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What do the Titanic, Boeing jets, the racehorse Secretariat's bloodline, and industrialist Andrew Mellon's business properties have in common? At one time or another in its 150-year history, Johnson & Higgins brokered the insurance coverage for each of these disparate entities. With over 8,400 employees worldwide and $1 billion in annual revenues, Johnson & Higgins is the fifth-largest insurance brokerage firm in the world and the largest that is privately owned. In contrast to an insurance underwriter, which writes actual policies, Johnson & Higgins brokers deals between clients and underwriters for many types of coverage, including property, workers' compensation, management and professional liability, environmental impairment liability, aviation, and marine policies. The company's 120 offices service large and mid-sized organizations--mostly corporations--and count among their clients half of the companies on the Fortune 500 roster. Though Johnson & Higgins's roots are in marine insurance, and its lucrative history has depended largely on charging commissions on the deals it brokers, recent macroeconomic cost-cutting trends have forced the company to move toward a per-service, fee-based compensation structure. This is in line with its evolving character as a consulting operation that helps clients find ways to reduce risk and thus the cost of coverage. The company's leadership sees its current mission as one of applying Johnson & Higgins's demonstrable past success to a changing industry and world. Hence the choice of "Experience for Tomorrow" as the firm's sesquicentennial theme.
The year of Johnson & Higgins's founding, 1845, saw the admission of Florida and Texas into the Union, the first telegraph cable laid across the English Channel, and Edgar Allen Poe's publication of "The Raven." Trade between the East Coast and the rapidly developing Midwest inaugurated a shipping boom that made New York City a major port and doubled its population in the 1840s to 700,000. Amid this growth, two 24-year-old clerks at an insurance company in lower Manhattan, Walter Restored Jones, Jr., and Henry Ward Johnson, set out to test their mettle as the partnership of Jones & Johnson, Average Adjusters and Insurance Brokers. Though at that time marine insurance policies were often simple enough to fit on one page and the need for brokers was therefore slight, there was a great need for average adjusters. The term "average" in this context derives from the French word for a loss and refers to the practice of the various owners of a ship's cargo sharing the costs of a loss when cargo is sacrificed to save the ship during a storm. This practice originated over 3,000 years ago and became increasingly complex in the 19th century as large vessels carried the property of hundreds of different merchants. The average adjuster served as a disinterested party who would assess the value of the loss and determine the portion to be borne by each merchant.
The partnership dissolved in 1853, with Walter Jones leaving to go into business for himself. Company records do not reveal the reason for the split, but Henry Johnson continued operations and soon took on a 22-year-old employee, A. Foster Higgins, as his new partner. Newly formed as Johnson & Higgins on January 3, 1854, the business was successful enough a year later to commission a 97-foot wrecking schooner, the Henry Ward Johnson, to salvage damaged ships and cargo. This may have been the ship used in 1862 when Navy Secretary Gideon Wells retained Johnson & Higgins to raise the U.S.S. Varuna, which sank after successfully neutralizing four Confederate gunboats in the Battle of New Orleans. As much of an honor as this task was, the Civil War ended a shipping boom reflected by the four-fold increase in U.S. shipping tonnage from 1845 to 1861. This growth had been spurred in part by the California Gold Rush and the new Yankee clipper ships that had reduced the travel time from New York to San Francisco (around Cape Horn) from 200 to 100 days.
The shipping industry revived slowly in the years following the war, but Johnson & Higgins weathered the downturn and ended up getting a boost from the soft market. Reduced shipping business during the war had hurt American insurers and put British companies in a stronger position, allowing them to charge lower rates and attract American shippers. This complicated the process of securing overall coverage and thus increased American merchants' need for brokers like Johnson & Higgins to put deals together. These changes came at a time of shifting company leadership. A third partner, A. William Krebs, joined the two founders in 1874, and another came aboard when Henry Johnson died in 1881, two years after his election as the first chairman of the Association of the Average Adjusters of the United States. Though he remained a part owner, Andrew Higgins left the company in 1887 at the age of 56 to pursue interests in finance and Republican politics. He achieved notoriety for his cooperation with J. P. Morgan in resuscitating a major New York City bank whose speculative failures had caused a severe financial panic, as well as for his endorsement of Democrat Grover Cleveland when the Republican party backed the protectionist McKinley Tariff Act of 1890.
In 1899, with the number of second-generation directors totaling six, Johnson & Higgins took the unexplained step of incorporation. Richard Blodgett, in his commemorative company history, Johnson & Higgins at 150 Years, quoted the company's current general counsel as saying, "I can trace the evolution of our corporate charter and all the ownership arrangements with exquisite detail. But why our forebears incorporated the firm, I don't know." Blodgett explained the historical context: by the turn of the century most U.S. goods were produced by corporations, but professional services, such as banking, law, and insurance, tended to remain unincorporated.
