We're going to go ahead and get started. Good morning, everyone. I'm Raymond Iardella, Head of Investor Relations. Welcome, everyone, to our fourth quarter investor meeting, for those of you here in New York City and those of you who are listening via the webcast. The format's pretty similar to what we've done in the past. Each speaker will probably give 15, 20 minutes of prepared remarks, then we're going to open it up for Q&A for those of you that are here in the room. We do have handheld mics that we'll be passing around, so please wait before you ask a question so we can get it on the webcast as well. Before we get started, make a quick comment. We just handed our updated CFO commentary document, and we posted the same document to our website at www.ajg.com/december11materials.
An 8-K regarding the information was filed this morning as well. Before we get started, I'd like to make a quick legal comment as well. Some of the comments made during today's meeting, including answers given in response to questions, may constitute forward-looking statements within the meanings 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 our CFO commentary. Actual results may differ materially from those disclosed 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. Welcome, everybody. It's good to see the faces that we see so often. I know most of you are very familiar with our story. As I do at most of our investor days, I'll be basically repeating myself, which my wife says is one of my key attributes. What I'll do is I'll do that. I'm very happy that we've got the team that we've got in New York with us this week. I think we've got a good lineup of our divisional leaders. We've got literally all of our divisional leaders. I think you get a very good detailed, in-depth kind of analysis, not analysis, but indication of what we're trying to do. You've got the top folks running these businesses that you can ask your questions to, and we'll try to be as transparent as possible.
We're going to stick to the typical theme that we have with our investors, which is what are the strategies that we're trying to execute on to grow the business and create shareholder value. There's just really four of those. They're the same that I've talked about every time I've gotten in front of you, and that is basically organic growth, mergers and acquisitions, productivity and a higher level of quality, and maintaining what we know is a very unique culture. Let me just touch on a bunch of those. In terms of organic growth, from my vantage point as the CEO, I think we're in a really unique position. I was just talking to a couple of you out in the hallway. If you take a look at where we stand with our vertical capabilities, and we are very strong in our designated niches.
We know that when we go out to compete, we compete 90-plus% of the time with somebody smaller than we are. When you think about Business Insurance this past summer, number 100 in Business Insurance's top 100 U.S. brokers did $24 million of total revenue last year. That's the 100th largest broker. We grow more than that a month. We're not having to take a lot of business from Marsh, Aon, Willis because we compete with them about 10% of the time. These guys that have these smaller businesses, it's going to get harder and harder to line up against us, especially when we bring a vertical capability to something like a construction account, which is one of the reasons I think when you go to mergers and acquisitions, you see that our merger and acquisition pipeline is stronger than it's ever been.
Right now, we have probably about $500 million of pipeline revenue that is either under term sheets or term sheets being prepared. That's just scratching the surface. At the same time, we're working in a marketplace that is pretty flattish when it comes to rates. If anything, maybe something like a 1% tailwind. If you think about it, this market has been similar to this now, maybe up a point, down a point, up two points, down two points, whatever, for 10 years. That is really a good market for brokers and for clients and for carriers, frankly. In my early career, the cycle was very dramatic.
You'd end up having no insurance you could sell your clients, then it'd start getting soft, and it'd be coming down 10, 15% a year, and it would go on and on and on and on and on until it would snap and go the other way. I think what's happened is that carriers have gotten a lot smarter. They know where they're making money every day, and they're adjusting to that. For instance, workers' compensation is a little bit weak, is a little bit soft. Transportation is clearly up. Within the verticals of the insurance industry, you see the cycle differing. First nine months of this year, we generated about 5% organic. I feel very good about that. That should hold up as being about best in class. We have a very strong pipeline of new business opportunities.
I look at that and realize that across all of our businesses, there's great new business opportunities. We had 400 interns in our internship this past summer. We won't recruit all those young people, but that's a lot of young people to introduce to just a great business, and that portends well. Our Hire Right program is a program that we created about two or three years ago to go out into the business community and hire people who know how to sell and teach them insurance. That's been very successful. You can take someone that is not afraid to make calls, that can go out and sell pharma, can sell copiers, whatever, and train them in insurance and place them with somebody that's a mentor, and they can do extremely well.
When it comes to organic growth, I feel very, very good, and we realize how important that is. When it comes to merger and acquisition growth, I've never felt stronger. I don't know if this will be the case, but I think there's a chance we could do 100-plus deals this year. Remember, when you look at our acquisition activity, though, and this is really key, most of our acquisitions are $5 million to $7 million in total revenue. By the way, we're getting those at pretty fair prices. Our multiple through 2018 on those transactions will probably be between 7.5x EBITDA and 8.5x EBITDA, which with what we're trading at is a good arbitrage for our shareholders. I think the economy is good. Had a conversation with Bob and Mark about that before the meeting this morning. I'm not a technical person.
I can't sit here and talk about the inverted yield curve, I can tell you what our clients feel, and our clients are feeling pretty good. Our construction clients are busy. Our transportation clients can't find enough drivers. They've got that many orders. When we talk about an impending recession, I can't give you the technical terms as to why we'd see that coming. I think right now, we're really kind of facing almost a full employment situation. We're finding it more difficult to recruit and fill positions than we did just 18 months ago. I feel pretty good about the economy. As I said, P&C pricing is flat. We've got a lot of cross-selling going on in the organization. When it comes to productivity and quality, I'm really, really pleased with the position.
We've been working now for 14 years building out our centers of excellence in India and now one in Las Vegas as well. These centers of excellence have done an outstanding job of making us both more profitable, our margin has increased substantially over the last decade. Let me give you one example. I was at a conference with one of the consultants in our industry, and I'm on a panel, and I look out in the audience. There's 200 agents and brokers, all of them basically small agents and brokers. I said, "How many of you can tell me the level of quality for the certificates of insurance that you issue to your clients? How many can tell me empirically that you know that you issue those certificates?" Which, by the way, are very important to our clients.
You get a certificate wrong, you get kicked off a job. It's a problem. You don't have certificates coming around on your renewal, and you're going to have lots of jobs that contractors are asked to step off of. Certificates are important. No one raised their hand. I can tell you, because we know, because we measure every single day, that the millions of certificates we'll issue out of India will have an accuracy rate of 99.5% or greater, and we'll issue those certificates in 15 minutes. I'm sitting in a meeting with the India team, and one of the guys goes, "This is cool." What it was is an email that he received from one of our service people in the field, passing on an email from a client saying, "This is the best customer service I've ever experienced doing insurance work in my career.
Thank you, thank you, thank you. What it was, a certificate that had been asked for by email was issued in 15 minutes and sent to that person, and she was blown away. These centers of excellence have really, really helped us. I think you're going to hear from my colleagues today where they see those centers, where they're going to be able to use them in a more deep methodology and more services. Today, our service centers provide probably about 250 various services across the enterprise globally. Certificates, proposals, renewal applications, et cetera. Lastly is our culture. I'll tell you, the culture is as strong as I've ever seen it.
Two weeks ago, I was in Glasgow, Scotland, and Edinburgh, I got to tell you, if you haven't seen Robin Williams do a Scottish brogue, you got to YouTube it because it's really true. I mean, you can't understand him. You say that, "I'm going to raise your broker." You go, "What?" I finally said at dinner, "If you guys would please slow down so I can understand you when you talk." Great meetings. At the end, it was kind of fun. I'm sitting there, and the guy that runs our Glasgow office, young guy, very difficult to understand, but very enthusiastic. It's Gallagher everywhere. If you remember, we did three major acquisitions in 2014, and now in our U.K. business, it really is Gallagher. I looked at this young guy and I said, "You know, Mark, you've got it going here.
This is fantastic. It feels great. The people are excited. You can walk around. There's 35 people in the office. You can tell they're pumped up." He said, "There's only one thing wrong." I said, "I'm 66. I tell you what, I'll trade you my net worth for your age." He jumped up and said, "I'll take it." Anyway, the culture. I've been in Australia, I've been in throughout Canada, the U.S. I couldn't be more pleased with where we are culturally. That's hugely important because when we do these acquisitions, and again, remember, most of these are small business acquisitions, $5 million-$7 million. That acquisition is going to give us very, very nice returns if the entrepreneur who sells stays.
If they deliver their people and get their people excited about the new platform, they will sell more insurance, they'll take better care of their clients, they will cross-sell into our organization, and the returns on that investment will be solid. If the entrepreneur says, "This isn't what I was trying to do. I don't like it here," and they leave, those returns will not be good. That's the secret sauce, is can we get people. People say to me all the time, "How can you do all these acquisitions and get these people to change their culture?" We don't. If the culture doesn't match up from the very beginning, we don't do the deal. We just don't do the deal. I'm excited about where we are as a business. I think we've gotten stronger.
It feels to me like, you've seen me doing these presentations now for a number of years, but it just seems to me that every year we're getting stronger and stronger. If you go all the way back to 1990, Jim Collins wrote a book. In the book, "Good to Great," what he talked about is a flywheel effect. His flywheel effect, I've seen Jim speak, and I read his stuff. He's good. He's really good. His point of the flywheel was, once you get it going, and as long as you've got everybody aligned, so you start with a vision and what you're trying to accomplish, then you get the flywheel turning by having some successes, which get the people turned on, which means other people will join you, which gets the wheel to turn.
Once you get that thing going, it builds its own momentum. I feel like our company right now is in a position where we're building our own momentum. We're getting stronger every quarter. We've got a great complement of young people running businesses throughout the world, and I feel good about the economy. I feel good about our organic growth, and I think our acquisitions will continue to help us build out. Thanks for being here this morning. I've got time for questions, and I'm happy to answer any that you might have. Wait for a microphone, please.
Thank you. You mentioned capabilities. I'm curious if you think out maybe one year or more years, are there any capabilities that you feel are strategically you wanted to grow more than others? You compete, 90% of the time with smaller competitors, but sometimes you compete with the larger competitors that do offer other capabilities that might be strategic.
Well, Doug, the question is, are there capabilities that we want to build? Of course, the answer to that is yes. Across the board, there's tons of opportunities to continue to bolt on people into the verticals we already have, and one of the beauties about our acquisition process is oftentimes we'll get another vertical, then we'll start to try to build that out. Doug, I think, has a good way of putting it, and I think our merger partners like to hear this. When we do an acquisition, we are looking for a recurring revenue stream and an earnings stream, for sure. That's a must. But what we're really getting is brains. We're getting really smart people that come. We've done over 500 acquisitions since 1986, and what's interesting to me is no two have been exactly alike.
The way that people adjust to and help their clients take risks in this industry is really creative. The answer to the question is, are there other areas of specialty, or specialisms, as they'll call them in the U.K., that we want to build out? The answer is, of course. Here's the thing that's pretty exciting. When I started full time in 1974, we were known as being very good at religious not-for-profit and public entity business, and we did some large commercial as well. That's what we were known for. Today, I can stand in front of our sales team, and I can stand in front of a client base or a prospect base, and I can say any account of any size located anywhere in the world, we can do it. We already have the capability on the team somewhere to do it.
SpaceX launches from a marine vessel in the Pacific. We can do it. To me, it's incredible. You want to talk large pharma, you want to talk large construction, you want to talk small accounts, where we're working very hard at getting better and better at handling small accounts. We're putting them in their own pods, and we're taking that profitability up by 100%, and we're holding onto the business better than we had it in our own individual units. We're always looking for capabilities. Every acquisition is an opportunity to get more brains, and we got to tap into those brains because that's, in fact, what keeps these people here.
Sure. Thanks. I was hoping you could give us your perspective from the CEO slot in terms of the risks or opportunities of digital distribution.
Obviously, we're watching very carefully what's going on with digital distribution and insurtech. We have a team that does that. We think that we have the opportunity to be a good partner if there's something that comes along that looks like it could really be a creative way to approach our business. Far, what we've seen is mostly crap. Sorry for the technical term, it's mostly crap. Even some of the ones, I won't mention any names here in the public, even some of the ones that have been touted, you've seen the capital raises, when you really boil it down, they're an MGA that doesn't underwrite very well. Right? Do I think that the digitalization-- Also, we're doing a lot to digitalize our business. For instance, we have a cyber program that runs in London.
You do it online, four questions. It'll take you 32 seconds to get a quote. You can click, find, pay, and you got your cyber insurance. We're doing a ton of that as well inside the company. I think it's something that is going to definitely be the wave of the future. Artificial intelligence is going to be a huge player. Read the Fortune magazine. I don't know if you saw it last month, but it was all on AI. It was very good. I think one of the statistics in the article I read was that something like 80% of the people when asked felt that they had never really interacted with AI. The truth is probably 90% have. When you go to renew your prescription, it's a bot talking to you, and that's really what that is.
I think there's going to be a lot of-- We are hiring data scientists. We are doing a lot with our own data. Even our middle-market clients now are starting to ask the question: How do I know I got a good deal? When I would answer that question in the mid-'80s, it would be, I took the account to The Hartford, CNA, and Travelers. Travelers is cheaper. I think they're a great company. They're a great partner, and you got a good deal. That's not what our clients want to hear today. What other accounts like mine do you do? Where do you do them? What limits do they take? If they bought this, did they buy that? By the way, what kind of rates do they have? You've got to stack them up with the losses and tell them.
You got to be able to give them a dashboard. That, again, I think portends really well for us because a year ago, at my offsite, I found out that we had two very successful robotic efforts underway. One was Gallagher Bassett in Australia, and the other was an MGA in the Carolinas that quotes truckers. One year later, we have over 100 robotic projects going out in the company right now. Where that world is going is only going to make us stronger. Brian?
Talk about the M&A environment and the competition from other private equity shops and the differences maybe between what you're offering a potential seller and what some of your competitors offer.
It's a fascinating world. There's any kind of flavor ice cream you want as a broker is out there right now. If you don't want to change anything, if you say, 'Look, what I really like to do is I like to do what I'm doing. I just need to capitalize my life's work,' you can do that with private equity tomorrow afternoon, if you make money and you're good at what you do. We come in and say, 'We'd love to have you on the team. We are in the brain-buying business, everything is going to change. Everything.
You are going to go on our agency system, you are going to use India, you are going to do certificates our way, you are going to change your name, you're going to become part of our brand.' Now, if you don't want that, you don't want access to our capabilities, then you're not going to fit anyway. We wash those out very quickly. We figure that out within 15 minutes. Look, if the deal is I just don't want to change, well, I can roll out 10 PE firms that'll buy you. That's one of the things they're selling. Why would you sell to Gallagher? Everything's going to change.
Well, if you're not in the mood and in a mode to want to join us and use our capabilities, back to your comment, if you're not going to tap into the capabilities we have on a global basis, well, then it's not worth it. By the way, that appetite swings the entire spectrum. You've got competitors out there that will change literally nothing. They just want you to get your margin up to 35 and send them a check. You've got ones that change a little, you've got people like us that say, 'We're going to change everything.' Seth?
I'll come to you, Ray. You have the ability to look back over a long period to the carrier side of the ledger, I'm curious, you can take this any way you want on your answer, what's changed within the top five that you deal with over time, who's really stepped up their game in a way that you're doing a lot more business with, what have they done to accomplish that?
Well, I'm not going to sit here and list our top 5. That wouldn't be appropriate, but I will say this. We tier our company relationships kind of 1, 2, and 3. If you take a look at our tier 1s, that's probably our top 15 relationships. In every single instance, what's happened, in my opinion, is that management has gotten more determined and smarter about our business. When I came into the business, I don't think they knew their numbers. Then about every 10 years, all the profits that they told everybody they made, they told them they didn't make it. They'd slam the door shut, and we'd have a hard market. I think these guys and gals that are running these businesses today are on top of their numbers.
They know where they're making money, where they're not, what they need to tweak, and they're not afraid to say, 'Look, I need 2%. If I'm not going to get the 2%, I know what's happened in my return.' It's a tough battle out there. The ILS market is the real deal. Those ILS providers, the ILS capital providers, will accept substantially lower returns. These people have to really be on top of their game. I will tell you, that top tier, great information, on top of their game, very smart executors in the field, and I think very determined to make sure that they get a return. I think maybe Sarbanes actually helped a little. I think you go back, we all know that if you could've reported an 89 combined, you would've reported 96 and stored some nuts for the future.
Well, you're not getting away with that anymore.
Is there a company that stepped up their game? You don't necessarily have to identify it, but what have they done to really become a much stronger relationship with you?
I think once again, we have a product we call Smart Market, and Smart Market allows these partners to look into our renewal book and to look into salesforce.com and what's coming up that's new business and to tag it and say, 'I would like to see a submission.' The ones that have done that are growing with us faster than the ones that have not. There's things like that where we're working together to get smarter. Yeah, they've stepped up their game.
The technology interface with you and responding quickly on a timely basis, or is it-
Better and better. Not there yet, but better and better. There's still too much multiple entry. It's getting better. We had the question on digitalization, and they're all working hard on what's the digital future, and that bodes well for us. Yeah, but again, not to get into mentioning names of insurance companies. I think that top tier are very smart and know what they're doing, and they're great partners. I don't have a significant E&O claim going with any of my top-tier clients. I mean, carriers. Not one. That's pretty good. That wasn't the case 10 years ago. Turn to Ryan, then we'll go to Kai.
5% organic growth year-to-date is pretty.
Well, there's a couple things going on. First of all these acquisitions we do, we do release a bit of power when they join us. You're a small broker in a small town doing $5 million, and there's just accounts you can't touch. Once you're part of us, there's not an account anywhere in that geography you can't go after. Doing all these acquisitions gives us a little bit of a jump for next year. Our internship growth, if we can bring 100 or 200 new production people into the company every year, that's a lot of energy that works in. We know that 90% of the time we're competing with somebody that is smaller. We also know that on the typical account, we're doing less than three lines of cover for most clients. We call that white space. They're going to buy 14.
We're really emphasizing inside the company, go out and get after that white space. If you're doing the work comp and the umbrella, why aren't you doing the property and the auto? Why aren't we doing the benefits? Our cross-selling opportunities are great. Just the basic blocking and tackling of sales. When I go into a branch, I want to know what's the pipeline. I want to see it in Salesforce and say, well, look, if you don't have three times your annual goal in the pipeline, you're not going to make your goal. It's just that simple. You better be working on 300% of your annual goal at all times. If you're not, then I'm saying, what's the sales force doing?
As long as we have an economy that's doing what it's doing, and by the way, there's nothing prettier than a broker with a little bit of inflation. Whoa. I mean, that's a beautiful thing. If we get a little bit of inflation on top of what's going on, I feel really good about it.
5%. You've got a pretty good execution to get there.
Yeah. Well, I think right now we've probably got a 1% tailwind when it comes to rate and exposure, and the rest is just blocking and tackling. I feel good about the team. Let's put it this way, right. I'd be really disappointed if we weren't keeping it up at that level. Kai?
Thank you. You mentioned about productivity. I just want to see what's the potential for margin expansion, because if your margin now approaching the high 20s. Feeling for your business, your client would not pay you more than that. Organic growth well above the 3% threshold you set. The pace of margin expansion, certain instances have been slower than expected. Just try to understand it more. Do you need to spend more to get that 5%? Or you're basically investing more right now for maybe the organic growth down the road?
