If they are, what is Gallagher telling them?
The potential or what are you saying?
Yeah. If a new party, if the Democrats were elected next year and how the landscape could change.
Well, I don't have a crystal ball. That's why you're asking me as well. I'll come back and say, go back to the ACA when that was coming down. Everyone thought this is the beginning of the end, all these employers are going to send their employees to the public exchanges. That didn't happen. It never came close to happening. It was successful in getting a lot of uninsured, insured. That's the good side of it. It's been clunky. It's not that popular in a lot of places. Employers did not abandon the employer-sponsored benefit plan. I know it's one of the couple of the candidates' position to get rid of all employer-sponsored. It's never as bad as what you start worrying about in these kinds of things. Employers are still competing for talent.
They don't want to have part of the value proposition be given to government, they want to make sure they're still part of that, and you can see them still hanging on to these things. Interestingly, this week, they're going to pass the budget resolution to continue to keep the government funding. You may not all know this, in there is the death of the Cadillac tax. That was what was going to pay for the ACA, right? It was never very popular on either side of the aisle, and it's just kept booting down the road over and over again. With all the other things going on politically, there hasn't been any time for a whole lot of other stuff. Bipartisan support, it will be passed, and it'll be the end of the Cadillac tax. That's pretty interesting stuff there, too.
Can I predict the future looks like the possibility? I don't know. I do know this. When the ACA was coming down the pipe, we were in a lot of demand. We were in a lot of help. They needed our expertise with our compliance attorneys, with our analytics capabilities to help them understand what choices and what they needed to do to comply, what it would cost them to budget. I always joke that between lawsuits and legislators, we're in a full employment act here at Gallagher. Our clients need us. It's complex out there. I don't know what will happen in the future, usually when governments are getting involved, the demand for our services goes up. I don't know if I answered your question, I'm trying to.
That was actually part of my question, too. I guess, could you help us think about your book in terms of voluntary products and other products that are sold, and just if there is a situation of Medicare for All, it wouldn't necessarily be such an adverse impact to Gallagher?
Sure. Couple things for you. First of all, we are in four countries today. In the other three countries, there is no employer-paid medical like we know it here. There's concierges and VIP-type services. We're thriving in those countries because of our value prop. It's being your benefit broker, your retirement consultant, your compensation consultant, communications, and so on and so on. There will always be a need for us to help employers anywhere in the world, no matter what ends up happening politically in the future in the U.S. As an example, we have something like-- we've only been outside of the U.S. for nine years, but we're already up to 11% of our revenue outside of the U.S. We have something like 15% of our revenue not associated with any insurance today. It doesn't matter if it's voluntary or disability or whatever.
That's continued to seem to grow as well as our clients need more and more from us. Voluntary practice is really growing for us. We're in excess of $50 million. I want to say something like $60 million, it might be closer to $70 million. When you look at our total financial well-being capabilities, life insurance, executive benefits, 401, pension actuaries, de-risking, defined benefit plans, that's in excess of $150 million right there. We just have so much diversity in our revenue streams that would there be an impact? Yeah, I don't think it'd be as significant as you might be worried about.
The 20% margin you said, did you say 20?
Mid-20s.
Sorry. Okay. Is that?
Mid to upper.
You're on that target, there's no need to
Well, like everything else we're doing with the productivity and quality, we're always looking for opportunity to be more efficient. It's not all for bottom line. We want to make sure we're investing back in new producers and more capabilities and so forth. Like I was saying with you on the small group side, we found $5.5 million of savings on an annualized basis just this year. We're always looking for ways to be more efficient.
Hey, Bill. Two questions for you. First of all, can you talk about if you look at the Medicare Advantage, Medicare Supplement market as an opportunity for Gallagher? I know some of your peers are in that space, and it seems to be getting a lot of traction with other companies. I thought if you'd have a perspective on that. I have a follow-up.
We have looked at firms like that over the years, just to see what that looked like and all. We never found one that we quite liked in the fit and so forth. Again, I'm not going to back away from that as the number one priority for us. Is there opportunity? Certainly. We have individuals around our network in the U.S. that actually help individuals of our clients make their decisions when it comes to their Medicare Supplement plans, that kind of thing. It isn't something we've invested in heavily yet today. Is it a possibility? If we find the right merger partner, we'd probably look at that, maybe get into it.
Okay. The other question I have, just from a broader perspective, because as you go into employers and they're looking at different benefit packages, can you talk about what you're seeing in terms of the adoption of high-deductible health plans and HSAs versus other traditional PPOs? Are you seeing a pickup? Is there a gradual acceleration of adoption of these types of plans? Or just give us some trends.
Yeah, we are seeing that continue to grow in terms of people going to high deductibles. They're pretty prevalent out there in most employers these days. There's a lot more of them than before. I don't know that we're seeing a real heavy spike in terms of increase of adoption. Things seem pretty steady these days in terms of the plan design. I'd also tell you that the days of continuous cost-shifting to the employee is going away a bit. This fight for talent is a big deal, and we're running out of runway how much more they can shift to the employee. What we're finding, the best-in-class employers who are driving costs out, they're doing a better job of driving costs out at the plan level. Go back to my pharmacy example, finding the hidden costs there and doing a better job on that.
Doing best-in-class on things like disease management and so forth. Going self-funded and then finding a lower and a better stop-loss carrier, just unbundling some certain things. Really doing a better job of finding those costs to be taken out versus the cost-shifting. Is there an uptake on high-deductible plans? Certainly. Where we're seeing a lot of energy as well is helping the employees actually understand and take advantage of the HSA as a retirement vehicle. You're seeing more and more energy around that area.
Thanks. I was wondering if you could talk about your international business. You said 11% of your mix is international in four countries.
What are your plans to expand that over time? It seems like there's pretty big opportunity as Gallagher's obviously become-
It's a big world, right? Yeah. Couple of things. We like where we're at right now. We've got a great platform in both the U.K. and Canada. One's a little bit more mature than the other. Australia, we're just getting started. We have a couple of acquisitions down there. We are just getting going with it. It's a little bit like a flywheel in a certain geography, whether it was domestic in the U.S. or in a country. Once you get that first olive out of the jar, they start coming a little bit more. We're very excited about the U.K. Back in the first half of this year, we named a new country leader there, really exciting individual by the name of Nick Burns. Just taking a lot of energy in bringing that business forward.
In Canada, early this summer, we named our first national practice leader in Canada, Melanie Jeannotte. She was one of the merger candidates that joined us, going back about five years ago. We're continuing to find good merger partners in those countries, and we haven't finished growing there in terms of acquisitions or organic, certainly. Australia, the journey continues, looking for them, and so on. I'll also come back to you and said earlier, I talked about multinational consulting. We acquired a firm going back a number of years, seven years ago or so, that we liked them because of their consulting capabilities, advising employers that had expats or multi-locations and so on. In doing that, they had built a network of brokers in these other countries around the globe.
Again, best in class, because they can fire them very easily and say, "Well, you're not responsive to our clients, we're going to get rid of you and find the other one that's better." We're doubling up in terms of our network between what the Gallagher Global Network is that we've already had in place and these network of brokers that this acquisition we did have created for us. Those are natural merger candidate targets. As with any of these, it takes time. You can't make anybody sell. It's when they want to and so forth. We actually have a couple of folks. My regional president runs the non-U.S., Leslie Lemenager, probably has more frequent flyers than anybody I know. She and our head of our mergers, Keith, are constantly going around the globe looking for that fit, looking for opportunities out there.
yes, there's a lot of opportunities for Gallagher on the benefit side outside the U.S.
Thanks, Bill.
Thank you. Enjoy your day.
next up, we have Joel Cavaness, who's going to be talking about our domestic wholesale brokerage operations, which is RPS. Joel, the next 30 minutes or so are yours.
Good morning, everyone. Some familiar faces here in New York. Thanks for coming and thanks for your time. I'm Joel Cavaness. I run Risk Placement Services, which as Ray described, is our host domestic U.S. wholesale operation. I'll try to spend a few minutes describing our business overall and kind of the things that we do as a business to support our customers. First, I've been with the Gallagher organization, this spring will be 34 years. Similar to what you heard from other people up here, we've all been together for quite some time. RPS, we started from scratch in 1997 with four employees in downtown Chicago, as a wholesale broker. From there, we've expanded the operation to over 2,500 people in the U.S.
On top of expanding to that size, we've been able to expand the types of things that we offer to our clients. Our clients are retailers. Gallagher is a big customer of ours. They're certainly not our only customer. They make up a certain percentage of our business, but certainly nowhere near the majority. We look at our customer base as any independent or captive type, association type agencies that are out there that need our capabilities in what we offer. Let me first describe the different businesses that we do.
Open brokerage, which is one that I'm sure you're very familiar with, our open brokerage business is taking the information from our retail customers who are having a difficult time or need a specialty placement, and going out into the open market and negotiating on behalf of the retailer and their client, the best possible program that we can put together for them. In that particular business, we don't have any underwriting authority, we're not underwriting on behalf of anyone in that business. It's predominantly taking specialists. All of our people that do this business have a specialty. It could be property, it could be a subset of property. It could be an earthquake specialist, it could be a flood specialist, it could be a real estate specialist, a construction specialist, on and on. These are very specialized individual placements. More complicated, could be multilayered.
It could have up to 10, 12, 15 carriers in today's market to put together a program of any nature, whether it's property, casualty, or D&O executive lines business. Again, we have a lot of specialties in that business. We do healthcare. We do a lot of directors and officers. We do a lot of cyber. Again, these are silos of groups of people who have individual specialties that collectively gather, work together to enhance the products and the types of coverages that we're able to put together. That business makes up about 25% of our overall revenues. Moving from that business down to our MGA business, which we are the largest MGA in the country. MGA kind of breaks down into two areas. MGA generalists, which is where we're the largest. MGA generalist is where we do have underwriting authority.
We do underwrite on behalf of about 50 different carriers that we underwrite on behalf of, so we have authority levels that we can do. These are typically can be small accounts. They can be down to non-standard type dwelling programs, small placements that are very quickly churned. We'll talk about our productivity and quality initiatives around that small business. It's business where we actually underwrite on behalf of a Nationwide or on behalf of a Berkley or on behalf of an RSUI, it's Alleghany. All those that give us authority to go out and use our mass distribution of about 13,000 independent agents, accept submissions on their behalf, and effectively what we do is we underwrite, we price, we bind, we collect premium, we issue the policy. We do basically outsourced underwriting for all of these carriers, with the exception of two things.
We don't handle the claims in that business. We'll accept the first notice of loss, but we don't handle the claims generally, and we don't place the reinsurance. We are more of a traditionalist MGA in that particular space. We love that business. Very sticky business. It's typically distressed for one reason or another. Maybe it's a new restaurant. Maybe it's a trucking company. Trucking's obviously been kind of in the distressed line of late. We do everything from one-man truck up to fleets of 250, 500 units. Talk about our truck space for a moment, which has been a great space for us because of the need in the marketplace for people to do truck. We have specialist offices across the country. We are the only MGA in the space that has all five binding markets.
