A Conversation with Integrated Specialty Coverages

Video Transcription

George Bucur: Hello, my name is George Bucur and I’m a director within MarshBerry’s financial advisory practice. Working with specialty distributors such as MGAs (managing general agent), MGUs (managing general underwriter), program managers and wholesale brokers. We are talking with Matt Grossberg from Integrated Specialty Coverage (ISC). Welcome Matt.

Matt Grossberg: Thanks George.

Bucur: Appreciate you joining us today. And to get things started, Matt, why don’t you give us a little background about yourself and Integrated Specialty Coverages.

Grossberg: Sure, I’ve been in the industry pretty much my whole life. I was a Chubb underwriter, owned my own agency and sold it, and then was a CEO of an MGA and started ISC in 2017. We’re a full service, multi-line MGA. We specialize in contractors, trucking, hospitality, and property right now. And we are tech enabled in the sense that we use ML (machine learning) and AI (artificial intelligence). We have about 46 different third-party data sets that we work with. Last year on our platform, we bound about a hundred thousand accounts. Of those, about 50% were done without human intervention.

Bucur: Very impressive. And what also is impressive is how private equity has really made a difference in the M&A (Mergers & Acquisitions) transaction world when it comes to specialty distributors. And just put into context, in 2019 private equity made up around 40% of the overall M&A transactions for specialty distributors. This year, they’re cracking right around the 50% mark on a much higher volume for the 2020 year. Can you speak a little bit to why private equity is so interested in the specialty distribution marketplace?

Grossberg: Yeah, absolutely. And I think it has a lot to do with what traditional private equity sees as three or four different value propositions. One is a very high bar or barrier to entry. You can’t just come into the space like you can as a broker. You really have to have a niche understanding of product and specialty underwriting. The next is the unique cash flow that the business spits out on an ongoing recurring revenue model. And I guess the third would be the ability to drive down multiples through acquisition and consistently increase space and size pretty aggressively.

Bucur: Matt, can you talk a little bit more about the new private equity sponsor that you just partnered with being KKR (Kohlberg, Kravis, Roberts & Co.), and go into a little color in regards to their prior experiences in the insurance sector and why they are so excited to get back into insurance distribution?

Grossberg: Absolutely. So, KKR has a very wide and deep knowledge of the insurance sector. They’ve done deals with Sedgwick, Alliant and most notably USI (Understand, Service, and Innovate Insurance Services) recently. They’re very interested in the insurance sector for a variety of reasons. I think one is the cash flow model and the recurring revenue model. The other is the new implementation and use of technology in the space and the ability to leverage that technology to reduce headcount, create efficiencies, and increase margin. Which again, brings down the multiples for acquisition.

Bucur: Excellent. And we talked about how ISC has made a lot of headway in regards to technology and creating efficiencies to expand margin. Now, I’m guessing there are other ways that you are planning to grow primarily on the top line, whether organic or inorganically focused. Do you mind giving us a little overview of how you expect that to happen over the next one to three years?

Grossberg: Sure, absolutely. I think I’ve mentioned prior to this, the acquisition strategy, which is a tried-and-true strategy in this space. We will be doing that on a much more strategic basis. We’ll also be releasing the De novo programs: new, customized, and exclusive products for retailers. And then in addition to that, we will be partnering and creating strategic relationships where we’ll have underwriting teams coming on board and releasing programs of their own.

Bucur: Excellent. Well, Matt, thank you again for joining us. It really has been impressive what ISC has been able to do in a very short period of time, frankly, and we look forward to watching your future successes in the years to come. Ladies and gentlemen, we appreciate your time as well and thank you for joining us. Have a great day.