Well, I think you got a couple things, Kai. I'll let Doug really delve into the whole margin discussion when he gets up and does the CFO report. We are feeling some pressure. I'll give you an example. We've done a really, really good job over the last five to seven years of getting our rent down. Well, we've tapped that source. Now when we're renewing, our rents are going up. For a long time, we were able to keep them stable or knock them down. We took a lot of savings there. We are feeling the effects of full employment. When people leave, we're working hard not to have this happen, but oftentimes we're replacing people at more expense than the person who left. We're trying to balance that with more work going to our service centers. It's a hard balance.
Then you hit on the point that in order to take care of these clients, we have to make sure we're there for them. There's always the tug as to what is the right level of margin. I think it's fair to say, if we see more than 3%, Doug has said this forever. If we see more than 3% organic, we should show modest margin improvement. That's our goal. With that, I'll turn it over to Ray, you want to introduce Mike? Thanks, everybody. I appreciate you being here. It's really great to see you all again. Thank you.
Next up, we have Mike Pesch, who's going to talk about our U.S. Retail Property Casualty operations. Mike, the floor is yours.
Thanks, Ray. Good morning, everyone.
Morning.
Like Ray said, I'm Mike Pesch, CEO of the U.S. Retail Property Casualty business. Been at Gallagher since 1991, started as one of those interns. Back then, we only had about 10 of them. It's pretty impressive for me to see 400 standing in a room nowadays. The business that I'm responsible for, all geographically located here in the United States, pretty much in every major metropolitan area. 2017 finished about $1.3 billion in annual revenues. What we do every single day, what my team does every single day, imagine yourself, you probably all buy auto insurance. Pretty simple underwrite, unless you're me and you have two teenagers, and then it's a very difficult underwrite, and you're spending about $10,000 a year.
Imagine now a corporation having to procure insurance, and imagine the difficulty that they face with not only just buying auto coverage but buying a slew of other coverages, from workers' compensation to directors' and officers' liability to cyber liability. Oftentimes, these folks who have to procure this product or these products have a day job in addition to buying insurance. The difficulties of doing that require them to have a broker, that's what our team does. We are the consultants in between our buyers and the insurance carriers. I truly say consultant because I'm going to get into some of the things that we provide in that sort of consultative sale. While some of our business is more transactional, a lot of it, and a lot of it is becoming more and more consultative every single day.
Back to our diagnostics, about $1.3 billion in revenue, just shy of 4,900 employees across the U.S. We have 10 geographic regions with leaders within each of those regions, and about 70 or so, what we call branch managers, branch leaders, throughout the U.S. Our business today, like Pat said, runs in the mid to upper 20s from a margin perspective. We are also growing at that clip of about 5% annually. We feel pretty good about where we are throughout the first nine months of this year. From a rate perspective, I think I would echo everything Pat described. You have got some up pistons and you have got some down pistons. Workers' compensation is still very competitive, and yet auto and transportation risks, very difficult.
When you factor those two things together, you get to right around flat to maybe 1% from a rate perspective, and I would again echo what Pat said from an economic standpoint. Our clients are growing. I think I would categorize it as stable at this point. As we provide coverage for our clients, many times it is based on their exposure base, so payroll, number of autos, number of employees, things of that nature. Again, I would say it is fairly stable. Like what Pat said, we are trying to do the same four things that the organization is trying to do. We are trying to grow organically. We are trying to do great mergers and acquisitions and onboard great talent into our business. We are trying to remain operationally efficient, and we are also trying to drive a great culture.
If I think about those four things, and maybe I will start with being operationally efficient, I consider if I am going to stick with the auto theme, that is sort of the chassis of our business, sort of gets us from A to B. Pat mentioned our centers of excellence located in Las Vegas and in India. These are the folks in our business that really drive the basic necessities of our clients' needs. Pat mentioned certificates, auto ID cards, things of that nature. Those are really the things, the staples that our customers need to make their businesses grow, and for their product and for the insurance product to work. I am really proud of our team. We have got about 4,000 people, and we do not use all of those folks over in India.
When we went and embarked on that journey to create those services and those centers of excellence, we did it to really look at our support folks here in the U.S. and find out what are the jobs and roles and responsibilities that they do not like to do. I know they like to be with our clients and communicate with our clients and service our clients' needs, but what do not they want to do? Can we get folks just focused on those responsibilities so that our folks can spend more time communicating with our customers? That is exactly what we did. We wanted to build a destination for service people that was the best destination in the business.
We're always at a war for talent with our competitors over service people, we wanted our folks to look at our business if we built the right chassis as being the destination where they'd never want to leave, and I think we've done that. We have a great operationally efficient business. From an organic growth standpoint, that's the fun stuff. Someone was asking about the tools and resources. We trade under a value proposition we call CORE360. CORE360, as we've identified, six cost drivers that impact our clients' business. Not only just the insurance premiums, but also how we help them prevent losses. We've got over 200 people scattered throughout the U.S. that help our clients deal with difficult claims, help them deal with preventing losses in their operations through loss prevention specialists. Talks about gaps in coverage and identifying uninsured or uninsurable risks.
Right now, one of the hot topics that I'm sure you all hear about is cyber exposure and cyber liability. We have teams of people that help our clients understand that exact exposure. Someone asked, I think, where would you want to invest? We're going to continue to invest in that area because that's an area that's really critical, I think, to the survival of our clients. Also it's a risk that a lot of them face, and they're very unaware of the risk that they face every single day.
Beyond CORE360, we're building out products specific for our clients and lines of coverage, using our leverage in the marketplace to go to our key trading partners, our key carriers, and identify lines of coverage that we can improve for our producers to be able to go to their clients and say, "We've negotiated these terms and conditions on your behalf, and these are best in class, whether it's D&O or cyber or umbrella liability. It's a huge advantage. Someone was talking about, what do these merger folks get when they join your firm? These are some of the things that they get. If they're a smaller firm, they get the power of Gallagher in the marketplace to go out and help them negotiate critical terms and conditions on some of the more difficult to understand coverages. Pat talked a little bit about SmartMarket. He's exactly right.
We have about a dozen to 15 carriers on our SmartMarket platform. We're not going to grow it much beyond that. We wanted it to be specifically catered to the carriers that we trade most often with to give them line of sight and efficiencies around placing business with our brokers. It's working. Carriers that have embraced the technology, I've categorized this before as sort of like an Uber for the insurance industry. It connects a willing seller with a willing buyer through a data platform and a technology platform. We're getting ready to roll out our second version of that, which will make it a handheld option for the carriers who are in the field. If you imagine, insurance carriers have representatives who come to our offices looking for business, looking for ways to do more business with us.
The ability to have that in their hand, to be able to understand what we're working on, whether it's an existing client or a new piece of business, and to be there at the most appropriate time to have a strategic conversation about that opportunity, is what empowers them to have the kind of growth that they're having on that platform. Talk about Smart Market, talk about different kinds of products, and of course, our niches. About 32 industry niches with niche managing directors. These folks are responsible to help grow in those industry verticals. Anything from construction, Pat mentioned, to transportation, you name it. Pretty much any industry we have a focus on and have teams of people that are there to support the rest of our producers with good content, putting out information about what's trending in that industry.
What are some of the coverages that those folks should be buying? The last thing I'll share with you, someone was talking about data and technology. That's a big thing for us. Pat started talking about it in the way of a middle-market customer or even a larger customer trying to identify with. By the way, we touch clients from small businesses, mom-and-pop shops, all the way through to risk management accounts. All of them throughout the process are looking for more information, more timely information about their needs. Sort of that Amazon effect. You buy this, you're probably going to want to buy that. It's not commoditizing our product, but just using the power of our information that's on our platform.
If I talk about that chassis, part of that chassis is getting everyone on that operating system so that you can get this kind of information about industries, about lines of coverage, what people are buying, how much they're buying, who they're buying it from, what are they paying, what kind of risk are they taking, what kind of retention do they take? This is crucial information that in the past, it was more of a manual process. Hired our first chief digital officer about two years ago in this division to focus exclusively on that. How do we take this information and empower our producers, our brokers, to be sitting in front of their customers saying, "This is what you should be buying.
This is how much you should be buying. Like Pat said, when we compete 85%-90% of the time against someone smaller than us, not only can they not get this information, there's no way they could possibly get it. Their book of business, the size of their agency, doesn't give them critical enough information to be able to give their producers this kind of guidance. The ability to harness that. When Pat talks about everything changes, when we talk to a merger partner about why things change, most of those folks care about one thing very deeply. They care about their customers. They also care about their employees very deeply. If we can show them that getting on this platform and using this kind of information, and we're building on it every single day. We're not quite there yet.
We're getting there every single day as we continue to sort of feed the beast of information. When they want to sell their business, they're talking to someone who's going to leave them alone, or they're talking to someone like us, who's going to help use their own information to help empower their producers, their brokers, so that they can grow faster, they can provide more value to their customer. It's a pretty powerful discussion. That takes me into mergers and acquisitions. Like Pat said in GGBUS, as we call it, M&A is pretty strong. There's a lot of opportunities for us out there, but our critical underwrite is always about the people. What do they want out of this? Pat said we can figure it out in 15 minutes. He's exactly right.
You can tell whether someone truly wants to cash in their chips, so to speak, and continue doing what they're doing in the same kind of environment they've been doing it. Do they want to be part of something bigger? Do they want their employees to have an opportunity to lead if they want to have a different role or responsibility in a larger organization? When I look at the 10 geographic regions that make up GGBUS, there's numerous ex merger partners who are leaders within that group. If you go down to the branch managers, a ton of leaders came to us through mergers and acquisitions. We want to be able to give them that opportunity, just like I had, just like many others have had within this organization, to take on a bigger leadership role if that's what they want.
Again, we can figure that out in 15 minutes. We put more firepower behind our M&A activity. Not only did we bring in several folks whose sole purpose is to go out and meet and greet and understand businesses across the country that might be for sale, we also hold our branch managers, those 70 folks I mentioned, accountable to build relationships with these folks, so that when they are ready, that they understand the culture of Gallagher. That's really what it's all about. Back to my opening comment, it's about underwriting the culture. That's what we have to do. To do that, we have to make sure that they understand who we are and personify Gallagher.
These folks, our branch managers, our committed resources, are constantly out in the field building relationships with these independent agents with the express purpose that at some point in time, they may have to perpetuate their business through acquisition. If they do, we want them to know us. Where we oftentimes, if we're competing for an asset, we're competing for an insurance broker, when it's an RFP, so to speak, or bake sale, whatever you want to call it, that's being handled by a business broker, where we can't differentiate our culture, that's a big challenge for us. All of a sudden, we do, as a buyer, become commoditized. For us, it's about building those relationships one by one in the field to be ready for when those folks might want to perpetuate externally. Lastly, it brings me to culture.
I'm pretty proud of our culture. I'm pretty proud of the work that our folks do. We did our first Net Promoter Score survey in our business, which is asking our clients, would you recommend us to a colleague or a friend? Our score was in the mid-80s, which for those of you who know what an NPS score is and what it means, that's an extremely high score. In fact, the average in our industry is about 36. When I look at our team and I think about the kind of service that we provide our customers to get a score like that, you've got an engaged team. You've got a team that cares about what they do, and they care about the organization that they're a part of. We're a sales and marketing organization. That's the first tenet of The Gallagher Way.
First words on The Gallagher Way. We are a sales and marketing organization, I think our people do it very well. The soft side of that culture is how we treat each other. All the disasters that have happened or occurred, wildfires, the hurricanes, when you look inside of our organization, not only do our people give back, we gave back 90,000-plus hours of time. This was our 90th anniversary as an organization, our people gave back actually over 100,000 service hours to people in need. We also crowdfund and crowdsource and fund each other. We had our own employees who lost their houses in some of those disasters. For us to sit back and watch as people source and help out their colleagues, I think is a testament to our culture. Then lastly, through technology, we think about the business aspects of it.
We have a thing called Chatter, which is for us is our sort of internal communication tool to give an awareness of what's going on in the marketplace, who's writing what. If someone has a question, what should I do about this risk? What should I do about that risk? They post it on this platform called Chatter. Nobody's held accountable to it. Nobody has to respond. In fact, most of the time when people respond, they have no vested interest in it. They're not going to get paid because of it. They're not going to share in the revenue if that account is written. They're giving their advice because they're helping their colleagues. We average about five to seven responses for every inquiry that gets put out, and there are hundreds of them per week and per month. To me, that speaks to our culture.
When I talk to merger partners about our culture, they're always wondering, when I get to Gallagher, it's so big, how do I make it small? That's how you make it small. Using a communication tool where they can all of a sudden be in Des Moines, Iowa, have a question on something, and someone in New York will answer it for them without having any interest in mind. You can't get there without having a culture that strong and have people that actually want to contribute to the success of others. With that, I'm happy to answer any questions.
I think we compete and we win because the organic growth and the capabilities we're building every single day through the people we bring in, as Pat said, by buying brains, constantly looking for unique ways to bring people into this business, whether it's through our internship program. We have a program called Hire Right, where we bring in people from industry but not insurance experience, and we train them on what to do and how to do it. Of course, because of our culture. Yep.
Can you give us a sense of to what extent your 32 niches, what % of total revenue is represented by those 32 niches? Also, what's the organic growth characteristic of those 32 niches? Is it generally higher or lower than the average?
Yeah. No, that's a great question. We can compartmentalize into more than half of our revenue is in our 32 niches, and those niches do tend to grow at a faster pace. A lot of times when you bring in a merger, sometimes you get the expertise where they're focusing on one industry, but sometimes they're generalists. It does take us time, but we try to guide those producers into one of our niches to have a major in one of those industries, because we know they grow faster. We're tailor-making a lot of our products and services. I mentioned some of the products that we're building by line of coverage. We're also building them by industry. Take cyber, for example. Cyber can be very different.
Pat mentioned the one that RPS has built, we've also built several others facilities, because cyber can be very different for a manufacturer than it can be for a construction company or a financial services company. When these folks, they get into our system and get integrated. By the way, I didn't mention, integration, I would argue that we're one of the best in the business at integration, and we've put more firepower behind that, too. We believe the faster we can get these people up and running in critical areas like that, the faster they can grow.
Given the disasters we've seen the last. Not just the level of insurance, but are they in California or?
That's a great question. You have two sides to that coin, right? You have the appetite carriers, which I think there are only indications. We have about 10% of our business in personal lines. We don't have a ton of exposure to some of the wildfires that happened. That was largely affecting some of the personal lines carriers. They're definitely looking at it and starting to change their appetite and how they focus in on that. I think the clients, that's part of that consultative sell. That's part of the whole CORE360 concept, is trying to figure out what's the appropriate risk to take. Of course, using our data to help to support the decision that they make based upon what peers are doing. I think they're thirsty for more information.
One of the pieces of technology that we've been using, we partnered with an outside firm. It is one of those insurtech firms that I think is very good to help our clients gauge and model cat-prone areas. Whether it's wind, whether it's quake, could be even tornadoes, modeling tornadoes through different parts of the country. Our clients want that kind of information. They want to have their risk modeled so that they can make an appropriate decision. To answer your question, has the appetite changed? That's on a case-by-case basis, but they're definitely looking to us to provide them more information to help them make a better decision, and we're trying to beef up our capabilities to do so.
One other question. With the full employment market, do you see any change in how underwriters approach employment-oriented lines of business? Are they a little more discerning or? Do you have more inexperienced in the market?
Yeah, it's a fair observation. I think what you're asking is, are underwriters becoming more critical? Because if there's zero unemployment, then the people if it's a manufacturing facility, are more likely to get injured. I think that it's sort of a combination of, yes, that could be the case, but you also have, I think in our industry, and I know specifically in our company, the capabilities to coach and train people a lot better than we did just five and 10 years ago. We have a technology platform that we've partnered with Gallagher Bassett to be able to give our clients an e-learn platform to help coach them on different risks that they may face. Employee by employee, train them as quickly as possible. The onboarding process is a lot quicker these days. I don't know.
If it were the case that that was occurring, you wouldn't see the softness in the workers' compensation market. As much as we have inexperienced employees, we have better tools and resources to make them better.
Hey, Mike?
Yep.
I think Pat mentioned in companies buying 10 lines of insurance or 12, and you might have three. Listening to all your capabilities and national footprint, et cetera. When you have three lines of business and say you don't have seven, do you know the reason for that? Do you know who else is in there?
Yep.
What are the critical steps you need to take to get more of that business?
Yes. I probably should have mentioned our strategy. We call that white space. That's the space in the spreadsheet where we don't write that line of coverage for that client. There's two sort of areas, right? You've got the electives, you've got the mandatory coverages. The mandatory coverages, they're buying it. They're just buying it from somebody else. Constantly trying to figure out how we differentiate ourselves. That's the whole reason why we started to use what we call CORE360 as our value proposition. We can walk a client through all the risks that they face, and then what we do differently than our competitors. Every single buyer is wondering one thing.
When we sit down with a buyer, whether it's a new piece of business or an existing piece of business, they're sitting down, they're saying one thing in their minds, "Why are you different than the other person?" That's it. How can we differentiate ourselves against our competitor in those mandatory lines of coverage? We focus in on that. We do a lot of training around CORE360 to help our producers continually differentiate themselves in front of the buyer. You've got the electives, the not-have-to-buys. They don't have to buy cyber. It's an education process. When you think about cyber, the challenge for us sometimes is the internal pressure to not buy it. You've got an IT person or a CIO in that organization that says, "We're good.
We don't need it." We know, and we can show them through other examples, and we constantly are putting information in front of our clients about what's happening in the marketplace, who's been hit. It's not if, it's when sort of scenario. There's a lot more coaching associated with the electives that we help our producers and guide our clients to understand why they need those coverages.
Okay, thank you.
James at Lincolnwood City. Workers' comp pricing came up a few times under pressure. Are you seeing anything on the claims frequency side relative to last year? Is it up, down, or flat? Thank you.
That might be a good question for Scott Hudson, just because their vision or their view of the marketplace from a claim count perspective is a lot more clear than ours, because we don't necessarily have claim frequency by carrier in aggregate. We have it by client. I think if I could, I'd probably just defer that to Scott. Yeah.
You talked about the business becoming more consultative. As that happens, does it still make sense for commissions to represent the primary vehicle for compensation?
No, fair question. Again, we're completely transparent with our income, as you all know. For us, it's sort of irrelevant from how they want to pay us. Truthfully, a lot of clients just want to pay on a commission. Our book is still a bit more commission centric than it is fee centric. For us, we love the concept. Since we are transparent, the ability for our producers to sit in front of a client and say, "Here's all the things that you're going to get from Gallagher, and here's the compensation that we make," it makes it a consultative approach. For us, it really is irrelevant. You could argue that if you're on a commission, you're going to ride the market. As the market goes up, you're going to make more in compensation.
Our clients are very astute buyers for the most part, and we sit with them and walk them through everything they're going to get and the value that they get because of their relationship with Gallagher.
Talk about, in the set that Pat mentioned, that it helps your carriers grow a little faster.
The revenue generated by SmartMarket is about $15 million a year. Yes, there's a fee for this service. You think about it, though. We don't centralize our marketing. We have about 1,200 producers across the country and growing every single year because we do acquisitions. If I'm a carrier, if I'm from any one of our major trading partners and I want to do business with Gallagher, and I want to get to know you as a producer, it's pretty difficult. The way they do it is they send their representatives out, and they knock on the door, and they walk in your office, and they say, "What are you working on?" The inefficiencies were rampant throughout the business, not only just for us, I think, for the industry.