We've become quite popular because we're the only MGA that can give all of those different insurance company options at any particular office. It's been a great business for us. I would tell you six, seven years ago when truck rates were low and people weren't paying very much for insurance, it's tough business. As the market's changed, and we continue to see that particular segment of the market change, it's been a very good space for us. Moving out of our MGA space and into our program space. Our programs, we have nine different offices that do about 37 different individualized programs. We do all kinds of programs, everything from public entities to social services, to country clubs, to sports activities, all kinds of different programs, with all kinds of various insurance companies, where again, we operate as an MGA.
We do have underwriting authority in that space, they are very specific type programs. Program space is great. It's profitable business. It really gives us an opportunity to go out and market to our customer base. Again, those 13,000 retailers who only have maybe one country club, or they have one sports youth program or account, and be able to attach to them to, again, our whole focus on RPS is doing lots of things for individual retail clients. Our focus over time has been if we get one account for a retailer, it's not a real sticky relationship. If we can do brokerage for them, if we can do MGA business for them, if we can do program business for them, we can do standard lines business for them.
It's really about getting more to that particular fish, so to speak, and it's harder for them to swim away from you because your relationship runs very deep into the relationship. Moving out of our program space, we also do standard lines aggregation, which is a business where we operate not as an E&S broker, but more admitted products, where we can provide those retailers that don't have access to a Chubb or an AIG or a Hartford or a Travelers or many of the other ones, and be able to provide them standard line products both on the commercial and on the personal line side to give them products that they couldn't get to on their own because they can't support a contract.
In that space, we are more of an aggregator, where we provide product, then they have access to those insurance companies that they wouldn't otherwise have. We're also, of course, in the non-standard auto business, predominantly in Texas, California, and Florida. That's a space where we actually operate all the way through the chain of insurance. We have stores. People come to our stores. Then we operate as both an MGA on non-standard auto, and we also are able to provide them third-party products. That's the one, obviously, you guys saw the Pronto merger. We did it about a year and a half ago. What we've been able to do there is not only provide the non-standard auto products but bring the RPS products to the Pronto distribution.
Again, if people are coming into your store, our goal there is to sell them everything that they need, not just non-standard auto, but low value dwelling, manufactured homes, artisan contractors products. That particular space for us is circled around the Hispanic space. It's a growing space. Demographic continues to grow. We're in three of the five largest Hispanic populated states in the country, and we continue to see that demographic as an economic differentiator for us to continue to grow that particular product line. I think I've kind of described our business. Like everyone else in the Gallagher organization, we focus on four predominant things, the way that we grow organically, the way that we do M&A, the way that we work on our productivity and our culture, and, of course, our people.
Talking about our drivers for organic, the great thing about RPS right now is we've become a lot more popular than we were three years ago, from a retailer perspective, just due to market conditions. Our organic, on top of just rates, that is one piece of it because the marketplace as standard markets come in and out of our fringes. They're coming out of our fringes now. Sometimes they come into our fringes. Our opportunity not is just rate, but really about building deeper relationships with our retailers. Gallagher is one. We've been able to grow nicely with them. We are not their only option. They have other options to do business with other wholesalers. Our particular way of making sure that we continue to deliver to them a better experience.
When I talk about a better experience, I don't mean just placing insurance, but really being there when it counts, which is when a claim occurs. You have to be there, you have to be working together very closely, making sure that their client is getting what they deserve based on the premium that they pay. We do very well working together to make sure we solve customers' problems. I will tell you that I'm very proud of the fact that it's very rare for me to have to get involved in a tough situation. We work very well together, both in an office level and at a corporate level, to make sure that we're delivering the best to the Gallagher organization and all of our other retail clients. Talking about that, obviously, in the brokerage space, our organic triggers are just finding more people.
It's a business where we can find people that already know what they're doing, that we just hire from our competitors, just like everybody else. We will fight for talent out there. I'm most proud of the way that we've been able to take our internship program and grow producers and leaders out of that program. Our first intern in RPS was a little less than 20 years ago, and she's still with us today. We've been able to replicate just like all the other Gallagher divisions have been able to do and take these interns and hire them out of college and put them in sales track programs to help them train, then over the course of the next two or three years, turn them into producing people.
It's all about getting those people in, getting them to make their retail contacts, getting them to continue to grow. That's a great organic capability. Our second way is we use our client relations team. We have about 30 people across the country. They do nothing more every day than making sure that we're calling on more retail customers to continue to deliver more products to them. If you think about it from a retailer perspective, we're kind of a one-stop shop. You have a low-value dwelling product, we can place it. If you have a new bar, tavern, restaurant, we can place it. If you have a new truck operation, we can place it, all the way up to programs, all the way up to large wholesale brokerage.
We can solve the problems of most retailers, where a lot of our smaller competitors can't do that. They have one thing that they do, or two things that they do. They don't have the market relationship which that we have when you place $3.8 billion into the market. Obviously, you have great insurance company relationships where you're able to provide a large breadth of product. That's very organic. We focus a lot on the association clients for obvious reasons. We don't do a lot of business with a Marsh, an Aon, or a Willis, for obvious reasons. Really, our focus has been making sure that we're building strong partnerships with those other retail customers. Depending on who's counting, somewhere in the 40,000 independent agents in the country. Our ability to expand geographically or through products.
If we want to get into a new area, all we do is we go find a new team and hire them on and get into that business. Through our client relations, being able to target those customers who have that business because our client relations team are out every day being with retailers, finding out what they do. We populate that information into our system, and then our producers, our brokers, our underwriters can go into that system and find all of those retailers who have that type of business. It's a great organic strategy for us in that way. Again, on the program side, through data, utilizing data that we have, data that our customers have, being able to go out and build new programs is a great organic strategy for us. We're in conjunction with one of our large insurance carriers.
We're in the process of building a new program. It's a large program that they need the distribution. They have an expertise in a particular niche. They like our distribution, they like our marketing, they like the fact that we already have underwriting and systems put together. On April 1st, we'll be kicking off a new program with them. Again, organic strategy only, not having to do M&A. It's just our ability to take information with a carrier and then go out and distribute that product. We're very excited about that. Again, the state alliance business as far as organic, it's really just being able to geographically expand that business because that's always opportunity, finding new geographies that need help, need our expertise, and going out and planting people there to grow.
Moving into M&A, we have been a larger acquirer, just like many of the other Gallagher businesses. We've done 18 acquisitions over the last four years. As many of you have seen, that landscape continues to consolidate because as retailers have consolidated, they've also consolidated the wholesale entities that they want to trade with. This is a business where you need to make strong investments in data, strong investments in the retail distribution space. As those MGAs or wholesale brokers have come off of approved lists, we've been able to be a great alternative because in general, we are on all those lists. The M&A space, most of late has really been focused on our MGA space and our program space because that's where most of them are. There are thousands of wholesale operations out there that we can go out and build relationships with.
I sit in a very unique spot because I am the president of WSIA, which is the association for the wholesale community. I do get to meet a lot of people, spend a lot of time with both the insurance companies as well as all of these independent MGAs and program managers and wholesalers across the country. We think 2019 will be quite a year in the M&A space. It's obviously our job to make sure that we're not buying at the top, but we do know that there will be a quite of activity when we talk to the broker space in mergers and acquisitions. We pick the best of the best, ones that fit us both culturally from a business, from an offering, and also the ability to do M&A in new spaces that RPS wants to expand into. Moving into productivity and quality, which is exciting.
Like a lot of the other businesses, we've been able to use our service centers, our quality of excellence centers, for us to continue to take the noise out of our businesses and focus that in a centralized location. Our offices are purely focused on underwriting and broking. As an example, we've been able to consolidate all of our policy issuance through our centers of excellence. Now, similar to what Bill talked about a minute ago, we can get everything that we do in policy issuance. Obviously, you all have heard in the past about insurance companies who issue policies incorrectly, a lot of noise in that, endorsements, all that. We issue our policies about 98.3% perfect on the first try.
When you're doing hundreds of thousands of policies, and you can gauge the amount of time it takes you to issue that policy, and then the ability to measure what it costs you to issue that policy, and then also, of course, be able to measure the amount of time, effort, and quality, it just makes things so much simpler. Before we did this, we were out there all the time trying to find people to "type policies." Today, we took that noise out of our office, we centralized it, and now we have an entire team that does nothing but issue policies. It makes the process much smoother. We do that in about 11 different services that we do in RPS.
We're able to centralize it again, take the noise out, let our leaders of the offices no longer focus on trying to hire a new accounting person or a new policy typist or a new rater, and have that centralized so it's much easier to train, it's much easier to hire, it's much easier to get a lot of efficiencies out of that model. We like that. Our offices like it. It's like anything else in our business. As you do it's hard to drag it out, but once you drag it out, nobody wants it back. I don't think there's one office, if I polled them today, would say, "Yeah, I want to take back all of my policy issuance." I don't even think they would probably today know how to do it.
That's been a great opportunity for us to continue to help our quality and help our productivity. Give you one other quick example that we're all excited about. As you go through new technology inroads, technology is a wonderful thing to help you become more efficient. It is expensive, and you have to make sure that you do it right. One of the projects that we did over the course of the last 12 months, told you we do a lot of transportation business, and that we do have the five binding markets that offer a transportation product. When we looked at some of our workflows and what was taking a lot of time was just rating it. It's a complicated process. All of the insurance companies have their own web services rating programs. We looked at it.
One of the things we decided to undertake for all of our offices is a robotics process where the robot, the software, goes out and ping each of these insurance companies' web-based services rating platforms, and they have to put the information in just one time, and then they get five quotes back. It's increased our efficiency. What it's done is now we've been able to deliver to our retailer five quotes, five options that they can take to their customer. On top of the fact that it's made us increasingly more efficient, it's also, again, tied that retailer closer to us because he no longer has to go to us and someone else to get those five quotes. We give it to him or her automatically. It's done a couple of things.
I mean, it's obviously more efficient, but it ties us closer to that retailer because he knows that he's going to get everything that he needs to deliver to his client. Just all of these various things in our productivity and our quality to continue to increase the way and better the way that we're able to serve our clients, and on top of it, do things in a more efficient way. Lastly, of course, couldn't be up here without talking about our culture. Bob Gallagher ingrained that to me all the different times that I spent with him. That was key to his belief that it was key to our success, and I believe that as well.
Making sure that we're delivering, I had a conference call with all of my offices earlier this week, and very proud of the fact that the way that they give back to their community. I don't think that there was an office that didn't do some kind of charity drive for the holidays. As many of you know today, that's important when you're hiring the generations that we're hiring into today. They want to know the connection and what you're giving back socially, that you're giving back to the communities. We like them to be very community based. We like them to do local charities. We like them to be able to connect with toy drives or food drives or holiday time where they can see and feel proud of the fact that we're an organization that really not only supports that but encourages it.
As Bill talked about with our internship program, to be able to see 400 some odd young people, and help them in their career, help them hopefully find what we believe is the greatest business on Earth. With that, I'm happy to take any questions that you have.
Two questions for you, Joel. Brian DiRubbio from Baird.
Hi.
First off, how much of your organic growth do you think has come from the standard market moving away from the fringes, as you put it? The second question is, your private equity peers seem to have rediscovered the wholesale space. Are you seeing more M&A competition for wholesale brokers? Thank you.