In any case, the partners designed a unique charter that is still in place today and is a reason for the company's continued private status. Each year one or two directors retires at the age of 60 and the board replaces them with senior executives, who buy into ownership. Upon retirement directors relinquish their stock to the company in exchange for a dividend paid out over the next ten years based on the company's performance. This system keeps control of Johnson & Higgins in the hands of active executives rather than outsiders, as is often the case when a company's stock is left to family estates and then sold off. It also insures that retiring directors usher in the most able replacements to secure for themselves the highest possible dividend.
By the turn of the century Johnson & Higgins had expanded to eight offices in as many cities and had 75 employees. Kicking off this expansion--the magnitude of which wasn't repeated until the 1960s--had been the 1883 opening of the second office, in San Francisco. This came about when an agent dispatched to handle the claim for the loss of a passenger steamer at the mouth of the Columbia River liked the area and wanted to stay. The growing demand for fire insurance in the wake of the great Chicago fire of 1871 and another the next year in Boston contributed to the opening of other branches, the next being the Philadelphia office in 1885. Johnson & Higgins's earnings from fire insurance were small compared to that from its marine business--only 10 percent of the New York office's income in 1901--but this would change as the demand for marine policies lessened by 1950.
The Titanic's disastrous maiden voyage in April 1912 took the world by surprise, famed as the luxury liner was for its superior design, which included a double bottom and a hull divided into 16 compartments, two of which could be punctured without compromising the ship's buoyancy. Johnson & Higgins was among the incredulous: calculating the risk of total loss to be very small, it had brokered the U.S. portion of the $5.6 million coverage at a nominal rate. All claims were paid within 30 days, though payments accrued only to the owners of the ship, not the survivors or the families of those lost. It was not until 1934, after other marine disasters, that U.S. law required minimum liability coverage. The Titanic disaster led to safety changes, however: no longer would teak grace a ship's decks and wood-burning stoves warm its staterooms.
As the United States belatedly entered "the war to end all wars" in 1917, Johnson & Higgins was a major broker of marine insurance and thus aided the government's efforts to insure merchant ships subject to attack. Congress established the Bureau of War Risk Insurance, whose three-member advisory board included only one broker, a Johnson & Higgins director. In the decade following World War I, the company continued its expansion with an office in Havana, its first outside the United States and Canada. (This was expropriated in 1960 by Fidel Castro's revolutionary government.) More significantly, by buying Albert Willcox & Co. in 1923, Johnson & Higgins began to establish itself in the reinsurance brokerage business, wherein insurance underwriters sell to other underwriters the portions of policies in excess of their capacity. Four years later the company also made its first foray into the employee benefits business, which is today a significant and growing segment of the corporation.
The years of the Depression were difficult ones for nearly all U.S. businesses, with cutbacks and total failures resulting in a national unemployment rate of about 25 percent. Johnson & Higgins suffered from the downturn, but the challenges presented minimal risk to its long-term stability and had a relatively minor affect on its employees. Though it closed offices in Boston, Baltimore, and New Orleans, the company avoided any layoffs and even managed to hire a few people. Of course, management had to cut costs, but this consisted primarily of economizing on business travel and related expenses. The biggest sacrifice was company-wide pay cut of 10 percent, which was followed by another of 20 percent soon after. However, salaries were restored by 1936. Johnson & Higgins's directors managed to avoid layoffs by taking the rest of the necessary cuts from their share of earnings, which supplemented each director's $10,000 salary.
In a May 1933 letter, Johnson & Higgins president H. W. LaBoyteaux exhorted all employees to heed a recent fireside chat by President Roosevelt and keep up their spirits in trying times. In the middle of a 31-year presidency and a 42-year presence on Johnson & Higgins's board (the longest in company history), LaBoyteaux ran the company with the proverbial iron fist. A commanding personality and a breeder of thoroughbred racehorses, he had joined the company at 22 as an average adjuster and head of the Philadelphia office, soon moving to lead the San Francisco office. By 1905 LaBoyteaux was a director--the only one outside of New York--and five years later he held the second largest amount of company stock after president W. R. Coe. Accounts differ as to the exact nature of his ascendancy to the presidency--whether he was offered it or demanded it--but he had virtually absolute control, which he exercised in the form of unilateral decisions.
Johnson & Higgins launched its first advertising campaign in 1940 only after an ad firm convinced LaBoyteaux that it was necessary by conducting a survey of business leaders which revealed that a majority of them supposed Johnson & Higgins to be a stock brokerage firm. Initially hostile to the idea, the president took to it enthusiastically when he realized the faulty perception. LaBoyteaux's willingness to change was accompanied by a determination to change that which provided an obstacle to the company's expansion. In 1943 LaBoyteaux served on a panel that effected a change in New York state law allowing insurers to write policies for more than one line of business. When he died of a heart attack in 1947, he left behind two books on marine subjects, one on racehorses, and a highly profitable company still dominant in the marine insurance brokerage industry. LaBoyteaux's determination and clarity of purpose had a downside, however: insufficient attention paid to the non-marine aspects of Johnson & Higgins's business left the company struggling to adjust in subsequent years.