The ability for them to be able to truly understand what you're working on and match it up against their appetite makes the conversation with you when they come see you, it's still personal business. We're not trying to eliminate the relationship that our underwriters and our representatives have with our producers. In fact, it just made it even stronger, because now when I sit down with you to have a conversation, we're talking about this account, this account and this account and why we would be successful and why we're different from a carrier's perspective. That is a much better conversation for our clients than the potential chance that I catch you in the office the day that I happen to be visiting. The carriers that have really embraced it and use the technology effectively are arming their people and doing their homework upfront.
When they get into our office, and they see that list of accounts, and they know that they're going to spend time with you that day, or better yet, have made an appointment with you to talk specifically about those two accounts, I hope you can see how it eliminated the inefficiency of the conversation, but also made it a heck of a lot more strategic and around what the client's needs might be. The carriers have plenty of other examples of clients just like the ones we have, that they can come in and say, "Well, for this account, we did this and this. Why don't you give us an opportunity with your account?" It's just a heck of a lot more strategic and focused.
I just had a couple quick ones. The first one, what percentage of your client. The other one was that you and Pat, I've heard talk about construction workers' comp. How big of a component of a billion.
Your question about the niches and how much of the $1.3 billion each one of those are, again, it's over 50% of our customers in those verticals make up that $1.3 billion. The general category of clientele really for us is much smaller than the clients that are in those niches. I think the reason why we refer to some of the larger ones, construction, transportation, those are some of the industries right now that are benefiting from the economy that exists today. We have a lot of strong niches. Here in the Northeast, life sciences, especially up in our Boston area, is huge for us. Financial services right here in New York is a big industry for us.
I don't know that I answered your question other than to say that our niches are a bigger portion of our revenues than our general business, and they grow faster.
On the rate increase question.
We track it in the aggregate. To give you a specific client percentage that says 50% of our clients are getting a rate increase or 51%, 49% are getting a rate decrease, I couldn't tell you that. We just look at it in the aggregate as a measurement of our book of business. One more? Yeah.
Today obviously is an important
No, it's a fair observation. I'd tell you, first of all, and I know Pat would share the same comments, our runway is very long. You think about the quantity of agents and brokers here in the U.S., it's topping 25,000, even with all the acquisitions that have been done over the last five to 10 years. It's definitely a big pool of potential targets. Again, I get back to the underwriting aspect of it. We're not going to make a mistake based on just the fact that we want to move the needle on revenue by bringing in a culture that is a misfit with our current culture. Sometimes the larger operations take a bit more time to understand their culture, to make sure they're a fit. It's not to say that we couldn't do a larger deal.
I think we're well equipped to be able to tackle that. Back to my comments earlier, we've got 70 branches that are out there constantly focused in on doing acquisitions as part of their responsibilities on top of the committed resources that we have. If you think about the numbers, there's 25,000. I'm asking each branch manager to do one, maybe two acquisitions per year, somewhere between $2 million-$5 million of revenues. Two times 70 is already $140 million of revenue on our current run rate of $1.3 billion. We've got room to grow in that small to medium size acquisition target area. Again, opportunistically speaking, if there was an opportunity that came to us that fit our culture, that we could get our arms around that was larger, we'd certainly look at it and consider it, but it's not a necessity.
Thanks.
Good morning. I'm Tom. I don't know that Ray's mic was on. I'm Tom. Enjoy coming out and being able to give you an update on what's going on inside the business. It was two years ago that Mike and his team took over responsibility for our business in the U.S. Before I jump into the international, I just have to say, they've done an absolutely sensational job. This is a team that basically grew up together in our business and has really come together as leadership, trying to drive a very consistent message around the U.S. and continue to build our business. We're poised with this leadership team to be able to continue growing in the U.S. together for another 10, 15, 20 years. It's a fantastic business.
Ray and Doug asked me to talk a little bit about what are we doing outside the U.S. and what's going on inside of it. Provide a little dimension. It's about $1.3 billion of revenues where we finished last year. We've got good organic growth so far this year inside of our businesses. It's over $10 billion of premium that we've got inside of our international business, and it represents, for the company, about a third of the revenue. Think about that. Only a decade ago, we had virtually nothing outside the U.S. Where we've got our people, the big places are the U.K., Australia, New Zealand, Canada. I'll take a little time and talk about each of those businesses and provide you some insight into what they're doing, where they're going, and how we're taking our business forward in those countries.
We start in the U.K., and we've got two separate and distinct businesses in the U.K. We've got our retail business, represents about 50 offices, and we've got our London specialty business. Inside the retail business today, when we look at what we're doing in the U.K., we've got a group of people that have been together now for a number of years, and they're really, for the very first time, starting to really engage and drive organic growth in the business. Excited about that because it's been a journey for them. If you think about where they were just a number of years ago, they were roll-up. Today, they're the Gallagher uniform, and they've been working very successfully together. Michael Rea is the leader of that business. You know what?
During the course of the last 12 months, they've had a huge uplift in the engagement of the business, huge uplift in their Net Promoter Scores as well. Perhaps it's a reflection of what we're doing and the commitment that we made to the rugby, and perhaps it's commitment that we made to ourselves to build on the cultural foundation of a business in the U.K. It's been fun to watch our culture come alive in the retail businesses. When you look inside of that, you say, how are they driving the growth in the business? It's the same four things that they do. I talked about culture first because that's the thing that we drive. We've got core organic growth coming from practice groups. We are actually today driving practice groups very much the same way that we are in the U.S.
In fact, it was just a month ago that we had a global practice group meeting in the U.K. talking about hospitality and real estate. We pulled 60 people of our own teammates in from around the world to talk specifically about it, not just based in the U.S. but based in Australia, New Zealand, Canada, the U.K. Bringing together the great power that we have, as Pat talks about it, the ability to do any account anywhere in the globe. If we can continue to harness this among all of our practice groups around the world, we know that we can continue to drive significant organic growth for many years. In the U.K., we don't just do the organic growth part of it, the culture part of it, but we've started to get back into the merger and acquisition business as well.
In the last few months, you've seen that we've acquired three separate agencies. We've taken Pavey, Portmore, and Vasek. Vasek, we increased our stakeholding from a 40% shareholding to an 80% shareholding. Pavey and Portmore are great regional brokers that fit perfectly with what we're trying to accomplish in the U.K. as we do around the world. Tuck-in brokers, good size, complementary to what we do, great cultures. If we can constantly focus on driving the business through the merger of people who think like we think, the pipeline's endless. It just continues on. Right now in the U.K., we think that there are about 2,500 separate independent insurance agencies still in the U.K. They've gone through five waves of consolidation in the U.K., and yet there's still 2,500 of them there.
We believe that we can continue to just make good acquisitions for the course of the next 10, 15 years in the U.K. Again, it's not about how many can you do, but is it a cultural fit with what we're trying to accomplish. Our practice groups in the U.K., we talked about the real estate, but we've got a great charitable business. We're great in construction. We really are trying to drive our municipal business as well in the U.K. Fine arts, excellent business. We've got an outstanding personal lines practice, not high net worth, but just the tick-along business. Got an excellent SME platform as well. All of these are working inside of the U.K. retail business for us, and they're the cause by virtue of good, consistent leadership, great engagement by the team, great involvement by the leadership that we're driving organic growth.
Get into the London marketplace. We start to talk about our specialty unit. It's about a $250 million specialty unit growing core business organically in London. The strength inside of that business has been and continues to be our energy practice, construction practice. We've got great core strength in PI, as they call it, marine. You saw that we made an acquisition in Australia and New Zealand by the name of Boston Marks, which has an aviation component. It's largely an aviation broker, an aviation component of it that bolsters our team in the U.K. We've made a transition, as many of you will have known, that we made a transition from Chily Chilton down to Simon Matson in leadership of the business. This occurred during the course of the last quarter, and the transition has gone incredibly well.
Simon has been out to visit probably with about 70% of our population already around the U.K. because each fall we do what we call Better Together or Team Talk events and he's had the opportunity to be out among the retail offices and get to know these people. The transition has gone great. Chily's back inside of Capsicum. They're thinking about their future. We're talking about our future together, maybe. The team continues to move on. There's good, consistent leadership and great support for Simon. We will not do a significant amount of M&A in the London marketplace because the problem in the London marketplace is that the brokers will wind up competing against each other in core areas of strength. If they've got a great construction broker or a great energy broker and we've got a great one, there's a winner and there's a loser.
What we're looking for are complementary M&A opportunities in the London marketplace or to take good teams that are good fit with us. The question will come up eventually, what about JLT? Look, Dan Glaser and the guys at Marsh are very good at what they do. They've locked this team down. You heard and saw all the material about the retentions that they're going to be putting out. Nobody in that marketplace is jumping ship right away. There are opportunities for conversations that are taking place in the U.K. and around the world, but right now it's a little early. We've had lots of conversations, but they've done a good job of locking the team up at this point in time. Will there be opportunity? Unequivocally. Is there business? You think about what is happening in London right now.
It was just yesterday that we took a significant piece of business off of one of our competitors because they're going through that merger. Brokers in the U.S. do not want to use them. Brokers in South America do not want to work with them. Brokers in Europe and in Africa have to rethink their partnership and their strategy. There's opportunity for us there. We've got really great alignment among our team in terms of who's running each of our practice groups in London. The team is doing a fantastic job in a difficult environment. We've got Brexit facing us in the next four months. We're not hugely exposed to continental Europe. Significantly less than 10% of our revenue generates out of the continental Europe, and we've got a great solution to where we are going to take care of our clients on a going-forward basis.
We're confident that it's just another complication of doing business in that marketplace. It's not going to be an impact in terms of our revenue. Moving down to Australia and New Zealand. I tell the story all the time when I go around the world. Our New Zealand business. New Zealand has a population of four and a half million people. Wisconsin has a population of about four and a half million people. They're about the same size in land mass. We have a great business in Wisconsin. It is a terrific business. Our team in Australia. Excuse me, our team in New Zealand, their business is 10 times the size of our business in Wisconsin. Yet this year, they're controlling 30% of the market. Yet this year, they're driving 7% organic so far through the first nine months. Incredible result.
These guys dominate that marketplace. They take business away from other brokers. They take business away from the big competitors quarter after quarter. They're aided with a little bit of tailwinds because of the marketplace and the quake exposure that they have. It's just a sensational group. Going over to Australia, it's the same thing. When we took over the responsibility for our business in Australia years ago, it was a sleepy, tired business. Today, we've got a change in management, got a change in leadership. Of the 24 offices that we began with, I would tell you today that there are probably about eight that the leaders remain in those businesses. Gone out, found, and identified people that we could grow with and understand what we're trying to accomplish.
You look inside of the Australian marketplace and you think about the mergers that we've done there as well, hugely complementary to who we are and what we're about. Our risk management business in Australia today is one of the up-and-coming players in that marketplace. Very well organized, great strength in the business, great strength in energy, construction, core risk management, all built around a team that is a merger partner. Someone that we've been very excited about putting on the team now inside of the organization for 3-plus years, doing a great job of building the business. Sarah Lyons runs our business in Australia. She's done a sensational job. It was coming up on two years ago that the guy who was the CEO of the business left us. We haven't missed a beat. Again, the business continues to go forward. Strong organic growth.
They've got a good pipeline of merger opportunities at this point. They are driving the practice groups that we have in the U.S., the U.K., and the business continues to have just a terrific year this year. Canada, it's about a $150 million business. Canadian marketplace does not resemble the U.S. exactly the way that it does. It more reflects about what's going on in the U.K. It's been a difficult and tough competitive environment up there, but really, really pleased with the team. Good core organic growth there again. They've been really fun to watch them come onto our platforms and start to do the things that we do. It works. Helps with the operational effectiveness of these businesses, helps us drive organic growth. The practice groups that we've got, they have started to really drive those as well. Habitational, automotive, construction, energy, are core to their businesses.
The rest of the world represents, for us, a much smaller portion of what we do, but we continue to expand in it. If you look at where we were at the announcement that we made over the last couple of weeks, we bought a minority interest in Indonesia, then we took along with it 100% of a small agency in Singapore. We have a presence in Singapore, and it helped us bolster that business, drive muscle there. If you've ever been there, it's a very expensive place to be, and you need size to be able to drive profitability there. So we'll bring the two offices together relatively quickly. We've got good team commitment among the two of them, and it'll be a very good merger for us. Down in South America, very stable platform.
We did not do a whole bunch of additional acquisitions on top of what we've done. We've just gone in there, run those businesses, getting them used to the way that we do business, putting them onto our platforms, and working well. It's been a great opportunity for us. Finally, up in Scandinavia, we continue to build on our businesses there. If you look at Europe, that's where we like to be because our niche specialists, marine, energy, trade credit, that's where we want to be. Construction. Those are places we want to be, not just core standard brokers. Mike talked about how we grow. Pat talked about how we grow. I will take the same thing and say organic growth, acquired growth, operational effectiveness, and our culture.
You look inside of the business around the world, and they all know that we are a sales and marketing organization, and they've got a responsibility and an obligation to help us continue to take that forward. In the U.K., they have completely redone what they do in the retail business by saying, we call it the rhythm of the branches. They are running sales meetings. Four years ago, when I started going out into the regions in the U.K., sales was a four-letter word. These guys did not want anything to do with it. I don't sell. He sells, or she sells. Today, all of our businesses, all over the U.K., 50-plus offices, the rhythm of the branches, you start with a sales meeting on a Monday morning. Think about it. We talk about it all the time. Sales is a process.
More boots on the ground doing the right things. We will be successful. We're confident of it. Our M&A pipeline around the world is sensational right now. We've got opportunities everywhere. Again, talk about what Mike talks about. It's an endless supply. That doesn't mean we have to buy everybody. We want to do it the right way. We want to be able to look through these people and find people that are cultural fits and then put them on top of our platform as effectively and consistently as we can. On the operational efficiency side of it, you look inside of our business. We have got everywhere around the world one platform that we're driving. They're not the same platform in the U.K. as they are in the U.S. If you're in the retail business in the U.K., you're on that platform.
That helps tie us into what we do with the Gallagher Service Center. That helps tie us into great data and statistics that we can use as we continue to go down the data journey. We will be taking that Smart Market to the U.K. this year. Eventually, it'll go to Canada. It'll go to Australia and New Zealand. It provides us an opportunity to give all of our carriers a deeper look into what we're doing. We're really excited about it. I'll open it up for questions in a moment. Unbelievably happy with where the team has come so far this year. Really excited about the opportunity for us as we go forward into 2019. I am unbelievably proud of where we've gotten to around the world. We see tremendous opportunity for us in the future. I'll take any questions. Please, Kai.
Could you comment on London market pricing? There seems like there is some disruption in the marketplace. Does it make you a business, or does it provide additional opportunity for you to grow in London wholesale?
The PI part of the world is a little bit on fire right now. Anything going through London, it's out the Lloyd's marketplace. They are consciously driving rate. That is opportunity for us. It's one of those things where it's a global marketplace. If there's an imbalance between what they're trying to accomplish in the U.K. with what's available in the U.S., it leaves the U.K. very quickly. If you're looking at big PI placements in the U.K. today, you've got an opportunity to place it in the U.S. because it's not responding exactly the same way, you're going to move it. While we see growth, we see good, steady growth. It's not like there's a doubling of revenue or a tripling of revenue with what's happening there. I look inside of the business in terms of London itself.
They're just telling their underwriters, "Get your act together." Where rate needs to happen in their core business in Lloyd's, it's happening. It's not as bad as what's happening in the PI market.
To follow up on the London market, can you give updates on the two investigations going on? One is on aviation, another one the wholesale facilities. You are not big players there, but is there anything going to change there that could give you additional opportunities?
The FCA is looking at the market study, the wholesale market study. They had hoped to have the results out in the autumn, and they have not. They've come back and said that by the end of Q1, they expect to have more detail available. I suspect that they will have some commentary that flows both toward the carriers as well as toward the brokers in the marketplace. In terms of the aviation, we've got a very small exposure to it, and it's not directed at us. The acquisition that we made in Boston Marks, again, it's not airline specific. It's more directed toward corporate jet fleets. We've got no concern with it.
You seem to be fairly optimistic about the JLT opportunity. You say there are conversations. When would you perhaps see some of that coming through?
They expect to close somewhere around the 1st of April. I think people are just waiting to see, if there's a pot of $100 million of retentions that are out there, what's mine? If they get tapped up and given a good retention, we won't chase that. There will be plenty of opportunity for us. It's not a game changer for us. It's good teams, if we have an opportunity to continue to expand what we're doing.
Super.
Too early to say. Good conversations are taking place in various.
Can you give us the analogs to Pat's comments about competing against smaller brokers 90% of the time in London and in the rest of international?
Sure. I'll take London second. Internationally, our business looks exactly the same in Canada, Australia, New Zealand, and the U.K. retail business. We compete against smaller guys almost all the time. In New Zealand, it's a little bit more consolidated market. Aon is the other big player in that marketplace. Marsh has a small presence. Willis has a small presence. We're either competing against Aon or small brokers. Almost everywhere else, it's 90%. London marketplace, we compete against the big guys all the time. The reason that we compete against them is because as they seek business and we seek business, they're always getting supply from their team. Every time there's competition around the world, they're only feeding their team. We bump heads there in energy construction. We bump heads with them in mining.
We bump heads with them in marine, because if they're feeding their pipeline, that's where we're running into them. Been very successful at driving organic growth, though.
If I've gotten the time machine, went back 5 years ago, I don't think that Gallagher was a top 10 broker in the U.K., but obviously JLT was, Jelf, [uncertain], Towergate. Giles might have been on the bottom end of that. If I look now-
Oval Group.
Oh, right. Is there anything different about the way business is done now in London industry-wise compared to is the same business that you bought into 5 years ago, or is it a different kind of business than it was?
It's the same business today for us. It's a different business. I think it's an interesting question. When you look at the model between JLT, Marsh, Aon, Willis, they've all consolidated their approach to the retail business in the U.K. into eight, 10, 12, 15 locations. We call ourselves a community broker, both in the U.K., Australia, the U.S., Canada. We don't want to change that. We will be consistent in trying to be a community broker. The key is we don't need to be everywhere. We need to have good operations in those locations. If we're not having success in a particular office, we will shut it down. And we have. This past year, we shut down three separate offices. We can't be there. We're not making it work. Fundamentally, good core business for us, not changing.
Just the opportunity to continue to bolt on small acquisitions in the U.K. as well and expand our geographic footprint. What'll be interesting is what happens with these big consolidations that have occurred over the last couple of years. Bluefin, JLT. What's going to actually happen with those? Are they going to try to become regional and community-based brokers? I don't know. It's fun to watch.
We got a sense from Mike about what was happening in the U.S. economy. Can you talk about what you're seeing from an economic standpoint in both the U.K. and in Australia?
Sure. London marketplace and the financial. This is Tom's perspective, and it comes completely from me. Take it for what it's worth. The financial marketplace in London has been in disarray since Brexit vote. Frankly, people are actually leaving the city. The reason that I can feel that from my perspective, rental rates are down, home values are down. That tells me that the law of supply and demand, that there's less there. There are less projects coming out of the ground. The rest of the U.K., while not hit by what happened in the London marketplace, if London gets a cold, they've got a fever. It's slowing down around the rest of the U.K. as well. Having said that, we're still driving organic growth, which is great. That's terrific. I have no idea what's going to happen in March.