Thank you. I'm not sure I can exactly give you a percentage of that business that kind of moves in and out of the fringes. We're not anywhere near completing that right now, because as you've seen, especially in the markets that I described, people getting out of transportation, getting out of the $1 billion schedules that they used to do. We just did an account that was coming out of a standard market where they provided a $1 billion limit. It took us 40 carriers to put that together, because it was catastrophically exposed. We are seeing that type of business that's coming out. I don't know that I've measured where that business is coming from.
Anecdotally, we know that people are getting out of particular higher hazard businesses, I don't think that we've ever measured exactly how much is coming in or going out, because there are lots of insurance companies that they think, "Oh, this is great. Rates are up." We see that in transportation as well. "Okay, it's time to jump in." I'm not so sure it's the right time to get in. You'll see a little bit of that back and forth. It has added to us organically. The exact number, I don't think I could put my finger on it at this moment. Yeah, private equity has discovered our space, so to speak. They are into the merger acquisition. I think we would all certainly understand the valuations have increased over time, over the last few years.
Some of that has been driven by just supply and demand. I think the difference that I tell people, when we're talking about that particular space, is we invest in our business. We invest all the way through, whether that's through technology, whether that's through training, whether that's through expanding product offering. In our particular company, if you have a fuel producer for us and you get an inland marine account, and it's a cold storage warehouse, and you've never placed a cold storage warehouse, the opportunity to reach out across all of the offices and say, "Who specializes? Who can help me with this account? To place it because I really don't know enough. Who wants to co-broker with me or who can do the marketing?" That's the kind of things that we invest in, to make sure that we have a long runway of opportunity.
Yes, there will be people who like that space because PE might come in and say, "I'm not going to change anything." We can't tell people that because we believe long term, and we're in this for a long time. This company is over 90 years old. It's not like we're looking to do anything to change that. We can say over a longer period of time, you're going to be better off with us because we're going to continue to help you invest in your business. We're going to help you understand how to do interns. We're going to help you with training. We're going to help you with technology. We're going to help you with all of those things. There are people who like the PE strategy. Can't necessarily knock them for that.
We believe that if you're worried about your people and you're worried about your customers, and you're worried about the things that are going to go on in the next five years, we're a much better long-term player. I'm very proud of the fact that through our M&A process, we've been able to accumulate a leadership group. Many of the leaders that we have in RPS today came through our merger acquisition. A lot of our mergers that are of a particular age like that. They want to know, I want to do something bigger, and we're able to provide them that. We can show them that. Actually, we give them the list like, "Here. Here's all the people that came to us through M&A, and here was their role then and here are their roles now." People like that.
They want to see what else they can do. Hopefully, I answered that. Any other questions?
I'm curious if you're seeing a change in appetites in more of the non-property, non-commercial, auto, general casualty space.
Yeah.
Obviously, a lot going on there.
There's a lot going on there. Obviously, that's a slower one to figure out how you've done as an insurance company. Takes lots of years to maybe figure out where your development is done. The biggest trend in general casualty is the shortening of limits. Where you could go out and place a $50 million or $100 million placement with maybe one or two carriers, again, similarly to that large property account that I just talked about a minute ago, it takes many more carriers to put together that same limit because the insurance companies today want to lessen their exposure to any individual loss. Where they were putting out maybe 25, $30 million limits on umbrella, now they're shortening their limits to five or 10. That, of course, does have an impact on the amount of time it takes to put together a deal.
It takes us longer to put that deal together, and you have to make sure that all the terms and conditions between all of those various layers are together, right? That they're the same. It takes a little bit more time for us, but of course, it does come at a higher cost because typically in those particular cases, you have to coordinate all the layers to make sure the pricing is proper. We are seeing a big change in umbrella, where again, people are willing to put out large limits. Today they want to put out shorter
Do you sense that, given its long tail, do you sense that the limits are changing because a lot of the pain has already been taken, or do the carriers sense that this has legs, there's more pain to come?
Yeah. I don't think that the pain's passed. I think that all of us have read about the explosive and social inflation that you've had in these larger verdicts. In truck, as an example, if you had a large loss, you would typically go out and spend a lot of time in the adjustment of that claim. A lot of times today, people are tendering their limits and moving on to the next deal because they don't want it to go to trial, because what you've seen in trials or leading up to trials is much more explosive social verdicts being thrown against. Again, of course, sometimes insurance companies are viewed. You guys, when you've been in hotel rooms, you've seen the commercials, big bad insurance company, small individual, get an attorney, I'll get you three times as much.
I think today you're seeing more of that Me Too movement type of verdicts, and that's why I believe a lot of these carriers are saying, "I'm not going to expose my balance sheet to a $25 million loss on one account, so I'll shorten that up to $5 million, and I've cut my exposure by 20%.
Thanks, Joel.
Thanks. Thanks for your time.
All right, next up we have Scott Hudson. He's the leader of Gallagher Bassett. He's going to spend the next 30 minutes talking about our third-party claims administration business. Scott.
Thank you, Ray. Am I on? Sounds like it. Good morning, everybody. As Ray just said, I'll talk about Gallagher Bassett. Like everybody else, I'll spend a few minutes just kind of refreshing your memory on the business itself, dimensioning it. I'll talk about how we drive organic growth. I'll get into M&A for us, which is not quite as prominent but equally as important. Productivity and quality, I'll touch on culture as well. Gallagher Bassett's 15+% of the total enterprise of Gallagher. We are in the claims business. If you look at what we pay out, we're paying out well in excess of $10 billion of claims on an annual basis. We're handling over millions of claims throughout the world. We do not take risk. At no point in time are we taking on the risk. We're doing this on behalf of our clients.
I always try to put this in perspective in terms of you thought about it as an insurance carrier, we're probably equal to a $15 billion-$20 billion insurance carrier in terms of the claim activity. We serve four different distinct client segments. There's the one that has been part of the organization since its inception. We refer to those as our risk management or commercial clients, large commercial entities, Costco, Hyatt Corporation, organizations like that throughout the world. Public sector clients, local municipalities, school districts, states both here in the U.S., down in Australia. That's a prominent part of what we do in terms of working with the state-sponsored work comp schemes. Don't do much at the federal level.
We do a little bit down in Australia, and maybe a little bit in the U.K., but for the most part, it's at the state level and below. I've talked repeatedly over the last few years about our efforts with respect to insurance carriers. The fact that we're asking them to entrust us to handling their claims or some portion of their book, that continues to be a very strong and growing segment for us. We have the alternative markets. Joel talked about MGAs. We have a very large and prominent book with group captives as well. If you were talking about essentially what we do for our clients, as I said, it's 2 basic services. It's handling claims, but we've also made a pretty significant push over the last 2 years into the environmental health and safety, which is more pre-claim activity. We're about expertise.
It's not about the low-cost way to handle a claim. It's about us coming in and providing our expertise to make sure you're getting the best result, the best outcome, as we like to describe it, on that claim. We will, and it's expected of our clients, tailor our services to their needs, whether it's a large commercial entity like McDonald's that wants their employees, if they have a work-related injury, they want the claim handled, that employee handled a certain way. We have the wherewithal to do that. At the same time, since we're bringing expertise, the notion of that we have a point of view on the best way to handle a claim is true as well. The fact is, when you're dealing with a specific insurance carrier, a specific commercial entity, they are going to have an opinion and want things handled a certain way.
In terms of how we generate revenue, just as a reminder there, we will do it on a per claim basis. A lot of our clients, especially the smaller ones, it'll be per claim. In some cases, it's for the life of our relationship. In other cases, it's for the life of the claim. Obviously, if it's the life of the claim, the fee is a little bit greater. The other thing we'll do is for some of our larger clients, some of the carriers, in essence, we'll bring a team in, maybe a team of 50, 60, 70 people. We'll provide that team with a multiplier on top of it, which in essence is our margin on top of the cost. The 3rd way we will charge out our services is a % of premium.
This tends to come in play with the MGAs, with the captives, where they're looking for some sort of guarantee in their minds in terms of the cost relative to the premium. The fact is that will fluctuate. That's the one part of our business, to the extent that the premiums start increasing, we would see some sort of improvement as a result of that. Everything else is priced on a per unit basis. We operate, it's still heavy in the U.S., but we have a growing, thriving business in the U.K. We're also very prominent down in Australia and New Zealand. We've got just over 6,000 employees throughout Gallagher Bassett. If you look at the financial performance over the last 2 years, we're a mid to upper single digit growth company. The margins have been in the 17 plus range.
If you look back over five years, that has increased nicely. I'll talk about these in a minute. We've done a few acquisitions, kind of changing a little bit of the perspective. We're looking for acquisitions that help us build depth and expertise in a particular area, or if the opportunity presents itself to move to another part of the world in terms of a geographic expansion. Organic growth. Let me shift gears to talking about how we drive organic growth. I'll talk about four or five things here. First, we're going to go where the tide is rising. As we look kind of across our business, the carrier segment that I've mentioned continues to become a more prominent part of our business. It's growing throughout all geographies that we operate. Just recently, I think we've taken on another, what I refer to as platform carriers.
One of the things that happens with the carriers is we get a foot in the door. We handle their claims in some line of business or in some segment of their operations. We build credibility. We build experience with them, that gives us an opportunity to expand throughout that carrier. The other thing that's interesting about that part of the business too is where on the commercial side, we've got to go out and fight for every new client. Once we get inside a carrier, if we're working on a particular part of their business, if that is growing, we grow right along with that. Our acquisition cost in terms of sales and so forth is a little bit less there. The alternative market piece, I mentioned the group captive piece.
Although there aren't that many new opportunities to go find new group captives, that business in and of itself continues to grow at nice upper single digit organic levels. That's been quite exciting for us. The other thing you're going to see, I think I mentioned this last time, is we've launched and starting to go to market on an industry basis. We talked about that just last August, we went to market in saying that we've got Gallagher Bassett Transportation. Historically, we haven't done that. As we're rounding out our service set for a given industry, it makes a lot of sense for us to do that. You're going to see that become more and more prominent as we go forward. I think that provides a nice opportunity for growth into the future. Starting with transportation, which I believe we have tremendous depth and expertise in.
The likely ones to follow will be in the construction space. We also have a lot of depth in healthcare, potentially retail, then kind of restaurants and hospitality are likely places. Product expansion is an important thing to us. I've mentioned over the last couple of years, we're making a strong push to go beyond, we're not just a work comp guy, we're not just a general liability claims service provider. We've got other areas of expertise that we're quite strong in, we continue to try to build those out. You'll hear me talk about product liability. We'll talk about medical malpractice. We'll talk about professional liability. More recently, we're now getting into cyber liability. We've taken on a few clients there. Really what you end up having to do is a combination of two things. You got to bring in the individuals.
You got to build the capability and the expertise. Rob Blasio and his team in our specialty liability area are doing that. Combined with you actually have to build There's some infrastructure systems investment that then would need to take place. We're quite excited about when we're talking to any of our, whether it be a carrier or whether it be one of our commercial entities, to be able to talk about a well-rounded set of services for all the exposures that they have in their business. I mentioned geographic expansion. That's not something that we've done more recently, but the fact is it remains right on our radar. John Winsbury, who runs our international operations on a regular basis, is looking for opportunities to extend our reach into other geographies. We're able to do that today through partnerships.