I don't think anybody does at this point in time. It's just confusion, and I think that's also causing a bit of a problem. People are just frozen. What do we do? Australia is a slightly different story. There's good, strong support for business. The economy is growing a little bit. It's not robust, but again, it's not facing the same kind of headwinds that the U.K. faces at the moment. New Zealand has actually gone through a dip, and it's coming back a little bit. If you think about the New Zealand economy, their economy has really been focused on China for a long time. That economy gets very nervous when they start talking about big Chinese buyers buying dairy farms in New Zealand, buying timber tracts in New Zealand. There was a big constriction of what they were doing.
Now they're figuring out how to continue to drive supply to China without giving up the residential, if you will, the real estate itself. I don't see a huge problem in New Zealand either. It's not had the same kind of forces that Australia has had, but it did have a dip, and it's coming back.
Next up, we have Joel Cavaness, who leads RPS, our domestic wholesale operation. Joel, the floor is yours.
Good morning. Thanks for joining us. I'll give you certain things on RPS. RPS is our domestic, our U.S.-based wholesale division. We started in 1997 from scratch with about four employees, and now we're up to over 2,800, so we've had nice growth over the last 20 years. I'm going to talk to you a little bit about the business itself, then I want to get into some of our organic growth strategies. I want to talk to you a little bit about rates because I know you're very interested what we're seeing from a rate perspective. I want to talk about the merger opportunity. I want to certainly talk about our productivity and quality, and then I want to close with some cultural things that we have going on inside Risk Placement Services.
Talking about RPS from an umbrella standpoint, we have five major divisions that we identify ourselves in. We talk about from the largest division, that's our binding and our MGA division. That's our business where we typically will underwrite on behalf of third-party insurance companies, whether that's a Nationwide E&S or a Nautilus or a Western World, and about 33 major markets underneath our binding authorities in different offices and different territories for, candidly, different specialties. We operate that business typically as an underwriter. We work very hard to make our insurance companies underwriting profits. If we make them underwriting profits, then they're very generous or can be generous in the sharing of that through profit sharings and contingents, etc. That's a great business. We're countrywide.
We span all the way from Honolulu to Portland, Maine, and all the way down to South Florida and up into upper Minnesota. It's a great business for us. It's very transactional. We do a lot of accounts. The good thing about that, and we'll get into our productivity and quality, we have a service center that we utilize to basically do a lot of our backroom services. They're fantastic. We can measure everything that way because it's all centralized. We can measure the time it takes for us to get a policy out. We can measure the productivity and the quality of that policy, and it's been truly a home run in that particular segment of our business. Again, that business is broken down into many different specialties. It could be general property, it could be general casualty, it could be transportation.
We have a big transportation niche under our binding, where we have five core insurance companies that specialize in both fleet, non-fleet, older operators, individual brand-new startups, all kinds of different sectors within the transportation market. As I'm sure if you've been on the road, you can see that there's a lot of trucks on the road. That market has had some uptick in rate and in availability. A lot of people have exited the trucking market. We're enjoying quite nice growth having that specialty. We're highly sought after from our retail partners to bring them solutions for their transportation business. We go further into that, and it goes into cyber specialties. It goes into all kinds of different little vertical niches that we have specialties all the way down to particular garage exposures.
We like that business because although the renewal retention is typically a little bit lower on that because we specialize a lot in new emerging businesses, a business will come to us because they don't have the experience, the history, they don't have a long track record of claims, and that's what we do. We specialize in those emerging businesses. After three or four years, they get a lot of history under their belt, and then they typically will transport into a standard market condition. Working on trying to supplement that through our standard market business. If we have risks like that, then maybe they're coming up on their third-year renewal. Why not just make the opportunity to flip that into a standard market that we might be able to provide to that particular risk? A lot of different strategies in that business, growing it.
We'll talk about how all these businesses connect in both mergers and cross-sell in just a minute. Moving out of the binding business, our second largest business in traditional RPS is our brokerage business. That's where we conduct a lot of business with our friends, with Tom and Mike at Gallagher. We do a lot of business with them. We do a lot of business with AssuredPartners. We do a lot of business with the SIAA, a lot of that larger, more specialized placement. We typically do not have underwriting authority in that business. We keep the brokers out of the underwriting business because that doesn't merge very well together.
These are typically larger accounts that have to go out to a third-party underwriter, and then we get our quotations back and put them together in a really professional way and give it to our retailer to hopefully transact the business when they're insured. That particular business is also very specialized. You can look at it as large property accounts, coastal property accounts, earthquake accounts, habitational accounts, environmental, executive lines, healthcare, and a lot of specialized areas that most of our producers will specialize in to bring that expertise to the retailer. We're kind of an outsourced marketing department, so to speak, in the brokerage business. If a particular account that needs property modeling, we have a full modeling capability.
We can model most catastrophe-type exposures for either windstorm, earthquake, hail, flood, all those areas that we can provide that modeling back to our retailer to sit down with their client and make an informed decision on what they should buy, what limits to buy. Again, very specialized business. We, again, on the brokerage business, we typically get paid sharing of commission and some supplementals. There are some accounts that we're able to generate fee income on in that particular business. Our third traditional business is our program division. That's again, where we do have underwriting authority, but it's limited typically to a particular class or type of risk, whether that's country clubs, whether that's amateur sports, could be public entity or churches.
There's a broad array of different programs that we have as individual silos as far as underwriting goes, that we, again, market out to our retailers when they have those particular types of accounts. Typically, the structure around those are very specialized to the type of coverage that we offer because the country club's needs are very different than an amateur sports' needs, and on and on and on. We like that. You've probably read a lot more activity in the program space. The insurance companies like larger chunks of premium, either being brought to them or developed through our distribution system.
You can imagine from a program perspective, if you have 25,000 different retail sources that go out and sell your product, if you market very heavily to those retailers, all you got to do is get one submission from each, and you pretty much hit a home run. We like that space. Again, it is an underwriting business. We have to make our insurance companies money. I think that's where some of these program managers have lost sight, because if you're running hot today as a program, it's going to be very difficult for you to replace that program. We call those one-trick ponies. If you're not careful with the pony and the pony breaks his leg, you're going to shoot the pony and the show's over.
It is a dangerous space, so you have to be very careful in your underwriting and the way that you position yourself in the program space. We have a standard lines division. It's based out here on Long Island. We love that business. It's basically both personal lines and commercial lines, where we provide small retailers blue-chip type insurance company solutions for their clients. It makes them look bigger. We have Chubb contracts, we have AIG contracts, we have Hartford Travelers contracts where we could provide that access to an insurance company that they normally wouldn't be able to access on their own. Again, it's a revenue sharing. It's also contingent based, so we get contingent income on that business. Lastly is our new business, the last six months with our merger with Pronto into our Hispanic non-standard auto space. It's been a very enjoyable merger.
I was just down there last week in Brownsville where they're based. We've expanded beyond just Texas now. We're doing a fair amount of business in both Florida and California. Those three states make up about 56% of the Hispanic population that we want. We're very specific in what we want in that business. It's typically married households, income based between 35,000 to 65,000, who own more than one vehicle, who also buy physical damage. That's kind of the sector that we go after. That business from an underwriting perspective performs really well, much better than the typical non-standard class, we're very specialized in the type of activity. Pronto is a little bit different than the normal business that we do. Typically, RPS stays away from the retail space, the space that Mike and Tom are in.
We pretty much catch every piece of the value chain in Pronto. We use independent agents, we use captive stores, we use franchise stores, we also use e-commerce technology. It's very grassroots. It's in the community. It's a lot of localized marketing that they utilize because of the client base and the way that they buy and the way that they pay. If you look at the activities within Pronto, we have the front-facing stores, it comes into the MGA, and the MGA is basically the one responsible for all the pricing activities and all of that activity behind the scenes. If there is a claim, we do have a claims operation that handles the claims.
After all of that's done, we have a pricing department that goes out and works with the departments of insurance, making sure that we're charging the right rates for the right coverages in the right parts of the different communities in which we serve. Pronto's great. It's doing very well. It's performing nicely for us. We're full into the parts of the integration that we want to integrate, which is primarily benefits and payroll and some technology items. They are very specialized. They are very different, and we're treating them as a very different business. We want them to continue to grow, both organically and through the opportunities to do businesses that are very similar to them. We want to stay in the niche-y area of non-standard. We're not looking to be a Cobalt non-standard auto player.
We like the niche that they serve, and they do it very well. Those are the five different businesses or divisions that make up RPS. Moving in a little bit to something I know you're interested in and what we're seeing in some of the rates. As I indicated a few minutes ago, transportation continues to be seeing increases. You've seen losses, a lot less players in the marketplace, a lot of contraction in the players that are interested in transportation. A lot of people have gotten out over the last few years. You're seeing some contraction and some increases there. Seeing that. Property, right now we're seeing flat to increasing rates. I think what you're going to find when all this shakes out, there's been a lot, obviously, in California, there's been a lot in Florida.
I think you all have seen a lot of the news releases. Some of what they thought Michael was going to bring is starting to actually develop adversely for some of the insurance companies. We're starting to see a little bit of rate increases. Certainly not seeing the 30% reductions we saw a few years ago. General casualty, I would call flat to moderately increasing. Again, when you get under casualty and you see some because of the way that we niche market at work, if you look at some of the healthcare space, long-term care, I would constitute that as a hardening market. If you get into some of the just general umbrella pricing, it's flat. Auto pricing in general continues to trend upwards. Those are kind of the categories. Workers' compensation, unfortunately for us, we're starting to see some competitive nature out there.
A lot of the states have filed reductions in their comp rates, so we are seeing some softening there. Melding all that together, I think probably what you heard from others is it's a fairly flat environment, maybe a little bit of rate tailwind to us in the specialties. Again, we specialize in more difficult to place accounts that maybe had some adverse experience, or they're just less attractive to the general marketplace. Generally, our space is trending up nicely. We like that. A stable environment is a good place for us to work. There are many less surprises when you're seeing kind of a flattening to a slightly increasing environment for us. That's the rate environment. Moving to the organic things that we're doing, we're very excited about where we sit organically.
This year, we're seeing about mid-digit organic growth rates, which is good in our business. It's not truly spiky. Again, trucking might be higher than general casualty. Property might be a little bit higher than some of the other lines. Overall, we're seeing mid-digit organic growth rates in our commissions and fees. We're excited about that. Some of the new levers, some of the additional levers that we're working on, obviously, recruitment's always high in our regard. We're always working on bringing in new niches, new specialties or additional people and existing strategies. It's really just about having more feet on the street to go out and transact more business, whether they come to us with existing relationships or we lay over the relationships that we have with either Gallagher or other firms out there.
The great thing about, as you heard Tom and Mike speak earlier about their merger activity, one of the greatest things about being part of this organization is every time Tom and Mike do a U.S.-based merger, that's a new client for us. If we were not doing business with them before the merger, we're certainly going to have the opportunity to do business with them in the future. I'm the biggest cheerleader for those guys. Every time that they do a good merger, we get a really good new client. That's fantastic for us. That's an organic lever that we get to pull that many of our competitors don't get to pull. Typically, we get a nice leg up on those opportunities.
One of the investments that we've made over the last couple of years, we have a client relations team, and that's a very different strategy that we deploy that most of our competitors don't. We have an entire large team of client relations people that go out, and all they do all day, every day, is work with our retailers to cross-sell everything that we have to offer within RPS. Most of our competitors or the other people in our landscape, they'll go out and work on whatever they do. Right? It's a producer. He calls on a retailer. He's there to support himself. He says, "I specialize in large property. Here's what I do." Very rare is it that you have anybody that goes in and talks about the entire organization. We have an entire team, and it's broken into two areas.
One, we work with all of our large retail clients, whether that's Gallagher or AssuredPartners or BB&T or the SIAA or Smart Choice or all the other type association groups that are out there. Then we have what I term as the windshield folks, people that get in their car every day and go to Southern Illinois or Upstate New York. Their job is to go in and sell everything that we have. Whether that's binding or brokerage or programs or whatever it is, they go in and represent the entirety of the organization so that those retailers know where to access and how to access, and they are the troubleshooter for us. If you have an account and you don't know where to go, call your client relations person. They'll make sure that they get it to the right person.
It's worked out phenomenally well for us. It connects us both at the top of all these organizations and the bottom of all these organizations, and we push them into the middle. That's an organic growth strategy that these folks are all measured. They're measured on what they're driving into the company overall. If you have a client relations person, they're just like a producer. It's how much are you driving. We don't care where it goes. I could care less whether it goes in binding or brokerage or programs, but they're responsible for making sure that they can show that they're driving bindable and bound business into our overall organization. Our organic growth strategies are really very strong. We measure, as you guys would expect, every single month, that we look at all of our business. All of our businesses are growing quite nicely.
Programs, a little bit slower than our overall business. Our overall brokerage business is running very strong. Our binding business is running very nicely. Pronto is running nicely. Programs, just single digits as well. It's a nice organic growth strategy and one that we're very bullish on for 2019. Talk about our merger landscape. When I talk about each of these businesses, the great thing is about us is that gives us five additional businesses to do merger selling. We can do mergers in brokerage, binding, non-standard auto programs, and our standard lines. Each of those businesses have merger opportunities. The landscape is active, I would tell you that.
A lot of the money that came into our particular side of the business now, with valuations and with some timing, a lot of people are looking to exit or merge with larger firms because it has become a much larger firm environment. Still continues to be very fragmented. There's about 3,000 program managers out there, That landscape is huge. The binding business continues to have a lot of small, mid-size, regional type businesses out there that will be, either are or will be looking to merge with larger players because the environment, people have consolidated their wholesale placements. They don't want it fragmented across 100 different wholesalers. It doesn't candidly make sense for them. We can, as you can see, when you look at RPS, we built it to be able to handle as we used to call mansions, mobile homes to mansions and everything in between.
We can pretty much handle any account that comes into our office somewhere within the organization. We bring a lot to offer through carrier relationships, through technology, through e-commerce. We bring a lot to the mergers, especially our culture. The landscape for mergers is great for us. I talked a little bit about our productivity and quality. We focused on that a lot over the course of the last few years. Again, looking at our Service Center, what we've been able to accomplish there by standardizing our backroom to be able to make sure that not only is our quality the best that exists out there, but also making sure that we're taking activities off of our offices so that they can focus on really, truly two things, underwriting and production.
The more that we can take off of our offices and have them, if you lose an accountant or a policy typist or whatever the activity is, and that branch leader has to take his foot off of the gas pedal and go out and find a new accountant or a new policy typist, I would certainly rather them not have to worry about that and go out and focus on finding additional underwriters and producers to focus on the core business, which is underwriting and producing. We've been able to successfully take a lot of those activities, and that's what the mergers want. When they come to us, the mergers, they're tired of fighting the accounting. They're tired of fighting surplus lines and licensing and all the things that just have to happen.
We could take all that successfully off of their plate and allow them to focus on what we do, which is insurance. It's a great lever. We spent a lot of time in our model office project, just making sure that we go in, and we have a whole team that comes in and does a deep dive in the office, making sure that we're getting the right work to the right level. We don't want our underwriters or our producers rating accounts, or setting policies up, or setting up files. That's not what we pay them to do. We want to get that business to the right level.
We've spent a lot of time over the last few years making sure that you can walk into an office and the same activities that an underwriter is doing in Florence, Alabama, is the same that we're doing in Fort Lauderdale, Florida. We've been very successful in getting our back room organized in that way. Talk about our culture. Our culture is second to none when it comes to our competitors. A lot of people come to us because we are a good place to work. We're a good place to have a career. We've invested heavily in training. Our internship, I'm sure that you all know, it's second to none.
When you talk about bringing people in, my nephew works for us, my niece works for us, my daughter works for us, and you look at it, you never bring your family members into a bad place, right? You bring them into a good place because that wouldn't be a very good uncle or father. When you look at our culture, people see that. They identify with it. They believe in that. The activities that we do with our employees and our associates as far as employee survey, and then the follow-ups that we do with our employee survey, and the things, the education and the communication, and they see that, and they can build a community around it.
The fact that we ended up doing 120,000 hours of community service collectively together last year is a great testament to the culture of the organization that we want to continue to build on and create for our employees. That's our RPS story. It's a great story. Again, started with four people and up to close to 3,000, it's been a lot of fun, and there's really no end in sight. With that, you told me you were going to give me the hard question, so I'll start with you first.
Following up on your sort of stable environment today and path that it's been that way for a decade, I've always thought of the wholesale brokerage market in general, a lot like the non-standard market, which you're part of, that in a really hard market, there's more demand for wholesale brokerage services. In a softer market, when the carriers are expanding their definitions of what they're willing to write, it's a tougher environment. Now you've been in this as neither hard nor soft, stable market. Is my historic view of what the market's like no longer accurate, or is there still some validity to about the way I'm thinking about the business?
Yeah. I'm used to wholesalers obviously just sat around and waited for the hard market, right? You make all your money in about three years, and then, you slowly lose it over the next three, and you wait for the cycle to change. We have effectively taken the majority of the hard peaks and valleys out of the business. The insurance companies have become much more disciplined. The insurance companies have information that they didn't have 20 years ago. 20 years ago, everything was a surprise, right? You waited and you waited and you waited, and you watch your development just creep up, and everybody's development would creep up. Then there would be a quote-unquote, a shortage. You're not seeing that today. You don't see a shortage. There's ILS money that comes in, or hedge fund money, or the insurance companies are vastly larger than they used to be.
They can be more opportunistic. You don't see quite that hardening. Now, I mean, there are, candidly, there are some hard areas. You get into concussions, you get into some of the higher education that's seen some heavy, heavy litigation. I mean, there are pockets of what I would constitute as a hard market, difficult to place. You could get it placed. Eventually, you may not get 100 million of it. You might be only be able to get 10 or 15 or 20. There are little slivers, little pockets, but it's not a broad, Time magazine front page article, America, your insurance has been canceled. You're not seeing as much of that.
As I think this through, I mean, the old environment was choppy, followed ROEs because you had the infrastructure and expenses that with no revenues associated in soft markets. In hard markets, you'd have very high returns on equity. You'd be running thin as far as being able to accommodate it. A stable business, you don't have to potentially lay off, rehire.
Correct.
You can keep your business, build up expertise and relationships, and have more stable ROEs.
Yeah, I guess one comment on that, RPS is unique. You didn't see an RPS 20 years ago, right, where you had five divisions, where you have underwriting, you have brokerage, you have non-standard. There were people who were big brokers, or there were no big underwriters because the market was very, very fragmented around a whole bunch of mom-and-pop-type shops. There really weren't any big MGAs. We're the largest MGA in the country. In our sector, you didn't see a lot of that. There were big brokers. Candidly, and for the right reason, there's a lot more transparency today than there used to be. We disclose our commissions. If the retailer asks or in some cases with a lot of our large retailers, we just upfront disclose it. Back in the day, there was a fee account. You were getting 15 points.
Those days are over. Those days are long gone, you don't see a lot of that lumpiness in that today either. It's much more disciplined. What kind of questions?
Thank you. Excuse me. Can you share with us maybe what % of your business is internally sourced? Is there an incentive, a financial incentive for the retail segment to pass business your way?
Yeah. Overall, today, we're less than 20% connected to our Gallagher organization. Over 80% of our business is sourced on the outside. A lot of that is because every time we do a merger, typically it's less focused on Gallagher. If you do a Pronto, that has 0 Gallagher business in it. Every time we do a merger, it really quasi-dilutes. Our relationship with Gallagher is big. I'm not going to kid you. It's a big relationship, but we're a big business as well. We would do less than 20% internally sourced business. From a financial incentive, I would tell you that it's a level playing field between us and our competitors. There are only 4 of us. It's us, Amwins, and CRC, and it's Brown & Riding. We're all under the exact same agreement, in fairness.
I would tell you that I'm as close to friends as I am business associates with a lot of the Gallagher guys, that certainly gives us a leg up. I don't know where to go next.
initial.
Okay.
If I talk to a company that has a large contract binding business, they talk about their technology and I'm talking about the underwriting side, well, we have this great technology that quotes very quickly and binds. Where does the technology begin and end on the underwriting side? Where does the technology begin and end on the brokerage side? How much are you bringing to the table and how much is the underwriter bringing to the table? How can we solve the problem, I guess, of the frictional cost associated with contract binding?
Yeah. On the contract binding side, the frictional cost continues to get less and less. Whether that's the use of AI connectivity, of being able to populate the information into your rating database, or that's just, in our case, it could be e-commerce, where there is no frictional cost. We could produce a cyber quote in a matter of 15 seconds, and we can issue a policy in under two minutes. That's our technology. That's RPS paid for development technology. That's our technology. There are other, obviously, third party contract underwriting companies who have their own platforms. Again, you got to remember, if you're an underwriter at the desk and a risk comes in, you basically generally decide where that's going to go, right?
If you have three different companies that would be interested in doing that particular risk, you still have to put it in three different systems. We're getting over, this is very cool. We're getting over that hump in transportation. We've been experimenting for the last six, seven months with robotics to be able to put it in one time, the robots go in and they feed each of those rating systems or those insurance companies. Basically less than the next day, of course, that information is given back to us, and we get five different quotes out of the systems for the five different insurance companies that might be interested in that transportation risk. We're getting a long way down the road to take out a lot of that frictional cost on our end.
On their end, most of those rating systems are all pretty good. They're just all very different.
Time for one more.
When we talk about the traditional wholesale brokerage, I guess to my mind, it's a legacy of limited communication capability for retail brokers. I would think that disintermediation.
I think that there are sectors that maybe you're right on. There are a lot of, obviously, when you get to the brokerage business, there's so many nuances involved. It's still very much of a relationship business with our underwriters. Candidly, some of our retailers, depending on who we're dealing with, need that expertise, right? If it's executive lines, they're not going to stay up with the latest forms, competitive nature, going out to five companies and getting five different quotes with different exclusions and ensuring parts, et cetera. They use us, again, as I said earlier in my presentation, brokerage, they use us as an outsource capabilities. A lot of retail, well, certainly almost very few retailers can afford to have the cost of modeling.
Right now we do RMS. We do two or three other kind of indicator modeling companies, and it's very difficult for them to afford. Again, they come to us. We're able to provide that to them, to sit down on a professional basis across the desk and have a great conversation with their client, because they need that extra help, because otherwise you're throwing up a dart against the board to see where it lands. It is. You're going to get to a point, I believe, someday in the future, where it's a trading platform for wind. Wind is pretty much a commodity in certain places. I think you'll get to a point, a lot of us are working on that type of trading platform because it is. It's just algorithms. It's information algorithms to get to the right price. That'll be someplace in the future.
It will happen. Thank you all.
Next up, we have Bill Ziebell. He leads our employee benefits.
Good morning, everyone. I am Bill Ziebell, lead our Gallagher Benefit Services division for Arthur J. Gallagher. Basically, I am on the people side of the business, helping our clients attract, retain, and engage their employees at a sustainable cost structure. We finished last year $1 billion in revenue. We typically run mid to high 20% in terms of margins. Our typical organic growth here is mid-single digit. We have over 100 offices, 4,200 employees. We operate in four countries. Largest is the U.S., U.K., Canada, and Australia. Those are quickly growing for us as well. Like you've heard already today, I am going to talk about the same four pillars: organic growth, mergers, productivity and quality, and our culture. Starting out with organic. To me, it's a very simple formula, land, expand, and retain.
Go out and get new clients, expand the relationship, and hang on to those folks. I think, hopefully, the first landing is pretty intuitive. Hiring producers, growing up our externs, going out and knocking on doors and winning business. Earn their trust by solving their problems, and then expanding the relationship by uncovering other issues we might be able to solve for them. Retention is really important if you're going to grow. If you have a big hole at the bottom of your bag, it's really hard to grow your business. Retention is very good for us. It's in the mid-90s typically as well. Earlier, you heard Mike talk about our Net Promoter Score. We went through a similar survey with our clientele, and they came back and said they loved us.
We also had very high Net Promoter Scores, mid-80s. You heard Mike say the industry is around 36%. That's basically out of 100% of the people you survey, those who would promote Gallagher, subtract the ones who would be ones saying, "Man, that's not great," in the mid-80s is pretty significant. What we heard from our survey is why they like us. We're very strategic, give them good ideas, and we're very service oriented, and that's what they're looking for from their advisor. Speaking of good ideas and so forth, we spend a lot of time on thought leadership to really understand what's going on. Data is very important to us. We have several different thought leadership pieces we put out. Very recently, we put out this year's version of our national benchmarking and strategy survey. It's the largest in the industry.
If we added the next three largest and added them up, we'd still be larger than all of them. We use that not only for data in terms of helping our clients make decisions on what levels of benefits to offer, but also we ask insights. What are you planning on doing next year or two in terms of any changes? What's going on out there? We get a lot of really good insights from that, and we use that to have good conversations with our clients. Here's a couple of stats for you, though, that I think are important. Number one priority of all the respondents out there is attracting and retaining talent. It's gone up six points in the last year. I think it's pretty intuitive what's going on with the economy. Virtually no unemployment. People are fighting for talent, right?
Managing benefit costs is actually in the top three still, but it's actually down a little bit. As this economy heats up and there are people looking for jobs, and we're trying to get talent into their organization, it's still important, but it's not as important. Here's an interesting stat for you as well. Almost a third of all the respondents had voluntary turnover in excess of 15%. 15% or more of their employees turned over in the last year. It's just like getting new clients in the bag. If you're losing your talent out the back door because somebody else has a better value proposition, it's going to be hard to be successful.
We hear time and again from our clients, there's a shortage of pilots, there's a shortage of engineers, there's a shortage of nurses, and so forth. They're looking for those different ways to get those folks on top. More and more, we're seeing a shift in what's going on out there, away from really managing that medical expense and really more of what else can we do for our employees at a sustainable cost structure to get them onto our team and keep them here? We advise our clients, we look at something more of a total well-being for the employee. What's in it for them from a career perspective? Compensation, professional development, engagement surveys, communication, all those come into that side of what we call career well-being.
On the financial side, if people are stressed out because they're not able to pay down their student loans, they might jump ship for an extra $5,000 or $10,000. If you have a program in place that helps them manage their expenses, and by the way, put enough money aside for their children to go to college or to retire on time, we call that financial well-being. Of course, physical and emotional well-being, that's where we put our medical, life, disability, more of the traditional insurance products. Those three large buckets are how we organize ourselves around those practices. Okay? What's great about those three is they really do apply in every country that we're working in. Different levels because you don't have the same medical premium in, for example, the U.K. or Canada as you do in the U.S.
Over there, it's going to be a lot more about wealth management, things of that nature. In those three broad buckets, very important. Every one of those three, we can help our clients. What's interesting to me all the time is how many times we hear from a client, "Well, I didn't know Gallagher could do that. Can you help us with that?" Yes, we can. That's a journey we're on, helping our clients solve for that problem of attracting, retaining talent. A couple examples for you. Very recently in the Southeast, there were two hospital systems coming together. One of the drivers of why they were merging was a shortage of nurses. As you might imagine, two different health systems using two different advisors, both bigger than us. We competed with them to win that business.
By the way, they went out and surveyed their own employees, combined, and wanted to know what was important to them. What they found was a little bit of a surprise to them. What they heard was their compensation, their retirement planning, and paid time off, not quite what they were thinking. We were invited to the finals, one of three, competing against two larger organizations, and we won. The chief human resource officer told us we were doing exactly what they wanted to hear, a holistic approach, very strong teamwork and culture among our presenters. They knew that we would fulfill what they were trying to get done in terms of having a value proposition to address the nursing shortage, and we wrapped it all around with a very strong and robust communication strategy. We have our own talent in that area. That's all they do.
In fact, another big win we had very recently is a Fortune 100 sporting clothes manufacturer. You know the name. I'm not going to mention it. However, they were having trouble with the same kinds of issues. In fact, they never used an advisor before. They always went direct with their insurance carriers. Our consultant went in, had an appointment, started asking about what the pains they were dealing with, what issues are you having, and uncovered the fact that they had a communications problem. We solved for that, and we got hired. A year later, we actually are the advisor on all their medical, life, disability. It's a seven-figure client for us because that's what's different for us. We are very consultative. We're not walking in trying to sell something.
We want to hear about the client and their needs, what their issues are, and we solve for that first. Land the client, then expand it once you've earned their trust and you have good insights on what they're going through as an organization. That leads to better retention and so forth. We do that time and time again. That's what we do every single day. Moving on to mergers. We're always looking for people that add talent, expand our geographic reach, getting into an area that we've mentioned, those three broad areas. Many times, it's a treasure trove of talent. We bring them in and we say, "Wow, this is something that we can use elsewhere." Oftentimes, they're joining us because of our resources. Compliance.
We have over 30 compliance attorneys out there available to help our producers with whatever regulations coming down the pike from government or new lawsuits that are pending, things of that nature. We have financial analysts that really help the analysts help people figure out what's going to happen with the renewals or medical trends, things of that nature. We have all these different areas that help their clients be more successful in attracting talent. We know why they want to join us. You heard about us being very picky about fit and culture. I'll get to more of that in a bit. What's really fun is we actually get a merger that really changes the game for you. We did one in the Northeast very recently, and actually a couple of years ago.
They had a health and welfare practice, they had a specialty that really focused on pharmacy consulting, PBMs. I don't know how many of you know this, the single largest, fastest growing cost driver in medical is pharmaceuticals. All right. The PBMs are really the ones who control that. They're the go-between between the pharmaceutical companies and then the health plans and the individual employees. They're very smart at how they move the shells around with dollars. I'll tell you heard earlier from us competing usually with smaller competitors, 85%-90% of the time, somebody less sophisticated. What most of those smaller competitors are doing is they go into the spreadsheet, the PBM, and they'll do something called, what's the discount off of average wholesale price?
The PBMs figure that out, now they're getting into very sophisticated contract language, definitions they've used to measure all kinds of things. Our team knows where the money is hidden. We hire people from the PBM industry, it's really by the each, reading the contract, breaking it down, negotiating best-in-class terms for our clients. That is our single fastest practice going on today. We did a merger, turned out to be a treasure trove of ideas, now we're expanding it across our division because of their talent, what they can do from that leadership. That's an example of how the mergers are very accretive to our value proposition, we're always looking for those kind of ideas everywhere in the world. Moving on to productivity and quality. We have very good quality, we believe, already. Very low E&O claims.
We have professional standards that are in place to protect the client. We have things like peer review before work gets delivered to a client. We have checklists, make sure we've been doing the things we're supposed to do before we deliver that work. We do that all the time. Again, we have very high retention and very good success with our clients. Again, looking for new ideas, we've now rolled out small group service centers of excellence across the country. We have over 9,000 small groups under 100 employees in these centers today, we're processing over 3,000 transactions every single month. We're doing it at a quality rate of 99.9% accuracy. It isn't just enough to try to lower cost. It really is about bringing a better product, better deliverable to our clients. We're seeing that time and again.
That's an example of how we're using our productivity and quality pillar to do a better job for our clients. Moving on to culture. When I think about what I would describe culture, and you heard it a lot today, the way I try to describe it to folks is, would I have this individual over to my house for dinner? The answer is, eh, my wife wouldn't like this person. I probably don't want to work with them every day either. That's how I look at folks. Is this somebody I want to work with every day, have fun with them, win together, have a fight if we have to, but somebody you would enjoy working with on a regular basis? That's really important to who we bring into our organization. Good example, I think, of this culture, a couple of them really.
On my leadership team, my executive committee, I've got a lot of folks I've worked with a very long time. Our COO was our IT guy when I started in Troy, Michigan, back in 2000. I saw him for a wealth of talent, and I promoted him up the channel. I said, "If we don't do something with him at the corporate level, we're going to lose this guy," and now he's our COO globally for the organization. He's an amazing talent, and I've been working with him now since 2000. The guy who runs our carrier relations was my college roommate. He recruited me to the organization. The CFO and I worked at Ernst & Young, back in the mid-'80s. Somebody's quick chuckling. We have a lot of relationships. That's really important with the stability, know you can count on each other to do the right thing.
Speaking of that, back in 2005, Tom Gallagher and I were running the Midwest for our respective divisions, he on the P&C side, me on the employee benefit side. We were seeing a little bit too much churn in our externs, the interns that had come on full term. We just felt they were disconnected about what the future held for them. We saw the future where we'd have baby boomers retiring. We're going to continue to grow and create opportunities for them. A lot of them didn't see it. They didn't see that connection. We started having what we called Breakfast Club, and every month we'd sit down with them, and we'd have breakfast. Actually, that lasted about one month. Nobody ate the bagels, so we stopped bringing them. They wanted to ask questions, and there's always something going on.
What's going on with this or that? What about this rumor and so forth? We were very available. We tried to talk to them. For a while, we were doing Book of the Month Club, whatever we could get them to feel engaged and so forth. Today, many of those folks are running branches, very successful producers in the organization. Once a year, we have a reunion, and we have it in the home office. We now call it Cocktail Club for the reunion. We actually have a couple of beers, bring in some pizza, and we all get to catch up with each other and see what's going on. This room is huge now of these folks who have gone through Breakfast Club, and it's just really fun to see them all be successful in their own ways. Some of them are just getting started.
They're only there for a year or two. Others are running branches and so on. It was something that Tom and I did way back when. We got a chance to talk to everybody a couple of weeks ago about this and just say hello again to all these folks. It was really impressive. Our culture is real. It really does matter, and it makes a difference in how we're dealing with our clients, our employees, and how we look at our mergers and so forth. That's what I wanted to talk to you about, my prepared remarks. Open up for any questions you might have. Sure. It's coming.
Just five years ago, private exchange was a hot topic.
Now nobody talk about it anymore. Just wonder sort of what update on that, sort of like a specific way to help your clients.
Is that because the client doesn't find it very useful, or there are other things happening, or alternatives?
Just want to give an update on that one.
Well, there's a lot in that question, Kai. I'm going to start with, we never built technology. We never bought technology. We were always neutral on technology. That's not true for all of our competitors, they saw it as a new way to go sell something. I got to tell you, a lot of their clients were turned off by that because what they really want is an independent advisor. Think about what a broker does, generally speaking, for insurance. We're not walking out representing UnitedHealthcare or Blue Cross. We're representing all the choices. Then when you walk in the door and say, "I've got my brand technology, and I'm here to sell it to you," they're like, "Wait a minute. You're no longer that independent advisor." We saw that early on. We didn't want to go down that path. It is one of our options.
It's in our portfolio today. It's not growing like I think some of our competitors thought it was going to. What's amazing going on out there is the ben admin enrollment technology and the HRIS systems are just always improving, always getting more complex. We did an acquisition beginning of last year with a firm that is basically the best in the industry. She still works with our competitors because they'd be lost without her, and she charges for them. She does basket studies, and what she tries to do is match the right solution for our clients' needs. If you think about what a private exchange was trying to drive, it was trying to drive engagement and choice and so forth, right?
There's a lot of technology that gets that without being, quote, "a private exchange." I think by and large, there's still going to be an option probably for the smaller employers, the larger ones already have pretty sophisticated ben admin systems, and what they're looking for is how do they make that work for them in giving their employees choice. Go back to the national benchmarking survey. One size does not fit all. For the first time, really, we actually have multigenerational workforce. Baby Boomers are still there. They are shrinking in terms of size of the workforce. Millennials are now the largest. In a few years, Generation Z, whatever they're calling, will be the biggest. What I want to see as a 56-year-old is a piece of paper. I want to look at that. I want to highlight it, underline it.
The 25-year-old would rather die than have a piece of paper. They want their cell phone, right? They want to have an app. How are you going to engage the 25-year-old, the 56-year-old, the 35-year-old? They're all a little bit different. What's important to them? You better be giving them an offering that matters to them. The 25-year-old wants paid time off. They want help with their student loan. They probably don't care that much about the medical plan. The 55-year-old, tell me more about that medical plan. What options do I have, right? It's different needs, and you're seeing employers become more sophisticated. Technology is keeping up with them without it being a full private exchange.
Yeah. Hi, Bill. I guess I have the mic, so I have a question back here.
You win.
I read recently that the average health premium for a family paid for by employers is $19,000, $20,000 a year.
Yep.
It's been kind of like college tuition, just going up and up. Do you see anything on the horizon that changes that trend, both for next year and then thinking longer term? Or do you see a kind of a relentless mid-single digit or more kind of compounded insurance premium cost for employers?
Thanks for the question. Everything we're seeing is mid-single digit year-over-year. It's going to get unstable the last few years. What's interesting is, when you think about cost drivers, pharmaceuticals going up, still driving that up quite a bit, but also it's a generational thing. The 25-year-old doesn't go to the doctor very often. They're not taking a lot of pills. The 60-year-old is, right? The older your workforce becomes, the more you're going to spend on medical. That's the connecting the dots. We're trying to get our clients, CFOs, to understand that you want your folks to be able to retire on time when they want to, right? Because there's a direct impact on the medical expenses as well. We're seeing that continue on. Technology, pharmaceutical. People are doing other things like telemedicine. They're finding concierge type services.
Also a lot of carving out these days. The things that traditionally the health plan would do, they're carving out and finding best in class for kidney dialysis or surgeries or elective surgeries, things of that nature, and finding lowest cost providers there. There's a lot going on on that side. People are still pushing to find innovative ways to keep those costs down. Yet again, though, the trend continues. The other thing I'll throw out to you, though, clients are very elastic on this stuff. They don't take that price increase sitting down. Not usually. A lot of times, it becomes a cost shift to the employee, or they cut back on the level of benefits or whatever. I think, however, they're running out of runway on that.
Employees can only handle so much of that cost shift, and as I said before, now that the economy's booming, they have options. We're going to see some interesting dynamics on how much more cost shifting goes on in the future. Yeah.
Thanks. You mentioned mid-single organic growth. Can you touch on the tailwinds and the head?
Going back to the fees versus commission, I would tell you the smaller the client, typically it's more the commissions, and it's usually baked into a fully insured situation. Where we compete day in and day out in mid-market and a little bit above is what's your cost? What are you going to charge me to do the work? It's upfront, it's not standard commissions. They want to know what I'm making before they hire me, $50, $100, $200,000, $1 million, whatever it is, put that out in front of them. We don't care how they pay us. Do you want us to invoice you, or do you want to build it back into the commission base? We're fully transparent. We disclose every penny we make to our clients, so they get to decide how they want to pay us. All right?
I am seeing more upfront talk about our fees, but it gets baked back into the compensations, all right, in commission form. Probably still 80% of our revenue is still coming through a commission check as opposed to an invoice. All right? Again, bigger percentage of that is being negotiated up front as opposed to standard commissions. Does that answer your question?