Interestingly, there just aren't a lot of organizations like ours that you could go buy in different countries. In some respects, we got to actually establish the marketplace every time we would want to think about that. That remains something that's top of mind. Then in terms of just growing the business, probably the most important part of our value proposition is being able to deliver one heck of a claims service and the product itself. That all comes back to We are big believers. It's all about delivering the best result, and that's what's going to distinguish us as an organization. I'll talk a little bit about how we're doing that in a few minutes. How this all plays out, I mentioned that in the past, we've been in the mid to upper single digit organic growth.
As you recall, earlier this year, the first couple of quarters was down a little bit. It strengthened again in the third quarter. We probably see more of the same happening. As we look into next year, I think I continue being quite bullish on the growth prospects. The other thing that's happening that's quite exciting is, I think a lot of the work that Mike Hessling and our client service team have been doing here in the U.S. has really strengthened our retention efforts. I probably talked about retention in the U.S. being mid-90s+. It's actually up from that we've seen over the last 12+ months, and I think that's just a testament to the efforts that our team's doing day in and day out, to just deliver great results for our clients. Let me shift gears quickly into M&A.
As I mentioned, and just as a reminder, the way we're thinking about it is it's all about adding depth and expertise, potentially geographic expansion. We've done 3 this year, all in different countries. More recently, a couple of years ago, we bought a company by the name of WCD up here in New York that got us into the environmental health and safety space. They're predominantly a Northeast-based company. The opportunity for us is to expand their footprint across the country. We did it more recently by buying an organization similar to theirs down in Florida, that now gives us reach down into the Southeast, and hopefully we'll be able to find good, high quality organizations like EE&G to be able to expand our footprint across the U.S. Over in the U.K., we bought a company by the name of Adjusting Associates in Wales.
What this gives us is a stronger platform to do work directly with the Lloyd's marketplace. There's certain requirements in terms of a claims handler, what you have to have in order to be able to get the opportunity to work directly with Lloyd's. Adjusting Associates have a long history, a long standing working with Lloyd's, a lot of credibility. That gave us a nice platform to expand what we do already down in Australia and New Zealand, now up into the U.K., in terms of serving the Lloyd's marketplace. The third acquisition was a company by the name of Fullerton Health. They're out of Sydney, Australia. Travel and accident claims handling. Once again, it's an opportunity to extend our product set within Australia. The expectation, I think our team, the GB team, is anxious to continue to increase the volume of activity.
I don't expect it will ever become real significant. We're looking for targeted, highly strategic opportunities to add nice capabilities, either from a product standpoint, potentially from a geographic standpoint. It's all geared towards can we deliver a better result, in some respects, for our clients. Productivity and quality. I'll preface this by saying right now we're a 17+% margin business. We're very conscious, like everybody else you've heard today, driving greater efficiency and productivity across the organization. Equally important for us is this whole notion around quality and delivering a great product. If you look at what we're trying to do, if you break it down, what you're really trying to do on a claim is make a handful of very good, smart decisions that result in the best outcome on that claim.
One of the things, you've heard me talk about it, we've been recognized throughout the industry for making some very important investments in terms of the decision support tools that we give our adjusters, the people that are handling those claims every day, to make sure that they can make the best possible decisions. An example of that, you have to sit here and decide on a work comp claim. Do I involve a nurse case manager? It's not always a straightforward, yes, you do, no, you don't. You actually have to look at the circumstances. What we're doing through machine learning and artificial intelligence is building tools that we integrate into the claim handling process, in ways that make our people far more effective. At the same time, we are looking for opportunities to become far more efficient.
I sit down every two weeks with Jason, who runs our claim operation here in the U.S., we're looking very keenly at trying to figure out ways to make sure that our individuals can handle the maximum number of claims sitting there on their desk. It's a little bit of an interesting trade-off, because at the same time, if that claim volume on a given person's desk gets too high, you'll see some deterioration in the decision-making that's taking place. The other thing we're doing is we're taking full advantage of the use of the service centers that you hear about time and time again from all of our divisions. We are heavy users of our operations in India. There are things that are sitting on the desk of an adjuster today that ideally can be done better by somebody in one of these service centers.
We are shifting work to our India operation. We probably have the largest group of people in our Gallagher Service Center that's been built recently in Las Vegas. That will continue to happen in earnest. It really kind of serves two purposes. One, it makes us more efficient. It also takes work away from the adjuster that in some respects could be a distraction. For example, a provider calling up wanting to know if their bill has been paid. We don't need our adjuster having to answer that question. We can have somebody in the Gallagher Service Center doing that, which enables the adjuster themselves to spend more time thinking about how to get the best result on that work comp claim.
I also just, one thing as a reminder, too. We did a few years ago, reorient our entire operation, really around the world, more specifically here in the U.S., around the customer segments that I mentioned. That also has made us far more efficient. It wasn't that long ago that I might have had a person handling claims thinking about a captive one day, thinking about a carrier the next day, and then thinking about a commercial client. Those have all been reoriented. They are dedicated to those client segments. That makes them far more productive as well. The last thing I always mention around productivity and quality, which is a big, big deal for us, is around data security and privacy.
It's a topic that there isn't a day that goes by where we aren't talking about that, in making sure that we have a fortress that will assure us that there's absolutely no chance whatsoever that our clients' data about their employees, their personal information and so forth, doesn't get into the hands of the wrong people. That is an important part of our reputation, and I would say we continue to be quite proud of where we're at, but the challenge there is the requirements are just changing day in and day out. From a reputation standpoint, this is extremely critical. Most of the deals we do, whether it's with a carrier, whether it's with a large commercial entity, prominent in that RFP is going to be a vetting of how strong we are from a data privacy and security standpoint.
Last thing, and then I'll turn it over to you guys if you have a few questions. Speaking about culture. Just last week, one of the things that I'll share a specific story to kind of give you a sense of when I think about culture, in our world, it's more about what the people are doing day in and day out to help people put their lives back together. I sit up here and I talk about it as $1 million claims, large volumes of claims, large payouts, but at the end of the day, our folks every day are dealing with human beings on the other side of those claims, and they're putting people's lives back together. Last week, for now about five years, we run a recognition program here in the U.S. We got about 3,000 Resolution Managers.
They're all given an opportunity to apply to become the Resolution Manager of the Year. I think we have probably in the neighborhood of about 1,000 apply. They're all vetted, and we winnow that down to 10 who actually come into our headquarters in Rolling Meadows, and then five supervisors. They come in and basically tell their story in front of our leadership team, not just inside GB, but kind of a number of other Gallagher leaders who show up as well. You hear these people talk about what they do on a claim, and how they actually make a difference in people's lives. There was a story last week, UPS is a client of ours. There was a story about where one of their employees got mauled by a number of dogs when they were delivering a package. It was a two-year return to work.
Our person was there. Our person went and visited this individual in the hospital in Seattle. They were there for two years by their side, the guy actually is going to go back to work. He went back to work this holiday season, about two weeks ago. When you hear the people talking about how they are side by side with these folks, putting their lives back together. Then on the other side of it, there are instances when you talk about some of these liability verdicts that have been happening recently, where our folks are sitting there protecting the interests. They're the stewards of our clients' money. There are instances where it's not fair that somebody is asking for $hundreds of thousands or $millions from our clients' pockets.
Our top liability adjusters are there protecting the brand and the interests of those organizations, and they're doing it with pride. That, I think at the end of the day, is the real essence of what we do and who we are. In a lot of respects, you can add it all up in terms of what it means in terms of revenue and client retention and number of claims. It really is the essence of who we are, is the ability to do that on each and every claim. If we do that throughout the world, and we do that for every single client on every single claim, a lot of the other stuff will just come true more naturally within the way we operate. With that, I'll open it up if anybody's got any questions.
Scott, you
Yeah.
kicked off your remarks by saying organic strengthened right in the third quarter, that you would expect that to continue or more of the same into 2020. Can you just give us a little bit more of a sense of what's driving the organic? When you say continue into 2020, do you mean 2020 will be in line with the Q3 level or the year-to-date level?
I would say 2020 will continue with what's happening in the, well, be the third and fourth quarter. We had a little bit of a drop-off in the first two quarters of this year, our expectation is that won't happen. If you look at it overall, it should be overall a little bit stronger this next year than it will have been this year. What's driving it is a couple of things. I mentioned retention, here in the U.S. That is a big help. There's a couple of pieces of the organic if we can keep what we have and serve it really, really well. As long as we continue to see, and I think if we look at just the, we measure the level of satisfaction of our client base on a regular basis, it continues to grow and strengthen.
I think retention is a huge contributor to that. We are seeing down in Australia, increased and better results as it relates to a couple of the schemes down there and our performance incentives. Interestingly, they go from July through June, in essence, we're halfway through the year with respect to them. That remains strong and positive at this stage of the game. Just our sales pipelines. That's another factor that looks quite good across most of our markets. A couple of other things, Elyse, I would say, we're getting better and better at when I talk about there's other things to add to the mix in a given client, whether it's our specialty liability capabilities, our managed care service offering is getting stronger. We've had recently, our managed care product doesn't always get coupled with our work comp services.
What we're finding as Neil Simon and that team continue to strengthen that, we're able to cross-sell and bring that into more clients. There's a lot of indicators that at least are positive, that give us a sense that the strength that we're seeing here over the last six months is going to continue into next year.
Related to Elyse's question. You mentioned some of your revenues are tied to premium levels.
Just ballpark, what percentage would that be if you're willing to say. Earlier in the year, you talked about how there was competitive pressures in the industry, and that's kind of why margin wasn't expected to increase all that much, despite there being very healthy-
organic growth. Maybe you can update us on anything that's changed.
Let's say 10% of our book maybe is connected in some way to premium. It's not a significant share. It's a meaningful share, but not significant. In terms of the competitive pressures, a lot of it is here in the U.S. Some of our competitors have been a bit wounded, and the price pressure has not subsided whatsoever. If there's one spot where I think there is pressure on the organic, it's exactly that. It's on a per claim basis. I listen to my colleagues on the brokerage side, where the market is hardening. The pressure and the competitive pressure inside the claims business on a per unit basis is tough still. That's absolutely the case. That is one factor potentially on the margin.
The other factor is the fact that we continue to invest in the business and a lot of the things I was describing around the tools, the expertise that we're building to deliver a good outcome.
One other question.
Yeah.
Do you have a view on what Gallagher Bassett's market share is, and is the industry in terms of your competitors, are there a few competitors, or is it very fragmented?
You actually have to go by the market itself. We'll start with what I would describe as the commercial entity business here. In the U.S., there's probably four or five, six major competitors, as it relates to those companies that unbundle their claim service. That's a relatively mature marketplace. There aren't new clients coming into that market on a day-to-day basis. When I talk about the carrier marketplace, which in reality, that's where the most of the claims are in the overall industry to begin with. That is a very immature marketplace, and I think there's a handful of us that play there. The upside there, that's why I talk about that's probably where the greatest potential is. The same thing when you go outside the U.S.