Yes. If you could touch on organic growth, how to think about some
I just think some of the tailwinds we're going to see as the economy continues being hot, what else can they do for their employees? I will tell you, the mid-market buyer, and a lot of our competitors, have this mindset that, well, since you've hired me to be your quote, "broker" or your advisor, everything's free. Everything else is thrown in. We're trying to add more value and get paid for it, and there's always somebody out there wanting to give it away. That's kind of the tailwinds of the competition. Very fragmented, and people that don't really understand the value. What we're challenged with is how do we make sure that the client understands what we're bringing to them is actually better than the free stuff, right? As an example, comp plans, very data-driven. We get surveys, surveys all the time, very current.
Guess what? What you'd be paying a vice president of sales in 2018 to get them on board and get them to stick around is different than it was in 2016 because of the changes of the economy. Our competitors, smaller ones, go out there, and they get old data because it's free, and they're telling the client that the compensation you should be paying them is X based on 2016 surveys. Ours is 2018. It's real, it's now, it costs us money. We want to charge for it. That's some of the noise that goes on in terms of translating with the buyer what's going on, right? That's what we're challenged with, is trying to get more value for our services as well. We're pretty successful with it. The tailwinds I mentioned about the mid- single digit medical, but again, very elastic.
We'll see where that goes in the future. Don't have a crystal ball, something tells me employers are running out of runway to shift costs back to the employees. Yeah.
Can you compare the employee benefits and P&C cross-selling opportunities and capabilities with where they were five or 10 years ago? Is that actually changing?
I think it is. I think there's a lot of real opportunity there. As we've grown up as an organization, your timeframe was 5 years ago or 10 years ago, I forget. As we continue to evolve, it's really a different mindset about what's best for the client. Very similar to what you heard about why GGBUS trades with RPS, that's our P&C working with our wholesale, because Joel's team will be there if something goes wrong. You're working with an outside wholesaler, adios. When something, it's your fault, right? Same kind of thing. Why are we letting our clients work with a competitor P&C agent when, in fact, we know our folks would do a better job for them, okay, and vice versa.
If something's going down with the client, and something's a problem, we have that ability to help them and resolve that for them. First and foremost, knowing the client's needs is what we're trying to focus on. What about their business, their vertical? How do we solve for that? What makes us better? In the U.S., Mike Pesch and I are right on the same track on that, and we're really putting a lot of effort in that going forward. I think there's going to be more good news in that space. Is that it? All right. Thank you.
Next up, we have Scott Hudson, who leads our third-party claims administration business from Gallagher Bassett. Scott, the floor is yours.
Good morning. Similar to everybody else, I'll take a couple of minutes and dimension Gallagher Bassett for everybody, remind you all who we are and what the business looks like. Then I'll touch on our strategy around organic growth, what we're doing to drive organic. I'll talk about M&A, productivity and quality, then finish off with culture, then turn it over to you guys for a few questions. I'll go back to the end of last year, just in terms of size. We finished last year at $750 million, about 16% of the overall business. That's the way you look at it financially. If you look at the size in terms of the payments we make, we're paying out about $9 billion in claims. You could look at that as somewhere in the neighborhood of about $1 billion.
Keep in mind that we're paying out our clients' funds. It's not our money. We're not an insurance company. We don't take on any risk. In terms of the clients we serve, we talk about it inside our business as four main client segments. There's the traditional large commercial entity that takes claim handling into their own control. We refer to those as unbundled programs from the insurance carriers. Public sector clients, a lot of different flavors of that. In the U.S., it might be state governments, state of Connecticut, state of Nebraska, state of Oklahoma, state of Minnesota. Could be school districts, Miami-Dade schools, and it could be smaller government entities. If you go outside the U.S., in the U.K., a lot of local authorities. I heard Tom Gallagher describing the brokerage business in the U.K. We're side by side with them, serving a lot of those local authorities.
If you go down to Australia, we serve large states that actually have various insurance schemes that they run out of the different governments. Those are a number of our larger clients. We've got the Northern Territory, New South Wales, Victoria, South Australia, so a lot of activity there as well. You've heard me mention recently, probably over the last couple of years, our growing excitement around the carrier business, where we're walking into a carrier and saying, "Give us a shot. We believe we have an offering that would enhance your overall performance. Consider outsourcing your claims to us." You'll hear me talk about that. It's probably one of our faster-growing segments, and it's happening everywhere. It's not just in the U.S. It's in the U.S., it's in Australia, it's in New Zealand, it's in the U.K. as well. There's the alternative markets. You heard Joel talk.
You've got MGA type operations. You've got captive insurance. We have, I think, hands down the largest dedicated captive insurance claim operation, a very big part of our business. Those are the four primary segments. What we do, the way we add value, it's different types of claims. The core has always been workers' compensation, but we're extending that into a number of liability lines as well. We do a smallish portion of property, not extensive for us. If you look at our competitors, they vary by geography. Interestingly, that has changed a little bit. In the U.S., it would be names like Broadspire, Sedgwick, CorVel, organizations like that. In the U.K., it tends to be law firms, some small TPAs. Same thing is true down in Australia and New Zealand, a little bit of a less developed market.
Interestingly for us, though, I think probably for the first time in the last couple of years, because of activities that Sedgwick has taken on in terms of buying companies, we now are starting to see ourselves competing with them outside the U.S. to a much greater extent. I wouldn't say that they're a formidable competitor in the traditional stuff that we do at this moment, and the same thing is true for Crawford and Broadspire. We're simply trying to be the best claims management organization anywhere in the world with the notion of being able to deliver the best results. You'll hear our people talk about a demonstrably superior outcome. That's our vision, that's our goal, that's our mission every single day. In terms of where we exist around the world, a couple of points here.
We're still heavily weighted towards the U.S., but have a growing, thriving operation in Australia, in New Zealand, and the U.K. We can and do for a number of clients handle claims through a partnership that we have in countries outside of the places where we actually have our core operations. In terms of the last four or five years financially, we've been mid to higher single-digit organic growth. Our margin has been ticking up over the last four to five years. It's in the 17-plus % range. We're very comfortable with that and have seen good progress on both sides. Let me jump into organic growth. I've mentioned a couple things as I was stepping through the dimensioning of the business, what we're trying to do to drive organic growth, our growth strategy has got four to five things that are the underpinnings of it.
First is we're going to focus on the fastest-growing segments of our business. I mentioned the carriers. We're seeing significant growth. I've been talking about this now for a number of years, every day, every month, we're seeing greater and greater interest from carriers that traditionally would probably not have contemplated working with an organization like ours in part of their core business. I don't see that slowing down anytime soon. The pickup is starting to happen even outside the U.S., that continues to be extremely exciting for us. I mentioned the captive business. That's another area where we've seen significant growth. We have a couple of large captive management companies, one inside Gallagher, Artex, that we work with, another one by the name of Captive Resources.
The combination of the two of them, I think, are the largest group captive managers, we've seen that probably in the higher single-digit organic growth. That's been a very strong opportunity for us. Then we're starting to build a business connected back into Lloyd's. Like I started a few years ago talking about the carriers, you're going to hear more and more about the opportunities that we're starting to unearth in terms of our relationship all the way back into the London marketplace. That's the different segments. Let's go where the tide is rising. That's the way we think about that. If you think about product expansion, I mentioned workers' compensation has been our core, if you look at over the last couple of years, we've been expanding just the number and types of claims that we actually handle.
You're going to hear in the coming months, we've essentially launched formally a GB Specialty business here in the U.S. That'll be the professional lines activity. Some interesting things around construction and transportation. Some of it we've been doing in the past, we're going to put a much greater emphasis. The opportunity for us is just within the organizations that we're working with. We've got the carriers, we've got the large commercial entities. They have exposures that go beyond the traditional general liability, auto liability, and work comp that we've done. We see a significant opportunity there. I actually was with yesterday a company that our team here in New York that we bought a couple months ago, WCD, which is in the environmental health and safety space, specific to real estate and construction.
We are in the business of helping organizations prevent claims, minimize risk as well, not just handling the claims. We see significant opportunity there as well. In terms of market or geographic expansion, we'll do it. We haven't planted any flags recently, but our eyes are still wide open to opportunities around the world when they present ourselves to them. The interesting thing there is we do hear on a regular basis, people will come to us and say, "Can you handle claims in different countries?" For it to make sense to us, it's got to be of a sufficient scale. To handle one or two or 10 or 15 or 20 claims in some country, that just doesn't make sense because we've got to build an infrastructure and an operation in order to be able to do that.
If the opportunity presents itself, we'll definitely be there. The key across all of what I've been describing, I mentioned delivering a superior outcome, we've got teams of people each and every day thinking about how do you handle a claim in a manner that gives a better result than any of our competition, the carriers themselves. That's really what drives us because I think ultimately for us, it's a value play. If we can actually demonstrate day in and day out that we're delivering a better result, that'll continue to drive the growth of the business. Mergers and acquisitions, 3 in 2017, now 3 in 2018. The 3 this year, a company by the name of Triax down in New Zealand. Health and wellness is what they're into. We handle personal injury claims in New Zealand.
A natural complement of that is to work with wellness and wellbeing in the workplace. I mentioned WCD Group here, environmental health and safety, primarily in the construction and real estate space. Quite exciting in terms of the potential there. Just recently, we announced a small deal in Western Australia in Perth, which now gives us a footprint in almost every state across Australia. That was a place we hadn't operated until recently. If you were to go back to 2017, a real exciting acquisition we made there was a company by the name of NTA. We're seeing a lot of growth in the long-haul trucking space, a lot of that on the backs of our group from National Transportation Adjusters. I'll just reiterate, when we think about M&A, it's less about volume and more about specialization and expertise.
Every one of these I mentioned, we're going out and buying deep expertise in some product line In some customer segment that we didn't previously have. Our expectation, whether it will be 3 next year or more, is to continue to do this in terms of rounding out our offerings and building depth and expertise. Productivity and quality. I mention all the time that one of the things we're working very hard is to make sure that we're taking advantage of opportunities to use our scale to our advantage. You're starting to see inside Gallagher Bassett, opportunities to build operations that we're sharing services across the world to our different operations, which has not necessarily been the case in the past.
When you start thinking about call centers, centralized servicing operations, we're now starting to do that in a manner that can actually serve all of our operations around the world. We do use our service centers in India that you're fully aware of. More recently, we've actually built up a large number of people in Las Vegas, another service center we have. That one's more of the contact center variety. We're doing some interesting things in terms of how we're actually interacting with the claimant, the person who has the claim, or for that matter, even the employers that we're working with. Global integration. One of the things that's critical for us is our expectation is whether it's an insurance carrier or a large corporation, we're going to be working with that organization across the world.
The experience that we're trying to provide to them, we want it to be exactly the same, whether they're working with us in Australia, whether they're working with us in London or somewhere throughout the U.S. More and more, we're getting our entire operation on a single platform. What we're doing on the liability side, we built a system on the backs of a software product by the name of FINEOS. It will be our liability platform. It's in place and working earlier this year in Australia. We're pushing it into the U.K. right now, and very soon we'll be moving that into the U.S. The key there being, is a single system, a single experience with respect to interfacing with our operation, no matter where you're working with us around the world. We see ourselves as a leader around technology and analytics.
It's actually coming through loud and clear in the marketplace. If you were paying any attention to Business Insurance recently, our innovation around smart claim scoring, it's a key in terms of, I could probably talk at length about it, but simply put, it helps us better understand how to compare the performance of our individual client programs and our performance against our competitors. I think in a lot of respects, it is leading edge in terms of how we're thinking about measuring the performance of claims. What's exciting about it's happening every single day inside our organization. There's more in the laboratory that's going to be coming out in the months ahead. I was just down in Australia a couple of weeks ago. We had a team in New South Wales, serving New South Wales. Here's an interesting story.
What happens in that particular work comp scheme is there's a point in time where they take people off benefits. There's a known point in time, and what you find is there's people at risk at that point in time. We built a specialized program around mental health, where we have a team of five or six people that were identifying those individuals, going out in their home environments, working with them from a mental health standpoint. The success of that program, it was just recognized last month, is one of the most revolutionary things that's happened in the New South Wales scheme in years. It's actually helping those people avoid what could be pretty traumatic circumstances when the benefits are taken away.
It's not just about efficiency from our standpoint, it's about figuring out the various kind of moments in time in terms of handling a claim, how to deliver a better result, and we're quite excited about a number of things that are going on there. The other thing that I'll mention around productivity and quality that's extremely important for us is security and data privacy. The expectations that our clients have of us, whether it's the insurance carrier, whether it's McDonald's, it's a big deal. We're pretty proud of the fact that I think we have a reasonably airtight infrastructure around our data and security. No incidents. We're investing significant amounts of money back into the technology and the infrastructure, and just the way our people work and behave in the workplace is extremely important as well. It comes up in every deal that we're doing.
People want to be able to evaluate that in advance of choosing to move their business with us, simply because of the importance of that and the potential damage to their reputation. The last area is culture. I'll just mention a couple things here. You hear about culture, the Gallagher culture, different comments around the ability to attract great people. I couldn't be more excited about the team that we continue to build, the talent that we bring into the claims business, that I think historically would not have considered this a place to either start or build a career. If you look at some of our analytics teams that we're putting in place, it's quite exciting in terms of the nature and the type of people and the type of professionals and the skill sets that we're bringing into the business.
It all starts with the Gallagher organization, the reputation, and the culture as being kind of the linchpin in terms of being able to attract those people. A couple other interesting things. There was some talk about the Gallagher intern program. I think Bill was just talking about it. Joel talked about it. Gallagher Bassett was just recognized down in Australia as having the best intern program in the insurance marketplace, in Australia. We're making the investments to make sure that we're getting people into the business early and often. The last thing I'll mention is something that we started a couple of years ago. One of the things I talk a fair amount about is the importance of recognizing the work that our people are doing in terms of putting people's lives back together.
Telling the stories behind the claims is not all just about claims numbers. Here in the U.S., we have a program that's been in place for probably three to four years now, where we cycle through probably, I think, about 700 or 800 people, put in applications in order to become the resolution manager of the year. Next week, I'm looking at Pat, I think Pat's going to be with us next week. We've got the 10 finalists coming into Rolling Meadows to tell their stories. I'll tell you sit there and you listen to these people tell their stories about what they're doing and the people that they have impacted over the course of the last year of their career. It's quite remarkable. It's quite remarkable what our folks do.
I think that's another way to perpetuate the culture that we're building around the importance of putting people's lives back together. With that, I'll turn the comments over to you. Mark, do you have Has anybody got a microphone here yet?
Size the opportunity with the carriers. As you alluded to, this is
Yeah
something that's emerging.
Yes. I would say our carrier business now is probably north of 10% of our operation, if not more. To a large extent, that's from something that probably wasn't anywhere near that four or five years ago. The nature of the opportunities with the carriers, they do, they can, some of them, largely probably driven by just good sound purchasing or procurement type activity. They will issue RFPs. Interestingly, some of them won't. It's just, we'd like to do business with you. It's a little bit of a different type of relationship. Some of that comes from the fact that we're part of the Gallagher organization, and it's a multifaceted relationship. Therefore, we're just talking to them about the potential and actually seeing opportunities come our way without even having to go through a competitive procurement process.
I think the other thing that we're seeing is most of these, if they play out the way that they have been over the last couple of years, they're going to start small. Let's try handling claims in this line, maybe in the mid to size small business line, the work comp piece, and could potentially blossom into something that's significantly larger than that. We've got relationships that are in the $10 million to $15 million to $20 million range. The other thing that's interesting about these is we're participating in driving the growth for them. To the extent that the carrier is expanding that part of their book of business, we're seeing that growth without us necessarily having salespeople out there.
My hope would be is that if you look forward three, four, five years, that we've got a number of these $5 million to $10 million to $15 million to $20 million relationships that are growing organically. This could, in the not-too-distant future, probably surpass our risk management business. If you just look at the volume of claims, I think we view the risk management business, kind of our bread and butter for years, to probably be 10% of the total volume of claims. The reality is the opportunity in front of us is significantly greater.
On workers' comp, any change?
Yeah
An inflection point? What do you think?
Well, I don't know. I'll tell you what I see from our numbers. It's holding pretty consistent. We're in the 1.5%-2% growth range, that number is specific to existing clients. That's not just our growth from new business. That's just looking at the existing book of business and seeing what sort of claim activity is happening. It's about a 1.5%-2% growth, that's been probably holding steady for the better part of this year, up from a year or two ago where it was 1% or below. We haven't seen any dip. I think our book is reasonably representative of the economy. If you just look at the nature of the type of businesses. We do a lot of trucking. We've got a lot of retail clients, hospitality, hotels.
At this moment, there's nothing that's pointing to any weakening in any aspect of that.
I'm going to ask about the margins. I feel like I've been kind of warned over the years that the margins in this business. At this point, there's a real limitation on how much.
There's kind of an interplay between You've heard me talk about a lot of investments we're making in the business. We have an analytics team, as an example, that is probably now 30 to 40 strong, that we didn't have a few years ago. We've got an IT organization we've built up that's pretty significant. To the extent we continue to invest in the business in pursuit of this superior outcome, that is going to be a counterbalance to some of the productivity gains that we may see. I think there is, over time, the possibility to see growth. We're challenging ourselves on productivity every single day.
I think right now we're still pretty comfortable with the margin levels right where they're at, so that we can continue to invest in the business under the assumption that we are going to continue to find a better way to handle a claim. There's a lot of different. I didn't mention, we're building mobile apps. Bill Ziebell was talking about the way you need to interact with injured workers. Same thing for us. We've got millennials that we're interacting with who are injured. I've got mobile apps that are being built. I talk about this contact center in terms of innovative ways, fully automated virtual assistants that we all interact with in any company that we may talk with. We're building those sort of capabilities to be able to interact with people differently. We're building decision support tools for our resolution managers.
I think at this stage of the game, unless there's a moment in time where we start seeing less of a need to make that investment, it's probably going to stay right where it is at the moment. Long term, we're not going to shy away from looking for productivity gains as well.
Yeah. You mentioned a couple of times in.
Where are we at?
Right here.
There we go.
Scale. Could you maybe highlight or rank order the top three benefits to your scale that maybe give you an advantage over smaller TPAs or smaller claims servicing-
Right
organizations and carriers?
Let me give you a couple. One is just the ability to invest. The fact is, our technology. A smallish TPA, now this doesn't necessarily mean Sedgwick, or it doesn't necessarily mean Crawford, but a smallish TPA is not going to have a 30-40 person analytics team poring over data, looking for a better way to handle a claim. Just ain't going to happen. Same thing with technology. Their ability to build mobile capabilities, the ability to implement something like our new liability system on the FINEOS platform just isn't going to happen. I think that's one advantage. The other thing is just expertise. One of Doug's favorite topics is as we continue to grow, we've got many more smarter people in the business that have different experience and knowledge, and our ability to tap into that when we're handling a claim.
Big bus accident just last week in southern Illinois, a large client of ours, traumatic situation. To be able to draw on the expertise, not necessarily just in the U.S. or associated with that team, but even around the world, is something that other organizations don't have the benefit to be able to do. I think you've got knowledge advantages. I think you've got resources and investment advantages. The other thing that I talk about too is just the volume of data. To do a lot of things we're talking about, to build better decision support tools, to be able to equip our people with deeper and better expertise, you need to handle claims, and you need to handle a lot of them. The interesting thing is, I think in a lot of cases, we still don't think that we have the scale of the data.