There's a lot of countries right now where claims, a lot of them are continuing to be handled by the insurance carrier. That's where the potential is. If you go outside the U.S. too, we go to the U.K., we compete with law firms. Another way to think about it is, our primary competitor still is the insurance carrier, given the fact that they handle the majority of claims, to the extent that we can put forth a better value proposition and convince them that we can do it as well if not better than them, because that's the business we're in, that's where the real potential is. I think the traditional marketplace where we're trying to compete for who's going to handle Home Depot's claims, that's a dog fight.
That I would describe as a more mature marketplace, whereas outside the U.S., I would say some of the other specialty lines I'm talking about, some of these other lines of business, not the work comp side of it, with the carriers, I think the upside is quite significant there.
Hey, Scott.
Anything else?
Right over here.
Hey, Greg .
On the margin side, it feels like when you look at your business versus your peers or competitors, you're doing a lot better. It's my sense that you're doing a lot better than most of your peers. Is it the offshoring that's helping you drive that better performance? Or what's the secret sauce that's getting you there when many of your peers are several hundred basis points lower?
I'm not sure I could answer it entirely. I'll give you a couple of my perspectives on that. Interestingly, when I came into this business, it's been almost 10 years now, one of the things that a lot of people said to me is, "Scott, this is not" I think at that time we were probably 14% margin, and I had people trying to tell me, "This is not a 14% margin business. We actually need to figure out if we can sell more, we can do more, we can actually get the margin down." Today, we're 17+. The fact is there are opportunities to drive productivity. I would like to think that the team that I've put together, the team we have in place, are looking at that stuff and have the skills.
A lot of the people I've brought, let's say, out of the consulting business and the consulting industry, know how to re-engineer and repurpose businesses in a way that drive greater productivity. I think that's a factor. I think the mindset in believing that you actually can get more productive while at the same time delivering greater value. I do think the service centers, that is an important thing. A lot of it, I think, Greg, is just it's a mindset. I'll give you an example. I've shared this, I think, in the past, but we have, I think it's about 3,000 people handling claims throughout the U.S. I'd say now, close to 40+% of those people are working from home. It's a virtual team. I don't have as much real estate out there. Some of it is just thinking about the business differently.
I don't know about all my competitors, but I do know inside Gallagher Bassett, we've got a lot of people who have come from outside the industry and are introducing different ways of thinking about the claims business than other people in the past. Whether it's pushing people to work from home, which actually has a dual benefit because they actually like to work for us and they like to work from home, but it also drives efficiency, whether it's using our India service centers and things like that, of which we've got people who are big proponents of that, whether it's just changing the overall mindset around the model. I don't know what's going on inside all of those organizations, but there's probably some ideas there.
That's interesting color. The other just big picture question, periodically we'll pick up articles and there's news out in the marketplace about the economy might be slowing down.
Yeah.
Just from a big picture perspective, how do you view your business and its sensitivity to the economy, and how should we be thinking about that?
We have a pretty good mix of clients. If you just look at our commercial clients, they reflect, I've got temp agencies, I've got transportation companies, I've got retail, hospitality. We've got a pretty diverse group of clients. Interestingly, if you look at claim volumes, which to some extent, I think we try to use that as a little bit of a proxy for growth, that's around 1, maybe 1.5% right now, which is a little bit off of maybe what it would've been in the U.S. a year ago when it was maybe closer to 2. The fact is, I think what's happening is, we're seeing comp volumes drop a little bit, more from the vantage point of, I just continue to believe workplaces get safer and there's fewer injuries taking place.
There's a little bit of a, even though the companies may be growing, bringing new people in, it's not always clear that if you see that as being offset by safer and more productive work environments. We're probably at, we see 1%-2%. When you look at kind of GDP and when everything is kind of playing out, we're probably, we get that. Just 1 last quick comment is when I first started, a number of years ago, we would get 3%-4% growth in claim counts, just almost automatically just inside organizations. That's not happening quite as much as it did in the past. Our starting point is not a guaranteed 3%-4% growth every time we walk in. If you look at the mid to high single-digit growth that we're showing, it's all hard work to get there.
There isn't really a tide that's just kind of rising that helps us get there. I hope that helps a little bit. We good, Ray?
Yep. Thanks, Scott. All right, next up we have Doug Howell. He's going to have some financial commentary and walk you through the CFO commentary. Doug?
Good morning, everyone. Thanks for coming in this. It's hard to believe it's been a year since we've been here in December, but enough to come out and spend the morning with us. Hopefully, you've heard a lot of things that reinforce what you hear every quarter from our team, then maybe there's some nuggets of some new information. I would like to start off and thank Greg for a question. It's nice that Gallagher Bassett is recognized as being an industry leader when it comes to margins, thanks for that. I think, as Scott said, we've got a workplace that's naturally getting safer every year. He starts negative 2 down, the fact that he's growing at 1% or 2% is quite a compliment to the business.
Personally, if I look at it, as we use it for our workers' comp claims inside of Gallagher, I look at the technologies that Gallagher Bassett has brought to their clients, that's impressive. We have keen and deep insights into what causes. We don't have a lot of workers' comp claims, the investment that Scott and his team have made in technology is impressive. decade that Scott's been here, I think we're industry-leading when it comes to that.
I think a lot of carriers are beginning to recognize that as they look to Gallagher Bassett to take a vertical of their claims and ask them to settle those claims for them or adjust those claims for them. There's a complement there, great things for. I think sometimes Gallagher Bassett gets overlooked. For us to have it right there at the center of really what's going on in the insurance space, insurance is claims. To have this as part of our business and our portfolio, there's great laterals with our brokering space, there's great laterals with our retail brokering space, our wholesale space. There's great laterals into what we're doing with Lloyd's of London. It's nice that this guy gets recognized a little bit. I've got four or five things that I want to go through.
I want to tighten up some of the commentary that was made earlier today, just so that everybody's got it. Probably will talk in terms of modeling on that. Hopefully, everybody understands, when you look at rate, primarily up everywhere except for maybe flat in New Zealand. When we look at exposures, we didn't talk about it a lot, we are seeing kind of exposures growing at 2% in almost every geography. The U.K. might be a little slower when it comes to exposures than the rest of the world, even we're seeing some nice growth in exposures in Australia and New Zealand.
If you think about rate, forward thrust there, we're starting to see that there's some catch-up going on in our own views, where places where we have lost data related to a slice of business or a line of business, we're seeing that rates need to continue to go up. I don't think rates have six months of rate increase. I think the carriers are going to be in a position, unless they get competitive and they want to put capital to work or whatever, I think there's a need for rate that we're talking at least 18 months, and could be 2 years or more based on just the loss. I think that the social inflation that's in claims is going to drive that. Rates up around the world, don't see that cutting back.
I think maybe it was Brian that asked the question, is what would cause the market to reverse or to flatten? We don't see that in our own underlying book when we can get slices of it. I think in terms of organic overall, what does that lead to? Pat said that we're somewhere in the 5% range. I think in the fourth quarter, I'd pick more like 5.3, 5.4 than I would 5.9. He said it's in the 9, just to tighten that up. Next year, we start our wrap-up of our budget process tomorrow. I've had an inside look at it. We're solidly in the mid to upper fives the way we're seeing the business develop as we sit here today. When you talk 5%-6%, there was a follow-up question, was that a generalization statement by Pat?
It was a general statement, I can tell you for the fourth quarter, think more like 5.3, 5.4 than I would 5.9 necessarily. Next year, maybe a jump up again. Margins. Natural questions, what's happening with margins? When you're doing a growth environment in the 5% range, you can easily see 50 basis margin expansion when you're in that type of environment. What keeps it from being more than 50 basis points is the level of investment that we're making into the business. Every day I sit down, we're spending $60 million more on marketing, we're spending $20 million more on cyber, we're spending $20 million more on data, we're spending $20 million more on niche development, niche practice leaders.
When you look at the growth of our business, when I look at it compared to what we see when we acquire other companies, there's a substantial amount of investment that's being made at Gallagher that you're not seeing. I'm guessing Aon, and Marsh, and the rest of them are doing that too. When you look at the PE firms or if you look at the privately held family-owned business, they're not making the level of investment that we are into the business. I think that helps us continue to have organic growth that will be better than what the market will be. We've performed well organically. These investments are important, and some of them are just the cost of doing business. If you've got inflationary-like needs that are pushing margins down, data protection, cyber, hardening of the IT environment, compliance, that pushes it down.
What's our offset for that is we've got a terrific outlet to hedge against inflation including wage inflation in our offshore centers of excellence. We got 5,000 folks overseas in low-cost labor locations that are delivering high quality, better than even in the domestic markets, quality of delivery that's a great inflation hedge for us. We have productivity projects in place right now, which should offset the natural cost of giving raises. If you think about, as a CFO, as I sit down every year, if we have a 2% raise pool on a business that's running a comp ratio of 50%-60%, we got one point of margin deterioration before we even wake up to tomorrow. What we're doing to offshore offsets that. We have projects in place for the next several years that should not cause wage inflation to detract from margin expansion.
To me, that's a good story as we go into 2020. When I go around the world a little bit, and then I'll get to M&A, and I think about what are the challenges that each of the units. You heard Mike Pesch talk about what he's doing with Gallagher Drive and Smart Market. That is spectacular. What we're doing with Drive right now is we can sit down with you, and we can say customers like you buy levels and exposures, covers like this. That is an amazing point-of-sale differentiator that when we compete with the other 90% of those that we compete with, that are smaller, they just don't have it. We take it to the next level, because Mike's got the most mature business when it comes to the quality ramp-up, and maybe Gallagher Benefits is a little ahead.
They can also sit down and say, "We can guarantee your cert within 24 hours. Your policy is going to come back right within 10 days of delivery. You're going to get your bills issued correctly." Not only do we have the ability to sell based on what we know the market needs and the prices that we can get for it, because we got a Smart Market, we got carriers that want that business. We can tell them what they've been writing and where they want to come into the market, and then we can talk about the service. Mike Pesch's business is at that point where I believe he can win more than historical levels, so that if we get the opportunity, we're going to win more.
You heard Tom talk about his opportunities next year are to go around the world and make sure that Canada, Australia, New Zealand, U.K. retail are following what we've done here in the U.S. Our playbook works there, the Gallagher culture works there, the technologies will work there, everything gets dumped in the same database that we have. We can tell them, "Customers like you in the U.K. buy like this," but we can also tell you, "Customers like you in the U.S. buy like this." If you believe there's contagion across the water in terms of what happens, in terms of losses and exposures, we can do that now globally, U.K., Canada, U.S., Australia, New Zealand. That's what's coming, that's what Tom was talking about rolling out in 2020.
When you talk about the benefit space, yes, there were questions a little bit here about what's going to happen if a single-payer system comes in. Their business, there's no question there could be several, but we pay, just so you know, Gallagher pays health insurance costs for our employees, that would disappear. We might have some earning pressure on Bill Ziebell's business. Frankly, we saw during the Affordable Care Act is that clients still are relying upon us to help them make decisions on how do they attract talent. If you get a single-payer system and you have a deep recession where keeping your employee is not as difficult because there is a war for talent out there, maybe you could have a little bit of pressure on that business.
I don't worry about that waking up in 2021 with a single-payer system or our customers all of a sudden saying they don't care what benefits they give their employees. That is just not going to happen in this basically zero unemployment environment. Joel Cavaness will talk about what are his challenges in 2020 or opportunities in 2020. In the program business, he's got the opportunity that customers in a flatter, softer market, customers rotate out of the wholesale or E&S market and out of programs into the standard market. We have some pressures in a softer market. In a hard market, his pressures are making sure that he can get product into those programs where he doesn't have a carrier decide to pull out or a capital provider to pull out of providing product. He's also got some challenges in a couple of his programs.
He's having to reprice that, where loss experience, which means rates are going up, have been higher than what the markets want, and his dependency on proprietary products or self-created products means You heard him say we need to go to some more third-party provided customers. The great thing about his business, he can adjust his cost structure down to coincide with that. We're repricing a couple of programs right now. Probably costs us zero when it comes to EBITDA or EPS. There'll be no impact. Might impact his business $8 million or $10 million, something like that, where he's got to go out and find third-party products that he'll put in that. That's a challenge Joel's got right now. The other $300 million worth of his business, he's got great opportunities on the open brokerage side.
When you look at Gallagher Benefit, one of the things that on the margin, we talked about them being in terrific shape. Competitively, I think Scott sees some opportunities that maybe in 2020 or 2021 that he can move that up a half a point or a point as we look forward. When you look around the world, as a CFO, I do this every year. We look at what are the opportunities. Australia margins have improved nicely. We've been talking about their organic growth. We took over that business, it was negative 7% organic growth. It's now in nice, over 5% organic growth territory, and the margins have moved from in the teens up into the mid-20s. U.K. retail was another opportunity we talked about a lot. When we put together the four different organizations that we acquired over time over there, now we've done that.
That all trades as Gallagher now. Those margins are nicely above 25% there. I think in the program space, a couple of these programs would probably have margins that are in the high teens, low 20s, so there's a little bit of an opportunity for margin expansion there. Mike Pesch's business in the U.S., we like the margins there where they are. I think that when you walk around the world as CFO, sitting here a year later, there's just a couple cells of margin opportunity that we see to get people up to where we think are competitive margins in the business that they play in. That's a really good story in my opinion.
Let me stop there for a second and take questions on organic margins. Before I go into M&A, I want to do a little bit of a recap on M&A, and then I'll talk about clean energy and corporate, and move on.
Thanks. Doug, just trying to do some mental additions here, taking all the different regions and businesses. I'm hearing probably nothing less than 5% organic growth across the business here, not including risk management. Why would we be at 5%-6% organic growth for the full year in 2020? Why wouldn't it be north of 6%, 7% if you have this-
That's a great question. Why not 6.5% or 7%? Could happen. What happens is our customers, don't forget the opt-out. When you're going into a client, it's very hard to change a program on exposure. If you had 12 trucks this year and you got 14 next year, you got to insure the 14 trucks. When you go in and you're just talking about rate increase, the environment that we're in, the customer, we deliver solutions. We'll bring limits down. We might take deductibles up. We might say that, look, if you have a limited budget, I spent $100,000 on insurance last year as a CFO of a company, I can only spend $105 this year. You've got to figure out how to get it done under my budget. That's where our guys really excel.
If they can bring creative solutions to keep the rate increase from coming off the bottom line of our customers, that's their job. They represent the customer to make sure they get it. That causes us to maybe not follow rate exactly 100% correlated. Could, if these rate expansions happen, if the rates increases happen, if exposures continue to expand, you could see organic over 6% next year. The real question is, I don't know how much of that's going to be from exposures versus from rate. That's the only reason why I'm being cautioned on it is customers do have the ability to opt out and not spend as much of their budget on insurance or just have minor increases in it.
It sounds like the businesses themselves are talking about organic of north of that now.
Yeah. They are. I think that from my standpoint as a CFO, I think that my job is to budget to make sure that we hit it. Otherwise, listen, if I let these guys put 8% organic growth in the budget, they will spend it. My job is to make sure that we have a rational look at this and don't forget the client behavior that's behind this, we tamp it down a little bit in the budget process.
Few questions. First you said exposure growth is 2% right now. What would you have said that that was 12 months ago?
75 basis points.
Okay, great. Still a pretty healthy 5.3 to 5.4 in the fourth quarter, for those that just want to know why it's 50-60 basis points lower than the year-to-date, is there anything like significant change in the fourth quarter?
Yeah, I think some of these programs that we're repricing, again, it's not going to have any impact at all on EBITDA or EPS, we are repricing a couple programs, that might take a little bit off it. When you're talking about the 50 basis points on $1 million of revenue, we're talking $6 million. It's not a huge number. That's the place I see a little pressure is in the repricing on Joel's business in a couple of the programs. That might be why.
Okay. When you were talking about margins, you said programs, that there's some room there for improvement. How big is the program book? What was the other area? You said there's a couple of areas.
Yeah, I think the program book, call it $150 million worth of business. Maybe there's five points in there. He's got a $7.5 million challenge over the next two years. Yeah.
Is there another area or it's really just programs.
Programs is our way. I think that, if I look at another spot, I think there's probably on the $400 million U.K. retail, there might be another two points there. I think we're touching around 25. You have to pay back tax there, that compresses that margin just a little bit there. If you get up to terminal value, somewhere around 30 points, let's say they can get to 27, there might be a couple points there.
You mentioned more marketing spend. You said in your prepared remarks maybe $20 million more per year. I saw there was a Major League Baseball sponsorship announcement too from you guys. Just curious, are you able to measure your ROI on marketing spend? It feels like it has increased measurably in recent years through some of the sponsorships.
Great question on marketing. Remember, the purpose of us doing marketing is three simple things: If it helps us sell more, if it helps us hire more, or if it helps us acquire more. That's what we do. We sit down, and we put the marketing spend through a prism. Are we going to sell more? You can sell more because of the brand equity, but you can also sell more because of the relationships that you have with the owners of those teams and with the businesses that they own, and with the laterals that they will provide into their network of individuals. Because we're still very much so a network sales type organization.
Many of our relationships with the Cubs, with the Padres, with rugby, those are places where we get the brand awareness that comes off of it, but we also look for the laterals in order to pick up a lot of their insurance business. That will help us sell more, not only directly to them, but it'll also help us sell more just because of brand awareness. One of the things that we learned about three or four years ago is that for the clients that know us, that our Net Promoter Score is well into the 90s. The awareness was something that people didn't have a large awareness of who Gallagher was. The clients that use us love us, but the people that didn't know us, didn't know us.
We think that the effort that we're doing now, I think Jay Fishman said it best to Pat one time. He goes, "Pat, your Net Promoter Scores are off the roof." In our side of our book of business, they love Gallagher, the retention's terrific, but people just don't know you. I think that what we're doing there to increase the awareness, and we're talking about spends of $20 million. We're pushing a $6 billion franchise. These are not huge investments, but we're very keen about making sure we can sell more to them. The second thing is, does it help us hire more into those local communities?
I know right now that the satisfaction throughout the U.K. in terms of our branch managers and our producers, and there, because of our relationship with the Premiership Rugby, we are having terrific retention, and we're getting a lot of people that want to join us, and we're also getting people that want to sell to us. We're in a community where they're not a Gallagher franchise, and they walk up and down to the state and there's Gallagher everywhere. It is causing our acquisition pipeline to get bigger. If we can accomplish those three things, we think it's a pretty good spend. All right, we're going to pause on that a second. Let's talk about M&A. Want to do a little bit of a recap on M&A for the year.
When I was standing here last year, we thought that our cash flows that we could do about $1.5 billion of acquisitions in the year. We're going to probably, without using any stock. We're coming up towards the end of the year, we're by and large going to hit that. We're going to probably do closer to $1.6 billion in purchase price acquisitions. I know that we've used a little stock through the first half of the year, primarily in tax-free exchanges. I know we're using just a teeny bit of stock here in the fourth quarter on a couple transactions.
One of them is a little unique is that we own 10% of it, the owners that are selling the rest of the 90% to us, they want stock, we want stock in their hands because we want to lock them up for the next four or five years and make sure that they're rowing on the same oars as ours. By and large, we're going to do $1.6 billion of acquisitions this year. When I run it through my math, those acquisitions, if you take them as a portfolio, imagine we did one deal, that we used $1.5 billion of cash and debt, we used, let's say, $100 million of stock, a very small amount of stock. It ends up delivering about $0.80 of accretion of EBITDA per share is accretive by $0.80 or contribute $0.80 more.
On an EPS basis, if you consider the interest on it, everything, it's somewhere between $0.20 and $0.30 accretive. Our portfolio this year of acquisitions, the 60 that we're going to end up doing, spending $1.6 billion on it, is accretive EBITDA per share by $0.80, it's accretive to EPS by about $0.20 to $0.30 when you put in the amortization. To us, the EBITDA is more of an indicator that's closer to cash, because you got to have the amortization expense in there. We would consider this year's acquisition program to be a good year. How do I see next year? About the same. I think we'll be in the same.
I think we can spend $1.5 billion, I would expect that we can accrete on EPS of $0.20 to $0.30, I think that we can accrete on EBITDA per share of probably about $0.80, something like that. Multiples, still having nice opportunities in that 8x to 9x range. If I look at our deal sheet right now, the only one that's on there that has any size to it of significance is obviously you've read the news about us taking a deeper position or going to 100% ownership of Capsicum. We've had the terms on that. It still has to go through customary approvals and board approvals, we've got that to tidy up here in the next three weeks or so.
I think it doesn't make me look. We'll have to give you some guidance on how to work on the minority interest piece because remember, we consolidate Capsicum because we controlled it, but we didn't own a majority of it, and we had a decrement to it down in minority interest or non-controlling interest. I'll try to get you some guidance on that when we close out the year, so you can fix your models on that or update your models on that. Multiple is still strong. They're really fair multiples, good opportunities. The pipeline's full, probably have $400 million of opportunities on the sheet right now. We see the market as there's so many of these things owned by the baby boomers. We see it as a terrific opportunity.
Any questions on M&A to close out the year or forward looking for next year?
Hey, Doug.
Go ahead.
Thinking back maybe 3 or 4 years ago, I feel like your M&A spend was more like maybe $500 million-$700 million. Am I thinking, is that right?
Yeah.
Now we're talking about potentially doing $3 billion of M&A in two years.
Yeah.
I mean, what has really changed? Is it the size of the deals? Are baby boomers retiring? What is really coming together now that's giving that level of
Okay, I think there's supply and demand, right? I think when you look at what's the supply, yeah, the baby boomers, we've been talking about this. I joined Gallagher 17 years ago coming up, and we talked about that someday the baby boomers will have to sell their business just because they get old. That's a supply feeder, is that as they age, they need to monetize their life's work, and they bring their franchises to their agencies, to the market, and they get sold. The other thing is that probably even back then, I didn't really appreciate the need for capabilities. Not only are the baby boomers coming to us because they want to monetize their life work, they want to put their employees into a right spot. They want to be a part of a strategic group.