I can only imagine if somebody's handling 100,000 claims a year, 200,000 claims a year, probably like the small broker, at some point, that model's probably going to break simply because they just don't have the wherewithal to build some of the things that we're talking about or have the depth of experience or expertise.
I look at the recent sale of Sedgwick to Carlyle. Could you just educate us, I guess, a little bit on how you're similar and how you're different to some of the bigger guys? Again, talk a little bit about the smaller ones, but Crawford, Sedgwick, where are you competing? How are your businesses different?
Sedgwick and Crawford have one big difference. They're both big in property. If you look at what Sedgwick bought recently with Cunningham Lindsey and VeriClaim, and you look at where Crawford came from, that is the cornerstone of those two organizations. We're not as big there. Let me pull out another one. I think as it relates to workers' compensation and desks around the world, we're second to none. None of those guys can even come close to competing with us in Australia or New Zealand or for that matter, in the U.K. when it comes to liability. There is some differences outside the U.S. in particular in terms of where we have specific expertise. Sedgwick is a player in the disability side here in the U.S. That's an area that we have not chosen to pursue as aggressively.
As we think about the carrier marketplace The fact is, I don't have a large P&C carrier interested in buying my disability capabilities. It doesn't necessarily enhance our situation there. We have a significant advantage over both of those organizations when it comes to serving carriers. The difference is, it's all the conversations you guys have had over the last couple of hours, and heard about on the brokerage side. The fact is, that builds a relationship between Gallagher and those organizations that does play in our favor. Sedgwick doesn't have it. Crawford doesn't have it. When you get down in terms of competing on delivering a better result, I'll tell you can look in the market, you can go read Business Insurance.
You're hearing about the things and the advances that we're making, I think to a greater extent than anything that's happened inside Broadspire or the Crawford Broadspire organization. They are not making the investments. They'll talk a little bit about some of it, but nowhere near to the extent that we are. Sedgwick's formidable on that front, it comes down to who's better. I'll stack up our people on the technology side and the analytics side any day against them. I think we're seeing clear evidence that we're putting services and products out there that are leading edge. That will be an endless pursuit in terms of it. One last comment on that. I think it's our three organizations, I do think there's a big difference between even Sedgwick and ourselves versus maybe a Crawford, that do have the global scale at the moment.
Then you've got a whole bunch of organizations. If you take a CorVel, it's 100% in the U.S., and it's still predominantly workers' compensation. The other thing I mentioned is on the specialty side. We're making a push on the specialty side in terms of dealing with some of these other exposures that I'm not seeing from our competitors. I think you're going to hear about GB Specialty in ways that they aren't going to be able to compete with us in the years ahead as well. One more question? You guys can ask it at the same time and see. I'll pick which one. Yeah.
Can you remind us if there are synergies between claims management and the brokerage competitors or.
That one, I'll leave it to Doug to take a guess as to whether or not the other brokerage businesses will choose to play. In terms of synergies between ourselves and the brokerage business, couple things. One is when you hear about things like intern programs, and building the infrastructure and the capability and so forth, we tap into that capability inside Gallagher just as any of the brokers do. When you talk about the technology and the infrastructure and what's being invested to make sure that we've got an airtight, highly secure set of systems, we're all tapping into the same core IT operation. Our scale does give us advantages with respect to things like that.
I still say the greatest advantage in terms of the synergies between ourselves and the Gallagher organization from a brokerage standpoint, is the fact that we're both serving a lot of the same carriers or working with the same carriers. That does change the dialogue that we're having with a number of the large insurance carriers around the world. Pat makes darn sure that when he's sitting there having a meeting with these guys at the CIAB or anywhere else, that Gallagher Bassett gets discussed. It's on the table. That is, I think, when you talk about synergies, probably the one that may have the greatest long-term potential. The fact is that Gallagher, we do have business that comes from the brokerage business. It's not to the extent as it is with Aon or Marsh.
The fact is there are opportunities, and we're trying to tap into those. We're talking extensively with Joel Cavaness around his MGAs, and the fact that we think we have a great solution for him. There are definitely opportunities like that.
Have you been able to quantify that as a kind of cross-sell, or it's still there, it's just tough?
I don't know. I probably have maybe a number in the back of my mind, but we've got to go sell ourselves. We've got to go prove to our brokerage partners that we're the best answer. I think as Gallagher continues to grow and extend its reach as a brokerage business, there are greater and greater opportunities for us. I don't think there's any doubt about it. We're now working with our brokerage partners in a way that we've never done before in New Zealand, the Crombie Lockwood operation. We're starting to handle claims for them. That is a new opportunity for us. I think there is significant opportunity, but we can't take our eye off the broader marketplace as well. We good, Ray?
Yep. Next up is our CFO, Doug Howell. He's going to have a discussion on our financials and probably hit the CFO Commentary.
All right. Good morning, everyone. Thanks for coming in and spending the morning with us. Really appreciate you taking time out during the holiday season and saying hello. I think I've got a half hour, 40 minutes, I can plunge into some questions, but some housekeeping I wouldn't mind doing is going through the CFO Commentary that we posted on the website. Just to highlight some items I know maybe you've been reading and processing in the meantime. Not a ton of changes in the document. A couple things to point out from where we were in October. Let me get to that. I'm on page two.
We're still having success with some outplacements and restructuring of positions. We've guided that we'll probably have an adjusted item of about $0.04 in the quarter. That's up about a penny from where we were in the fourth. There's been good work done by the team in order to take action on about 400 positions. We think that'll give us some nice headroom next year to pay for inflating costs such as cyber, some additional production talent, and some of our marketing costs. Not a ton of the savings will hit the bottom line, but it does give us an opportunity to deploy that spend into something that's more current than necessarily in the past. We're happy about that.
A note for your model, make sure, because we have been, you've seen a lot of the acquisition announcements that have come out over the last few weeks, make sure you take a look at your model and look at amortization. We thought we were going to be around $71 million in the quarter. We'll probably be closer to $73 million in the quarter. That'll pop up. Tax rate, feel pretty good about the 25%-26% range. Take a look at your models on that. Risk management, we still feel comfortable in the 17-17.5 point margin range that we talked about before. Again, the tax rate somewhere in the 26%-27% in the risk management space.
When you flip to the next page, on the page three in the pinkish section there, we had a really good November on our clean energy production. We've pumped that up to about $1 million. We think that we'll over-perform from where we were at the end of October. Still a lot of time left in December to see if we got a little bit of a cold burst here. Hopefully that will be squarely in the midpoint of that range. The impact of tax reform. We still are digesting the impact of all the things that happened a year ago and current as we speak, there are revisions going on and clarifications that are coming out of Treasury on how this looks. Make sure your models include the impact of U.S. tax reform.
Other than that, fairly benign commentary in the CFO Commentary. Nothing new, which I guess in this environment, nothing new is pretty good. Any questions on the CFO Commentary before I go into maybe just some follow-ups on some of the comments from the group? Got a question over here?
Okay, there we go. This might be CFO Commentary, I am not sure, but just about tax credits. 2019, 2021 were the years that were cited that if current law stays the way, you will not be generating more credits for. Is that expired December 31st, 2021, 2019? The half of the plants that are 2019 bound will continue to produce the same credits they have been on the same basis through the end of this coming year? Does that phase out through the year? How should we think about generating tax credits? Is there any legal things we need to think about, you thought the law might change before?
Yeah, that is a great topic as we move. Let us go to page four of the CFO Commentary so you can see. First of all, as I say all along, I have cautioned that hopefully nobody is really looking at our clean energy investments as being core earnings. They are not. It is an investment program. It does generate GAAP EPS, but really this is a treasury function or a tax function that will generate cash flows. The punchline in this, after the program is gone, just a reminder, the GAAP earnings will go away, but cash earnings will go up dramatically because we are no longer producing credit. If the GAAP earnings go away, tax earnings will increase. How do you evaluate it?
If you go to page four, it says that we have somewhere around $16 million-$17 million of annualized after-tax earnings are being generated by our, or excuse me, 2009 era plants. If those sunset at the end of the year, the way the current end of 2019, it is probably closer to a December 1st date than it would be throughout the year that we would take down the locations. Maybe next year, if you were looking at this, the $16 million-$17 million would be 11/12th of that number versus a full year. That is one way to answer your question there, Josh, Matt. However, I would say that those are locations that are generating credit that we might be able to relocate an underperforming 2011 era plant and move them from a 2011 location, put it in a 2009 location.
It does not mean that all of this will go away in 2020 as we sit today. There could be carryover into 2020 related to our 2009 era plants because the plant is what is certified. The location, we are kind of agnostic on the location. We can put it wherever we think that we can produce. Moving one out of the 2011 era and putting it in the 2009 era is a possibility. There is also a possibility that legislation could happen and extend these credits. That has happened before, just like when the extender bill happened back in 2011. It allows us to put further plants in service. We will see what happens here in the lame duck session and what happens after the first of the year, but your guess is as good as mine on that. That is the short answer, what happens in 2009 era plants.
Let's follow up on that before we go much further. Either one. I'll give it to Bob. Age before beauty, right?
Does it make sense to go to a cash accounting system like Willis and Aon versus GAAP when your cash earnings are more?
I think, Bob, that's a great question. I think that that would be useful additional information for you to understand, and we will do that. I think there's no question about that is to start giving a picture, because right now the brokerage and risk management segments show no benefit for any of our clean energy investments. If you take a carrier or maybe some other brokers that might have, let's say, an investment portfolio that has all munis, that has a lower tax rate on those, that's probably benefiting their core businesses. We've chosen to make sure that no benefit is ascribed to the brokerage and risk management segments from our clean energy investments, to keep it in a clean bucket here.
We're running, when we talk about tax rates of 25% or 26% or 27%, the reality is those units are paying more like 5%, let's say, because the clean energy credits are being used to offset that income. Your point's well taken. I do believe it would be useful for those of you that invest and follow our stock to be able to show that, Bob.
2020 is a theoretical cliff, but 2019, we're going to be looking for 2020. Would you want to do it next?
I think we can be well prepared to do that. I think there's a couple things that we want to do. Let's see what we can do about relocating the plants to make sure that we can get through the end of 2021. Let's see if we have some success in extending the law, because that would be another idea. I think it's a pretty easy thing for us to do, to be honest. I wouldn't wait until 2020 to do it. Maybe this spring we'll do another freshen up on this topic. We did an investor day on this. God, it's probably been five years ago already now. Maybe it's time to freshen up and just show the difference between cash earnings and GAAP earnings on it. Aaron, I think you were next.
Can you talk about the ChemMod royalty income? Would that be impacted by the 2009 or 2011 era plans?
Nearly all of our locations use the ChemMod technology, and they get a royalty. ChemMod does, but we own 47% of ChemMod, and we also consolidate. In addition, there are, let's say, an equal number of plants out there that Gallagher has nothing to do with that are also using the ChemMod technology in their plants. I can't off top of mind speak to whether those are 2009 plants or 2011 plants. My gut's telling me, if recollection is right, those are mostly 2011 era plants, so that royalty would extend through 2021.
should I kind of think of the ChemMod royalty income coming down by a similar amount, the 2009?
Yeah, it'd be all proportional. By and large, proportional. Yeah. Aaron?
When you think about the internal, when you think about the present value of tax credits that will be on the balance sheet and will continue, do external interest rates impact your view of that at all?
All right. What's the NPV of the credit? I think you have to pick the risk rate of return on those. I think if they're in our balance sheet, the risk rate is significantly lower than new credits produced going forward. That's the question. I think there's $800 and some million that might be in our balance sheet right now. How long does it take to use them? Gee, at our growth rate, I've said that we think that these credits could be used all the way through the end of the 2020s, basically. We're growing pretty fast, so that might be mid-2025, 2026, 2027. I think that do interest rates change if they change by a point? I don't know. It probably doesn't impact our thinking that much. Kai?
Thank you. There are series of writer articles about this topic recently. I just wonder, does that put into unfavorable spotlight of this issue that could prevent being either extended or your ability to keep the tax credit going forward? Is there any regulatory risk on that?
Yeah. Listen, I think there's about four or five things that rattle around in my mind about reporting on this topic. I think maybe my thought is this, is we're talking about an encouragement to innovate, to make coal better, right? That's what Congress did when it went back in 2004 and passed a law. It says, "We recognize that United States is dependent on coal generation for a period of time to power our iPods and our cell phones and everything else. We think that while America is still going to use coal, let's try to make it better." That really is the objective of the law, and it did exactly that. It encouraged companies to be innovative, and it set some pretty tough targets for us to overcome, right? Innovators. It's not just us. There's others that do it.
Some writers quibble a little bit with some of the precision that goes on in this. There's always statistics that will show a positive or negative reaction. If you have a fundamental bias to using coal, then I don't know if there can be a really objective view of looking at what the program's been done. By and large. The government has said if you take out 40% of mercury and 20% of NOx, you've accomplished what they're trying to do. I think that some of the reporting has overlooked the fact that we are taking out 75% of mercury. I think one article said we're taking out 19% of NOx versus the objective of 20%. There's other factors that significantly influence NOx.
If the writer's statistics are showing 19% and our statistics are showing well above 20%, maybe into the 30s, maybe closer to 40%, it seems to me that we're accomplishing congressional intent and we're actually following what Congress asked us to do. They said, "Take this out." It can be measured in a laboratory environment because the rule makers, whether it's Treasury or whether it's Congress, understood that measuring NOx is a very difficult thing to do. The point is we're doing it and we're taking it out. Arguing over an article that was written by an author that may or may not like coal, I don't know if it's productive. The fact is what we're doing is we're accomplishing the objectives with our greatest intent on this. Do I think this will influence Congress?
I don't think so because I think they're pretty knowledgeable about the statistics and the rules that we're following, and I think they've got really good, solid evidence because they're on the inside of what's happening through Treasury. I don't know if it's going to influence it or not, and frankly, I think it's important because it keeps a lot of people working. We employ a lot of people in the coal industry, and until coal goes away, why don't we just all agree that it's better for it to be better? That's what our objective is. I think taxpayers are comfortable with trying to make energy better and cheaper for consumers. Until coal goes away, we're stuck with it. Let's make it better. In answer to your question, I think Congress will see its way through to this.
Whether they extend the law or change the law, I don't see them canceling the law by any means. Will they extend the law? Your guess is as good as mine, Kai. Brian?
Is there a business model out there for those plants that need about the use of tax credits?
Yeah
Specifically for the 2009?
Yeah. I believe that if a utility wants to continue to control mercury and NOx, our process, the Chem-Mod process, does work at a fairly reasonable cost per ton in order to treat the materials. I do believe if the utility wants to continue to generate it, there is a model where Chem-Mod's royalty, there is a positive cash flow on the royalty amount. One other thing about this, that everything you read, we've got a carbon problem in the world, and that doesn't come just from coal, but it comes from natural gas and other fossil fuels that are burned. Many of these innovative subsidies and credits have lateraled into other technologies. Right now, everybody seems to believe that if we can reduce carbon, that's good.
Well, some of the technologies that are developed to control NOx and mercury might have application into carbon, or they might allow us to keep scientists working that they will toggle into carbon remission. There is a lot of good. I think that somebody would say it might be worth $1 billion a year if we could solve the carbon problem, right? I think that there's good laterals in these, Brian, that will actually help scientists stay at work, innovation to happen, and maybe there's opportunities to fix the carbon solution because of the innovation that was going on with mercury and NOx. Not exactly the same science, but it's the same people in the business that are sponsoring this innovation. The first sponsors of wind didn't get the windmills exactly right.
With time, we got better wind, and maybe hydro led into wind because it's just moving power through a generator. There's good laterals here that I think that there's good public policy in having these subsidies, in my opinion. Other questions on clean energy or All right. If not, feel free to ask. Let me toggle into some questions. I want to make sure that everybody's comfortable with the rate environment. We talked about, by and large, rates going up, maybe workers' comp down a little bit, but a pretty stable rate environment for us. Hopefully you took that away from the earlier commentary. On the exposure side, we're seeing exposure in our client base that continues to grow. We're seeing full employment. We're seeing claims frequency going up a little bit. By and large, the rate environment seems healthy.
The exposure environment seems healthy at this point, too. We're not seeing any tatters around the edges with respect to exposure growth. Hopefully that came loud and clear in what you were hearing from that, by and large, around the world. The U.K. may be a scope slower. Next question is usually margin. Let's talk about organic growth. I think that we feel, and we had a big fourth quarter last year, so just be aware of that as you're building your models, that two strong fourth quarters in a row. This year, we had a pretty strong third quarter. You might see, compared to last year, fourth quarter, I don't know if we'll post the same organic growth rate or not. By and large, for the year, we predicted that 2018 was going to feel a little bit better, maybe a point better than 2017.
That seems to be coming true. How do we feel about 2019? Do I see it a point better next year? I don't know. At this point, I can tell you. In fact, I go into budget meetings as soon as we leave here for the next three days. I don't really have a good feel on that yet. I would say that 2019 should be as good as 2018 at this point. I don't know if it's going to be markedly better, but I think it's in there. Listen, the great thing about recessions, they'll tell you after you've been through one. I think I'm not smart enough to opine on this, but I will. I don't know if the inverted yield curve in this environment really means the same thing that it did the last time. I don't know.
I'm not plugged in enough to say. I think things change that can cause aberrant events to influence that, either on a short-term or a medium-term basis that might not be a lead indicator of something that will happen later is currently happening. Correct. Right. Who knows what it would mean, right? I feel good about the growth environment. I feel good about the acquisition environment. We're still doing nice tuck-in mergers at a really fair multiple, in the 7.5 to 8.5 times range. We're really seeing our fair share of opportunities there on that. The margin side, fourth quarter is always a tough quarter to expand margins just because we've given raises fully for the year. If there's too much optimism in the fourth quarter, I do see opportunities for next year.
I think that the headcount controls that we've put in place to redeploy will help us avoid some of the inflation, and I really believe that our offshore centers of excellence are hitting their strides with other units, such as Gallagher Bassett and our Gallagher Benefit Services unit. I think there will be opportunities there to start having really high-quality work done in those locations. Next year, same thing. It's hard to expand margins. If not 3%, you can get a little bit between three and four. Over four, you should have margin expansion in 2019. Gallagher Bassett, we're comfortable with their margins in that 17.5% range, something like that. I think that seems to be holding up well. The Clean Energy side next year, I'll give you those numbers probably in January. We're still getting budgets from the utilities.
We did have a kind of a banner year this year. I probably wouldn't have as much optimism maybe as I was standing on December last year about the next year. We don't have any new plants coming on place, and we're going to lose a month on our 2009 era plans. Even if they have a little bit of a pullback in terms of credit generated, it actually improves our cash flows because they're not spending cash in order to generate those credits. That's kind of the recap of what maybe you heard this morning. What questions do you have on the core business?
if organic growth is going to be similar in magnitude to 2018, which-
Let's see. I think we're kind of on track for 50 to 60 basis points of margin expansion. That would feel about right. Barring something else that comes up. Wage inflation does concern me. I think that it's there. That's a big part of our expense, obviously. I think our Gallagher Service Center allow us to have a little bit of a safety valve in that. there is wage inflation out there. I think that 2019, we can keep pretty good tabs on that. What happens in 2020 or 2021 might be a different discussion, but I think that we're in pretty good shape there.