Some of this, there'll be a big bunch that will sell to PE, but the ones that come to us. What I fail to appreciate is how rapidly this business has gone from a pure relationship say, I got to have a relationship with you, Ryan, in order to get into the door, but I better have those capabilities when I get down to sit down and pitch you. It's not enough just to take you to play golf. I got to bring in the resources, especially on the benefit side. I've got to bring in the resources when it comes to complex property placements. I've got to give them the global reach. That need for capabilities is driving so many agencies to realize they're better with us than against us.
If we're talking about all the things we're going to do to take their business away, I think they come to us and realize, I got great relationships with my customers, but boy, I better bring these capabilities. Our niches, our CORE360, our Gallagher Better Works, the ability to go into the wholesale market on a tough piece of my business that I can't do, that I can set up a captive for you. All these things, 17 years ago, they were just kind of nice to have. Just, you go in and say, "Listen, I'll place your insurance." I think that that is also funneling a lot of supply for deals for us. When it comes to our ability to do it, listen, we made big platform moves into Australia, New Zealand, Canada, and the U.K., all in 2014 and 2015.
We were buying at the time at lofty multiples of 7 or 8 times, and we were putting $150 million a year into integration and evolving them. Well, that's done. It frees up a substantial amount of cash flow that's there. You look at our clean energy investments right now, they're funding a little bit of cash, but as this law winds down, they're going to start throwing off $150 million of free cash flow going forward. When we talk about the ability to do $3 billion of acquisitions, and we're picking every one of them, we marry them one at a time. We've got 10 regions in Mike Pesch's business. We've got 6 regions in Bill Ziebell's business. We've got 8 regions in Joel Cavaness's business, just in the U.S. Then you put in Canada, there's 4 regions. In the U.K., there's 4 regions. Australia, there's 6 regions.
All of a sudden, you've got one regional leader, one of our regional leaders here, he's running a $150 million business. He can click off 2 acquisitions a year. We have 60 people around the world that can do an acquisition, some of them coming from acquisition. We have almost an unlimited ability to source them locally, buy them locally, integrate them locally, because there isn't that much. They come under our systems. They come under our HR system. Our ability to absorb these things, these merger partners, is nearly unlimited. The nice thing about it, if we do one big deal, Ryan, if it has 60 branches, I'll love 20 of them, 20 I'll be meh, whatever, and there'll be another 20 that they didn't want to sell to us in the first place. Why do they want to be a part of me now?
Us picking one at a time, that's the right way to do it. Clicking off an acquisition a week is something easily that we can absorb inside of in Gallagher.
I guess outside of private equity, thinking about this, I'm not a banks guy, but Truist or whatever, BB&T is a lot bigger now.
Yeah.
Thinking about how competition, I guess, could come from the M&A standpoint next year, I think they used to say they wanted to have 20% of their revenues in P&C brokerage. That could be potentially a lot of M&A. Is that getting kicked around at all in terms of thinking about the pipeline or?
Here's the thing. I think the pipeline, there's so much supply being shown that there's enough for all of us to feed upon. If you have somebody that believes that they're going to be able to sell into a bank group, and they're going to be able to leverage that bank's relationships to sell more insurance into their customer base, they're going to sell to a bank. If they really just want the money, leave me alone, I'll ride out to my retirement, they're going to sell to a PE firms. If they really want to join a team that likes to sell insurance, likes the capabilities, they're going to sell to Gallagher, or they're going to sell to Marsh or Aon or Willis or Brown or someone like that. They'll pick one that fits their personality type the best, there are so many of them.
By some accounts, just in the U.S., there's 30,000 of them, of just firms, not people, that could show themselves to the market over the next 10 years. It's a huge pipeline. We're just trying to get our 60, 70, 80 a year that want to be like Gallagher, like to be a part of us, want to implement our interns, use our offshore centers, use our capabilities, want to be a part of CORE360, want to be part of Better Works. That's the people we're looking for. There's plenty of supply. I'm not worried about that.
Thanks. In the fourth quarter, it seems like maybe some of the deals, the deal announcements slowed down a little bit from the pipeline earlier in the year. Have you guys observed that, just in terms of announcements we see? Were there deals maybe pushed from the fourth quarter into the first quarter? I know sometimes that happens.
Two things that are happening. I think there are some that, especially when we get into the international side, when we're doing some of these nice tuck-in, some nice acquisitions where we round out some of our spots in Europe and around the world. It just takes a while to get regulatory approval on some of them, even though they're very, relative to Gallagher, they're not large acquisitions. We talked about the one in the Czech Republic. It's a great deal, gets us into 14 different Eastern Europe countries. We're talking revenues of $40 million across that right there, but it just takes a while to get regulatory approval on that. I think that you could see next year. I would say that typically our first quarter is very slow in terms of M&A.
If there are people that are interested in trying to get something done before the election, I think you could see a surge in M&A activity more towards the middle of the year next year.
Okay, great. Sorry, I had another margin question. You gave us the fourth quarter kind of organic view, 5.3, 5.4, but then you didn't comment specifically about margins. I know the aviation business from JLT is very heavily earnings skewed towards the fourth quarter. Should we think about a margin tailwind in the fourth quarter from that?
Yeah, maybe a little bit. Here's the thing about with the new GAAP, remember, you book it, and you got a service obligation afterwards, you got to defer a bunch of that revenue. I'm still working through that a little bit, but you could get a little bit of a tailwind in the third quarter from that business in terms of margin. I still see it in the 50 to 80, or if I say 60 to 80 basis point range. It's not going to be something because I think the revenues of that might call it $30 million on, we're going to do ±$1 billion in the quarter. It does move it a little bit, but it's nothing that is going to cause it I don't think it's 2 points, something like that. Brian?
Thanks, Doug. We think about M&A multiples, they have been moving up, especially with the private equity activity. I guess 2 questions on that. What has sort of been the disciplinary ability to keep M&A multiples still in a relatively tight range? Is there a point where you're just saying, "This just doesn't make any sense in terms of the multiple?
Yeah, great question. First and foremost, I think there's 2 things that you've got to look at, is once that business is sold, it's never going to be available again. You can go back to a couple deals. If you go back to the William Gallagher acquisition that we did in Boston, for those of you who were around this story or live in Boston, we bought an organization there, and we paid the lofty multiple of 9.5x for it. Had we not, we wouldn't have been in Boston. We've been trying to get something going in Boston for a decade or more, or maybe 2 decades, and we just couldn't. Once they would've sold that franchise, it would've been gone forever.
Smaller, I think there is a size skew in terms of the valuation. I think that the smaller brokers out there that have a nice $5 million shop understand that their business, because it's not platform, is not going to command a 12x. We have the opportunity. When they sit there and see that they have an opportunity to do an earn-out, they're going to get the earn-out, and they see our capabilities will help them get to that, they like that idea that they can make more on the earn-out. Interestingly, if you measure, and we do this, every single deal that has an earn-out, we measure at the end of the three-year period when we pay that.
You take their revenues at that time, excuse me, their EBITDA at that time, you take what the price that we paid plus the earn-out, our multiple actually goes down. As a portfolio, it is going down in almost, it doesn't matter if you use average, whether you use the mean, whatever, almost to a name. The fact is the way the earn-out works, the multiple, the total price paid divided by the EBITDA at that time, the multiple actually goes down. They understand they can make more as an earn-out, but really we're not ratcheting up the multiple as we go forward. We measure every single one of those on the earn-out, and so we feel like. They're happy as hell.
They get to the end of the deal. We don't have people coming in and say, "I sold too cheap." They think they got a good deal. We think we got a good deal. They just really are seeing the opportunity to be being together within three years, and we won't get 100% of them right. There's one or two every year that we've got to sell. You'll see that in the book gain sale, that we sell a couple of them because they didn't get it right or we didn't get it right. We don't lose money on those either because we've owned them long enough to basically recover what we put into it.
I see there's still opportunity for it, and I see the. That's why, again, doing 60 of these smaller ones at a fair multiple makes sense to me versus paying 14 times for a portfolio of them that probably I don't even like 30%-40% of them. Not I, but you understand that. Okay. Other questions on M&A? No? Let me just move to I want to talk a little bit about the corporate segment, and I want to highlight something we talked about last quarter. Go to page four of the CFO commentary if you have it. The punchline is this. We have 2009 era plants that are being sunset right now. We have 2011 era plants that have two more years left on them. This is our clean coal facilities.
I couldn't be prouder of the team for those locations that were using a 2009 era machine will have done a marvelous job of taking some lower generating 2011 era machines and moving them into that location to preserve the earnings of that utility location. When we were looking at this a year ago, we might have said that, gee, this business should drop somewhere down to the $70 million-$80 million range in terms of earnings. We see it somewhere more in the midpoint of a $90 million earnings in 2020. The team's done a really good job of moving, plugging, and playing and putting them in there.
If you have questions about that, call me, I'll explain some deeper what I mean, but I couldn't be more pleased. We're going to wind up the year somewhere around $95 million, $97 million of earnings as a result of our clean coal exercise. Next year, we could be right there in the hunt, even though we've lost all of the 2009 plants from production. The team's done a great job of that, of holding up those earnings. I think that there was a bill that went through, that's probably going to get passed, a very narrowed down extenders bill that happened over last night, or excuse me, two nights ago. They're going to pick up anything to do with solar and clean energy, et cetera. They're going to pick that up after the first of the year.
We didn't get the extender put into this bill, we'll try to do it again in the spring, we think we've got good support for that, we'll see what happens in Congress. That continues to be a success story, right now we're pushing $1 billion of future cash flows on our balance sheet. We've got a tax credit warehouse of $950 million at the end of September. Once this program, in a year or so, is done, we'll start winding that down. It'll fuel our cash flows about $150 million a year going forward. At the end of it, I think we'll generate about $1.5 billion of free cash flows on it. It also helps with our current taxes.
We've said all along that when you're doing the models, you ought to know how much we're going to pay in tax. Our cash taxes are about 5% of our EBITDA. When I talk about how we get into $1.5 billion of acquisitions next year, okay, you start with EBITDA, call it $1.5 billion, $1.6 billion. Pay taxes of $75 million. You've got some interest in there for $200 million. Remove the dividend, you get. If you believe you can borrow $600 million on that, just the multiples, you get back to a number. It's about $1.5 billion in acquisitions for next year. The tax rate, we still pay our taxes, it's $75 million a year on about $1.5 billion of EBITDA, $1.6 billion of EBITDA.
We did give you the first glimpse at the. I'm going to go back to, and I'm bouncing around here a little bit, so I apologize. Go back to page three. We did add in our first look at 2020 for a year on what we think the corporate segment will have. The right-hand corner, you can see the $80 million-$100 million of clean energy earnings in there. The corporate acquisition costs are about the same every year. Corporate costs are similar to that. The interest in banking we put in there. We have agreed to another round of financing that we'll fund at the end of January. We've got that done, so that is what we put in for the interest expense.
Remember, in your models, there is always a little bit of an issue that sometimes the models you put in the M&A, you got to come along and put in the interest expense for borrowing on that. If you just assume for every M&A that we're doing that we're going to borrow, I don't know, 2.5 to 3 times the EBITDA, that's the borrowing amount. You can do that in your models. We've updated that for 2020 now on here. Do I see us having to do a substantial amount of borrowing for the rest of the year? Probably not. I think we're in pretty good shape for 2020. Unless M&A were to go substantially higher, maybe we'd borrow some more on that. I've updated the corporate segment. We've given you an update for the fourth quarter and the guidance there.
We've talked about the fact that we put our private placement. We'll fund that at the end of January. We talked about clean energy, that we're really proud of the fact that we're going to be able to hold up that earnings stream in the last couple of years of the program. Have some hopes for it getting extended for a couple more years, but that will be a nice 10-year run on that. I'm going to stop for a second and pause on that. Anything, Jay?
Thanks. Jay Gelb from Barclays. If I'm looking at the 2020 estimates, Doug, in terms of the adjusted full-year loss in corporate, it's a substantial increased loss relative to 2019. I'm just thinking, does that go kind of full into the bottom-line impact? Meaning, do we need to kind of rebase our estimates for 2020 in terms of overall earnings growth? Is there something I'm missing?
I don't know what you had in there for interest expense for next year in your model. If you didn't have a growth in interest expense, this might point out that your model should catch up to that, because we will have more interest expense next year. I also don't know what you had for M&A in your models, Jay, itself. If you look at this would be the interest expense associated with funding next year's M&A, and this is kind of a recurring issue that I do worry that some models are not reflective of You model in that we're growing through M&A, but we're going to borrow some money against that. That could be what you're seeing in your model.
Yeah, that probably is a big part of it.
Other than that, clean energy is about the same number, and we're going to have about the same number of corporate and M&A. It would have to be in the interest line.
Okay. The accretion numbers you mentioned before from M&A that you saw in 2019 should be a good baseline for that level of accretion again in 2020. That's essentially the difference.
Yeah, I think if you factor in accretion on EBITDA-
Right
$0.80 a share. Accretion all in on EPS, which includes amortization expense and includes interest expense, call it $0.20-$0.30.
Perfect. That is helpful. Thank you.
One question I would say, our estimate was in line with what you guys provided, so it probably is just the interest expense for 2020. In terms of the extender bill that you mentioned-
If that does get extended, could you then go back and put plans into effect again in the 2009 locations? Is it, do you understand what I'm saying?
Yep. No, I understand your question.
2011, thinking about that going forward.
Great question. What we're doing is, remember, we have machines, I'm just going to use the word machines, that have a useful life. We have locations that have an infinite amount of life, unless they convert to natural gas or they shut down because of economics. The machine is what expires at the end of December. If they extend the law, we would turn those machines back on at those locations. What we're doing is we're telling the crews to stand down for 90 days. We're furloughing some folks, but we're not disassembling those locations. If we get something through Congress in the first 90 days of the year, we'll turn them back on. That would be accretive to what you're seeing here. That would drive our numbers higher for next year.
If we don't get the law passed, there comes a certain time where the carry costs are not that much. If we don't get the law extended before June, we'll probably just shut them down. If something were to happen and we'd get more than a two-year extension, then we'd go back and turn them back on and restart them. You got to keep the machines working a little bit. You got to keep a scalable crew there. What we're doing is we're just putting them in a hiatus status for 90 days to see. That would probably contribute another $5 to $10 million a year of earnings if we turn those locations back on.
To 2020.
2021, right. There is an upside there with it, but it's not huge. The bigger upside is the 2011 era plans to go to 2023. That's the real upside. You take another $90 million a year for two more years. That's the big upside.
Jon?
Excuse me.
If I'm looking at organic growth, mid-single digits, 50 basis points of margin improvement, gets us to probably about 8% earnings improvement year-over-year.
I think if we look at the last year, it's been a little less than that. Is that just a matter of timing of M&A earnings coming through and therefore resulting in a little bit of a drag to earnings this year? If we are looking a year ahead and M&A is roughly in line, you have a catch-up?
Great question. Thanks for reminding me of this. If we shut down M&A right now and never did another deal, we're not saying that's not at all what I'm implying. There's probably about another $80 million of EBITDA that would show up into our numbers, of which you would have the same run rate of interest, the same run rate of expense. There is a future acquisition. We're paying interest on it. We paid the odds. We're paying interest on it. We used our cash for it, we don't have those earnings in last year yet. The roll over impact of the M&A EBITDA that we bought already, paying interest on, is not in our numbers. I think it's about $80 million right now, standing here at the end of the year. Next year, we'll do it again.
Next year, we're always behind a little bit in terms of the emergence of those earnings because we pay up front, and it takes us a year to get the earnings. Mike?
Not to nitpick, I will.
It is the holiday season. Why not?
In terms of M&A adding, you said about $0.80 of EBITDAC, $0.20 to $0.30 of EPS. Why is the range so wide, 20 to 30?
Great question. It's just purely amortization. That's the thing. We're looking at, do we start reporting our results without amortization? I think that might put us more in comparison to what a couple of the other brokers are doing. That's something that Ray's got on. If I think about what all the divisions' objectives are, Ray's objective is how do we give the street a better understanding of what our amortization expense is? That's why we talk about EBITDA. If you really think, we don't spend that much on CapEx. It's just ignore CapEx. It's not a big number. Really, if you start with our EBITDA, it's about as close to our cash earnings except for we got to pay some tax, which is only about 5%. Start with 95% of our EBITDA, and you get pretty close to cash.
We've got to pay interest off of that. That's about it, really. When you say, what is really the cash earnings of Gallagher? EBITDA is about the closest proxy, lesser cash taxes paid, which because of our credits, we're only paying about 5% globally in taxes on our EBITDA. That's the global current taxes paid. You're not nitpicking at all. You raised a really important issue is that the brokerage space in itself, if you're acquisitive, you're saddled with that amortization expense that really causes the delta between your EBITDA per share and your EPS per share on an accretion basis. You take that out, and especially when we do domestic deals, we talk about paying at 8-9 times on domestic deals.
I'm not giving it the benefit of the tax credits, because the tax credit would take that multiple up by not paying the tax. Take that multiple down somewhere in the 6-8 times, maybe 6 and a half times. If you ascribe the benefit of our tax credits against the acquisitions that are generating the taxable income, our multiple that we're paying on that true cash, it's very small.
Yeah. What about the $0.10 delta between $0.20-$0.30? Is that just depending on how profitable-
Probably more my forgetful memory than necessarily, but call it $0.25. Ray probably could chime in, but is it 25?
Yes. Between $0.20 and $0.25.
All right, fine. Joe? This camera. Get a mic here.
Doug, I was wondering if you could provide an update on Capsicum in terms of the size that they've achieved and the margin profile of that business, and also just an update on what your strategy is in reinsurance, and how that differs versus when you exited the business about 10 years ago, and maybe how your view of the external world has also changed over that time period.
All right. I'll give it a shot. I know we're running a little bit out of time, but here's the answer, is that, first of all, the size of it, I think that their public numbers are somewhere to $80 million to $100 million worth of revenue. Okay? Just in terms of that. The margin profile of that is nicely in the 30s, 30% range. I think that the approach that hedge, Capsicum was saying, as the reinsurance business went into heavy analytics and modeling and resource-heavy business, if you go back 20 years ago, that was the evolution that most the carriers have that modeling capability now. You don't have to provide as much necessarily as the reinsurer. It really became an approach of deep market knowledge about what markets have an appetite for what reinsurance risk.
That's so for all the folks that we've brought into the business or built in the business, it's like knowing where the business can be placed and reinsured has more value than necessarily running the loss ratio on it. We can run the loss ratio now, those technologies, those models, we can outsource that, we can insource it, we can use their own insurance carriers, but it's very niche driven by product with knowledge about what carrier really has or reinsurer has the appetite for us. That approach has worked very well, and I would suggest that we will continue to do that as who brings deep market knowledge. We have great market knowledge in motor, U.K. motor. We have great expertise in cyber. Right now, our cyber unit there is just ringing the bell.
When you get into large marine placement, who's got the appetite for fac cover on marine placement or construction placements there? When you go around and you look at that's what it is. Just a large treaty of a mixed bag of risk coming out of a mutual that's looking for capital, probably not where we're going to play right away, but I see that as having a terrific opportunity. Also the capital formation side of it's really terrific. You take that and you combine it with our capital group, our ILS group, just what's happening in terms of alternative capital formation, they're right at the beginning, in the nub of that. They're there and information flows through that. That market knowledge is something that the Capsicum team brings to Gallagher also, as we get more complicated placements.
I may be saying this a little bit wrong, but I think LaGuardia flows through our construction. The big project at LaGuardia goes through our construction guys, goes into our reinsurance guys. We get into the reinsurance market, and we're putting that together. That's where we're going. I may not have that right. It may not be LaGuardia, but
That's helpful. Thank you. I just had a quick follow-up on the service centers, if I could.
Okay.
How much business is being put through those today? Is it a nascent strategy? What is the threshold in terms of policy size that's automatically going in there? Just to wrap up on the marketing that's going behind that, what exactly are you doing for that?
There is nothing that they can't do size-wise. To be honest, the advantage of India is push the work there. They will standardize it. They will retrain the folks in the U.S., Canada, and the U.K., say, on how they should feed information to it. They will automate it.
I'm talking more about, Pat alluded to in his opening comments, more about a service center strategy to do vSMEs.
Oh, okay. Fine. That's part and parcel with India. If you bring in that small business, we naturally going to always have small business that comes to us. If you talk about that, I think that business might be $200 million right now that we're scraping into those service centers that largely had retentions in the low 80%. We're getting that up towards the 90% retention just because we're actually being active in placing it. It is an important strategy for us, Joe, as we continue to find nice local brokers like where I grew up in Sioux City, Iowa. I was just back there seeing my mom this last week. That local broker there provides a ton of small SME and personal lines business.
If we're going to acquire that business, they also do very large ag related customers that have revenues in the $billions out of Sioux City, Iowa, we're going to pick up the personal lines business out of there too, and the small business that's around it. It's important for us to get good at it, and we're getting good at it. The combination of U.S. and Vegas, combination of a couple other places in smaller cities, plus the ability to push it into India, it really creates a sticky business for us. We can be proactive. We can market other products into it. It's a strategy, but it's not like something that we're going to go out and invest $2 billion in next year. It's just naturally going to come to us.
If we get it, let's put it in there and let's service it really well and cross-sell to it. How are we doing on time, Ray? I don't wear a watch, so I don't have any idea.
Five.
Five after. That's pretty good for me to only be five minutes over. One last question, maybe? All right. With no questions, we'll wrap up. CFO looking around the world, a couple spots where some margin opportunities are really good growth in every spot, really good opportunity. I think that the amount of investment we're making in the business helps us continue to grow and is important for us going forward. We'll have nice margin expansion, good organic growth. I see the acquisition pipeline being kind of almost unlimited, and I see the number of people that really want to get on the Gallagher rocket ship right now is pretty high. I would say from my standpoint, as I go into a couple days of wrapping up the budget for next year, I'm feeling pretty good about 2020. All right. Thanks, everybody.