Pat mentioned wage inflation, which you just commented on, and he also mentioned cover from lower real estate costs. Just curious, Was that material in the last few years? Have you guys already lapped those tough comps, or is that something we should be-
Yeah, real estate's an interesting thing. I think that we're fortunate on a couple things. We've been watching this for years. I think we've got a really good handle on what we're talking about in terms of real estate. let's say that if we renewed everything at current rates, let's say there's $10 million or $15 million of additional costs that would come up at current rates. I actually believe that with better hoteling, better office sharing, better work from home programs, better technologies, that we have techniques that should be able to offset a lot of that real estate inflation by just being smarter within the real estate category itself.
Oddly enough, if you go back eight years ago, the amount of spend, I'm going to say this, in the U.S., is about the same amount that we're spending today, and the fact is that we're twice as big in the U.S. as we were before. Our techniques of being smarter on how you do real estate footprints As I look around the room here, people are using keyboards the size of their palm, and they're typing on their cell phones. If you think about what do you need, you don't need a four-foot square area for a CRT. There are techniques that we can employ on that to go to more office sharing. I hope that the team is fast at work, and I know they are, about finding ways just to control real estate within its own category.
I don't have to borrow from something else in order to pay for that inflation.
One more follow-up. The intern program was mentioned a number of times. Has that been
What was mentioned?
The intern program has been mentioned.
Oh, yeah, the intern program
a number of times. Has that been a net cost?
Well, I believe it's paying off considerably. I believe our cost, we probably spend about $6 million-$7 million a year on our internship program or an extern program, bringing young people into the business. Truthfully, with the wave of retirements that's hitting the industry, we probably could even double that in terms of the number of people. I think on average any year, our internship is 400 to 500 people, and we probably have postgraduate, post-undergraduate, another 100 or 150 people that are always in there before they're validating. It is a cost for us, and it does pay off. Truthfully, it's kind of table stakes. I believe if you're not investing into youth that can come into the business. We have 700 locations around the world.
Not all of those are brokerage operations, but every single one of them is going to need a branch manager. We believe that you should have people coming through your program that is selling insurance, providing consulting, or providing risk management services to run a branch. We are a model of brokers run by brokers, and that trickles down to the branches. I think that our program is working. We know it pays off. I think that it could use more investment. If people were asking me, I'd say, "Yeah, let's put 1,000 kids in our internship." The problem is internships run primarily in the summer, and to drop 1,000 kids into it, you got to have people that are there to mentor them and take care of them.
I joke when I speak to the interns, I said, "Listen, when you show up your internship, as a career, your job is to find a career that you like 80% of the time." They all nod their heads, and they say, "Yeah, that sounds good." I said, "Well, that means you have one crappy day a week." It's the mash or the crappy week. By the time you become an executive, you kind of have two and a half crappy days a week, to be honest. I said, as interns, we can't man you 100% of the time, so you're going to have half of your time is going to be crappy. Welcome to senior management. That's basically what happened. It is hard to put people into the internship program because you got to have somebody mentoring them. Otherwise, we lose them forever.
There is a governor on the amount of people that we can have, but I would certainly like to see that 700 people in the next couple of years. Are you looking for something to do, Mike?
No. Hope today is not one of those crappy days for you. Could you tell us what the average organic growth for the company To try to figure out, are they running a better organic growth rate than your core book? As they seem coming into becoming organic, your times, will this be a positive driver for your whole core?
Good question. I want to make sure, Pat, what he's talking about, we do not count the first year of growth in an acquisition as organic. If they join us and they immediately go out and sign up a big account, that is excluded from our organic growth. After the first year, the tailwinds that they might bring in to target thing, it does fuel our organic growth a little bit. For me to quantify it's kind of tough. I mean, we've done it. We've looked at it. How much? It would be maybe a quarter of a point at the greatest on that. If we're reporting 5.5%, maybe it's the second, third, or fourth year from the acquisitions is contributing 15 basis points, 20 basis. It's in that type of magnitude, but it's not taking our organic from 3% to 5.5%.
Just because the sheer size of it's not going to move the needle as much as maybe you're thinking, Kai.
Sure. I just wonder, when you acquire them, before you acquiring them, are they growing faster than Gallagher?
Some are, some aren't. We usually look for the potential to grow more than where they've been. Really, a lot of the reason why they merge with us is they've hit kind of a plateau in their own growth because they recognize they need our capabilities, our service, and our resources. That might be an impetus for them to sell. It's not just because they're getting older. We typically try not to buy retirement. We typically try to find people that want to sell more insurance after they sell to us than they do alone. It's not an age. Age does influence the sale to a certain extent, but the capabilities is what really cause people to join us. I think that if you looked at the average age of sellers to Gallagher versus, let's say, the PE firms, I'm just guessing, it's a hypothesis.
The average age might be higher at a PE firm because it's a monetization event. It's monetizing their life's work. They're really going to continue to do everything they're doing. They're not going to get any additional resources per se. Somebody that I would say that ours might skew lower. It's an interesting thing. It would be interesting to add it up and see what happens. Brian, go ahead.
Hey, Doug. I just had a couple. First one, if you could just remind us, when you talk about the valuation being on M&A 7.5-8.5 times. Is that making an assumption about the fully integrated expense base? In other words, is that receiving the tailwind from all the efficiency measures and all that? Are you just talking about the expense base?
Actually, what we do is we take their last 12 months actual, adjust it to how they're going to run with us with no revenue synergies, and compute the math. It would be basically using their existing expense base that will continue after the acquisition. Then we compute the multiple. We also do this. Since most of ours are on earn-out, we wait until the earn-out's done, and we measure how do we do. Because you can do that on some. If there's no earn-out on it's kind of hard to do because of stuff. We don't count any revenue that's traded elsewhere in the organization. If they are a company that comes in and then uses our wholesale operation, that wholesale revenue is not counted in this next math I'm going to tell you about.
We then look at their EBITDA at that day compared to the total price that we paid, initial plus their earn-out, and the multiple ends up being lower than it was when we paid for it on the first day. If you wait three years later, how much are they making, ignoring all other revenues elsewhere in the organization, take that run rate EBITDA with our expense base in it now, because a lot of times we add expense in because our benefits are better than theirs, and we take it by their multiple total purchase price, and it ends up being less by about almost a full turn, what the add to portfolio comes out at. I don't know if that exactly answers your question.
I think that helps.
But when I-
My other one was, thinking back when we were here a year ago, I felt like you were being pretty thoughtful and perhaps a little bit apprehensive about some of the revenue recognition changes being made.
Yeah.
Especially around this issue that you started almost getting this P&C like actual to expected concept where you had to estimate something early, then that was going to get trued up based on what actually happened. Here we are, I guess, three quarters into that experiment. Is there anything you can say that you've learned from that? Has that ended up being a tailwind in terms of that whole actual to expected estimation process?
A good question. I still believe that the new accounting has put in much more subjectivity into the actual revenues by quarter. I don't think the new revenue recognition standard has made the recognition of revenue more precise. I do believe that it's subject to more estimation. Has it changed? What I think that probably if I were going to look at it, some of our guesses on supplementals and contingents might have been a little low, and we might have a little catch-up this year, but not a significant amount. I think that those guesses that we did for booking as of 12/31/2017 are coming pretty true. We just didn't have full information yet at that time.
Those truths have been coming through from-
They have, I would say in any one quarter, it hasn't been something that's overly significant. The answer is, sure, there's been true-ups, but it's not material or significant in nature. Tom? Oh, sorry. Brian. Brian was ready first.
Sorry. Just three questions on M&A. Pat mentioned earlier, the pipeline size. I missed that. Can you let us know or gauge us what the size of the M&A pipeline looks like right now?
Yeah.
Just then, any preference between international and domestic at this point in time? What, if any, impact PE firms are having?
Great question. I think that we've got 60 deals in term sheet or mergers term sheets or either signed or being prepared at this time. I think that's for about $500 million. I'm kind of looking to Ray in the back of what we've got in the pipeline. Multiples I think was the next piece. International versus domestic. I think that we took a pause in the U.K. a little bit because of kind of digesting the Giles Oval acquisitions. We've done a couple small mergers at this time in the U.K., so I would expect that's picking up. We just did a nice one in Canada, so that's picking up, and we did one in Australia.
You're starting to see a little bit more international growth in opportunities because I think their operations have been fully Gallagherized now. If they're organically growing and they've got the culture right and they're working on getting a lot of their work done in the service centers, kind of the next one to fall in place of the four pillars is the M&A. You are seeing that. Obviously, there is a froth in the U.S. marketplace right now of opportunities for good mergers, and we're seeing our fair share of those. Do I have a preference for one versus the other? Not necessarily. I think that using our tax credits are for U.S.-based acquisitions, right? You don't really get to use the tax credits in the international space.
The rate differential between the countries doesn't make that much of a difference by the time you levelize it out. I think that Australia and New Zealand have the highest statutory rate at this point. Technically, if you're paying eight times in the U.S., you would have to pay 7.2 times in Australia for it to generate exactly the same financial terms. It's not a big out of whack. I don't have any tax incentives to skew to one particular geography or not. I think that our international expansion, remember the genesis of our international expansion is how are they trading back with us around the globe into London in particular. We'll take nice measured ownership stakes in family-owned brokers in international, let's say outside of Canada, the U.K., Australia, New Zealand, and the U.S.
We'll take positions in that, but there's not a throttle to get into those areas or not. There's always a temptation to throttle into a high organic growth environment. Some of that can come and go pretty fast, so I'd rather have the right long-term view of that country than I would necessarily the, "Oh, it's growing at this point." Currency's a risk in some of these countries. Cash flows out of there are a little bit of putting money into a country you can't get any cash out of for 10 years isn't something that's high on my list at this point. They've got to self-fund on that. I think that we're pretty good, and I think the amount of opportunities that we have in the U.S. right now is pretty amazing, and we're seeing that in the U.K. and Canada and Australia at this point.
Yeah, I think that I'm actually seeing a little softness in that, to be honest. I don't know if it's the tax rate changes or some of them that are heavy into this space have already got their platforms, they're not as hungry for necessarily starting something on that. I think some of the firms are also starting to think about the sale process. That could cause them to buy a whole bunch right at the beginning, because if they feel they can arbitrage it, they'll go out and buy it at eight and see if they can flip it at 12. Our appetite for roll-ups, true roll-ups, is pretty low. As exit strategies for PEs, not high on our list to just take a collection of people. The reality is, if they sold to them, they could have sold us in many cases.
Why didn't you sell to us in the first place? It makes us not so excited about if they sold five years ago or seven years ago or something like that. That's a different story. If you didn't sell to us the first time, you probably aren't going to be excited about being part of a larger company that sells to us on the second time. Let Bob have a shot.
You helped us out, Doug, with the clean energy component of corporate for next year. The other key items of interest in banking sort of grows with deal size. It's grown a little bit faster than revenues this year. Corporate expenses, not a big item overall. The impact on U.S. tax reform, I mean, that doesn't go away next year.
Yeah, good question.
Are you going to keep that as a line item going forward?
Bob?
Just a little bit help with the other line items to think about next year.
Yeah, I think that one of the things that tends to be a little bit of a miss in some of the models is that there's acquisition growth that's put in there that somebody doesn't increase the interest. For every merger that we do, by and large, 2.5 times our EBITDA comes in corporate debt, right? We're running between 2.5 and three times, depending on how you want to measure it. On a covenant basis, it's 2.5 times. You probably should add a little bit of an interest expense into your models on that when you do that. We always usually give you that, so it doesn't seem to be too much of a modeling error, but just mentally on that.
In terms of the impact of tax reform, we carved that out because that's mostly the GILTI tax, the loss deductions on our executive and certain executive compensation, meals and entertainment allowance differences. We put it down in one line item because we're not exactly sure how much of that is going to repeat because the laws are being changed, right? Every day, things are clarified. We've kind of put it down in a bucket, and it's about $15 million a year of lost We get the 21% tax rate, but you give a little bit back in some loss deductions. In our case, almost none of that, or nearly all of that is not cashed, depending how you want to say it, because we're using our tax credits against it.
The real cost of those tax changes in a cash basis might be 20% of the number, 10% of the number. It's $15 million of book expense a year. It's probably only a million and a half of cash. We put it down in that line item. We'll see next year whether we have enough information just to put that in corporate or put it someplace else. I think for the time being, it was such a hot topic a year ago in March that we just broke it out separately. It is something you should put in your models as recurring, but it really can change.
I feel more likely now that it will be pretty close to the number or down a little bit than it will be going up dramatically, just on the way these technical amendments are coming through. By and large, it doesn't impact the cash flow.
It may offset the interest growth to not grow, or I guess it might not, because it's a smaller line item. Corporate expenses, corporate item, you're going to have less clean energy, maybe less than 12, and other stuff are going to be growing. The corporate line item will be a bigger loss next year than this year.
Yeah, I think so. I think that you have to look at it. As interest grows a little bit, as the tax reform information stays in there. If we don't produce quite as much clean energy, again, this is not Only interest is cash. Let's be honest about that. It would cause a GAAP earnings decrease on the corporate segment, not in our core businesses, but in the corporate segment.
Do you pay similar multiples for employee benefits versus? Can you talk a little bit about your pipeline in terms of the mix?
Question was benefits versus P&C. The pipeline's really good in the benefits side. As good, if not better than on the P&C side. The reason why that is a flight to capabilities, compliance, legal, communications, retirement planning. There's a lot of really good smaller brokers that have been playing in the medical space, been playing in the dental space, the vision space, and they have really good clients that would buy retirement service, communication services, EAP, voluntary benefits, just consulting in terms of how to reshape their cost of employment or cost of workforce. That's why if you talk about the run to capabilities, you saw it a lot sooner in the benefit space. If you go back six years ago, it was happening a lot faster than the P&C space, but P&C is catching up to it. There's terrific opportunities in that space right now.
As I think about our merger list, the section that's the benefit side has a lot of names on it right now. Oh, multiple differences. I'm pausing because I can't recall any that are out of whack one way or another. Sometimes in a consulting business, the multiples will come down. If they're heavily weighted to consulting, that multiple might be less than a benefit shop that has a lot of recurring annual type work. If it's one-shot type consulting, typically the multiple would be a little bit lower than that. Just the same way on the P&C side, as we pay a little bit lower if they're always dependent on contingent commissions, because that might be a more volatile line, so the expected discount on that would be higher.
I think that most of the benefit shops that we're buying aren't necessarily propped up a lot on consulting. If it's in there, we'd probably pay just a little bit less for that or put a bigger piece of it on an earn-out. I think Mark had his hand up, and then we'll come back to Kai, and I don't know if Matthew did too. How are we doing on time? I don't wear a watch. That's why I'm always late, probably.
11:52. In situation like JLT came up earlier, in your experience, does that contribute much?
I think that's a great question. My position as CFO here is let's not be overly focused necessarily on JLT. There's a lot of other brokerage mergers that are happening out there in the space, especially in London. There's just a lot of change going on. I think that whether it's JLT or Marsh people that are duplicative with each other, they might look for a new home. Whether it's somebody that's been through the Willis or Towers merger, and if things have sorted out a year or two later and they really don't feel like they can trade there for whatever their reasons are. It's not like we're out there targeting these people to come join us. They have to make a decision. I think even Dan said it.
Every broker has to make a decision about where they want to call home on their own, right? I think that Gallagher is getting our fair share of opportunities is because things are going pretty well for us in the U.K. right now. Chily did a great job of stabilizing and reforming that business. Simon's taken over. We've got good leaders in Michael Rea, Jonathan Turner. These are folks that are really good names in the London marketplace that were not with us 3 years ago. They have proven track records that go back decades. If people are going to make a decision to leave a perfectly good organization like JLT or Marsh to come to us, there's something there that they think that they can trade better at Gallagher. Maybe it's niche expertise, maybe it's a opportunity.
I think that you'll see that movement happen whenever there's disruption, I wouldn't consider this to be a big growth opportunity for us. I think that instability creates opportunities for the stable. That's kind of a rule of thumb that would happen. I like it. I think that we are a good home. I think that we're a good culture, and I think that more and more people understand our culture. I think they think that they want to toil in it. I've got a total of five nieces and nephews, and four of them work for Gallagher. One's a speech pathologist, and she used to work for Gallagher. Not on the production side, only one. It's a great spot to toil, Kai.
Goosehead has been a well-received IPO this year. I just wondered what your interest in that space, either through acquisitions or replicate that business.
Question was about Goosehead. Good IPO. It's had some very success stock performance. Two comments on that is I think that that illustrates the value of distribution and the opportunity for creative distribution. The closest parallel I would say that we have to Goosehead might be our Pronto acquisition that we did that sells personal lines auto to the Spanish language community. We distribute it in a fashion that is just a little unique compared to, let's say, a larger national carrier or even some local carriers. I think that it shows that there are some creative ways to provide insurance to your customers. In that case, I find it to be pretty interesting story. I think there's a lot of those type of distribution angles or ways that happen inside a Gallagher.
If you really peeled us apart. I don't know what Goosehead's revenues are, maybe $60 million, $80 million, something like that. We probably have a dozen Goosehead type organizations inside of Gallagher that just sell insurance, provide service in different ways. I think it's a nice pure play endorsement of the value of distribution. That's not an opinion on the valuation. I'm saying that it's an illustration of the value of distribution.
Curious that's what a speech pathologist does with a Gallagher. My main question was whether there's anything you can-
Have you heard me speak? I guess you got a full-time customer. Stop trailing off at the end of your sentences, huh?
Fair enough. I was wondering whether there's anything you can talk about in terms of Capsicum and how you're thinking about
Capsicum, our reinsurance affiliate in the U.K., that we own 20% of, but really kind of trade with them on a 30% basis. Pretty amazing story. I mean, the growth that's happened from Capsicum from a standstill startup is pretty amazing, to go from zero to arguably the seventh largest insurance broker in the world, maybe sixth or something like that. I think it's an amazing journey that we've been on together. We think that reinsurance and the areas that Capsicum plays, is many times very integrated with what Gallagher does. You take FAC placements or you take international placements, but there's not a lot of difference between primary market and the reinsurance market in certain large case international spots. I think they do a really good job of bringing that capability to us.
They also have some specialty groups within their reinsurance portfolio that might be akin to a reinsurance program that you would see, where they have a special niche cover, that they bring and that it plays in certain. We like niche businesses. We like specialty businesses. How do I feel the long-term will play between Gallagher and Capsicum? We have another year to make these decisions on how we want to deepen our relationship, if we should choose to do that, and I think that will be an active dialogue that we have in the first half of the year. We've got an idea. It's been a terrific success story. I think it's got terrific forward thrust on it, and we'll see whether this is something that we want to do going forward. That's as much as I know at this point, Matthew.
I am looking around. I don't see any hands or questions. My summary comment is I think we're growing well organically. I think we've got an amazing pipeline from acquisitions. We didn't spend a lot of time on productivity and quality, but I've got to tell you, it's happening everywhere in there. Our quality is second to none, and it leads us directly to the opportunity to automate what we do. If we can standardize it, perfect it, make it 99.9% right, we can automate it next step. The people that are doing that work will continue to grow up inside of Gallagher to take on bigger responsibilities in their work. Our culture is pretty darn good right now. Thanks everybody. Happy holidays. Appreciate you taking the morning and spend time with us.