A former Johnson & Higgins manager of corporate communications described the company after World War II as attempting to rest on its laurels: "They owned the goose that laid the golden eggs and they thought it would keep laying those eggs forever." As the company celebrated its 100th birthday, it boasted fourteen offices (including those in Canada and Cuba), 500 employees, 20 partners, top-ranked marine and average adjusting businesses that contributed more than half the company's revenues, and a smaller but increasingly important non-marine business. One postwar development in the direction of expanding the non-marine divisions was Johnson & Higgins's first use of safety engineers to help clients reduce risks and thus their insurance costs. These loss control specialists and technical advisors are now a key element in the company's ability to retain its stature in an ever-changing market.
Further pushing the company to evolve was the wake-up call Johnson & Higgins received when a major competitor, Marsh & McLennan, went public in 1962. The financial disclosure accompanying the sale of stock revealed that the company had revenues double that of Johnson & Higgins. This came as a shock to Johnson & Higgins's directors, who wondered how a 50-year lead had been squandered. The answer was that Johnson & Higgins's dominance in marine insurance forced the competition to focus on other forms of insurance, which proved highly profitable in the post-war boom. The board was soon split over whether to follow suit and go public as well. Some argued that it was the only way to raise enough capital to stay competitive, while others countered that the company was sufficiently capitalized and should stick to proven practices. CEO Elmer Jefferson settled the dispute by hiring an investment banking firm to look at the company's financial situation and make a recommendation. By the time the firm made its recommendation that Johnson & Higgins go public, the issue had died down and a majority of the directors had decided to stay the course.
Beginning with an office in Rio de Janeiro in 1954, Johnson & Higgins embarked upon a major expansion into global markets at the behest of its president, Dorrance Sexton. Sexton foresaw enormous opportunities for an international brokerage firm as U.S. companies expanded overseas and were less willing to settle for whatever insurance policies were available locally. While Johnson & Higgins had some correspondent relationships with firms in Europe, brokerages were already established on that continent, so it concentrated its energies first on Latin America where there was greater need. Sexton, who took on the effort personally, found an American expatriate in Brazil who shared his vision and signed on to head the operations in that country. Starting with indigenous companies as its first clients, the office began making a profit in its second year and expanded rapidly, opening offices around the country. By the early 1980s the Brazil branch was Johnson & Higgins's third largest after New York and Los Angeles, and others had followed in nearly every South American country.
In 1962 Sexton made a historic trip to Europe, where Johnson & Higgins had many non-exclusive correspondent relationships with European firms. A major breakthrough came when Colgate solicited bids from both Johnson & Higgins and Marsh & McLennan for a large volume of business. Both companies had working relationships with the top German broker, Jauch & Hübener, so Johnson & Higgins asked the latter to choose one. It chose Johnson & Higgins, and years later the relationship remains a profitable one for both companies. In an unexpected side effect, this increased international presence led to domestic business, as clients that Johnson & Higgins originally dealt with overseas, such as 3M, commissioned the firm to broker their domestic insurance policies as well.
Another boon came in the 1970s as foreign corporations increased their presence in the United States, and Johnson & Higgins's international clients enlisted its services for their U.S. business. All of this activity led the company's directors to seek a way to unify these partnerships with foreign insurance companies. A series of annual conferences gathering many of Johnson & Higgins's international partners strengthened ties and led the company in 1982 to form an alliance dubbed UNISON. While it was not a formal partnership, the UNISON name provided a common rubric that by 1995 united 12 firms with 7,000 employees in 60 countries. Expansion continued into new markets in Eastern Europe, Russia, and the Pacific Rim. By 1995 international business comprised about 20 percent of Johnson & Higgins's revenues, and the firm brokered international insurance policies for 75 of the largest 100 companies on the Forbes list.
Johnson & Higgins's UNISON network helped the company become the leading figure in a significant field of insurance that has emerged in the last two decades: captives. Captives are insurance companies formed specifically to underwrite the risks of a parent corporation. Instead of paying premiums to an independent underwriter, money flows to a company (the captive) owned by the parent. Part of the impetus for this new insurance arrangement--which is limited in scope, accounting for only six percent of U.S. property and casualty premiums in 1994--was companies' growing dissatisfaction with increasing premium rates. Also, in foreign countries deductibles were not always offered, forcing a corporation to pay for insurance from the first dollar of loss. One strategy was for a corporation to buy full coverage and then have the underwriter reinsure the first portion of the risk with a captive owned by the corporation.
The captive market received a boost in the hard insurance markets of the mid-1980s but then continued to grow even when conditions relaxed because companies had decided to assume more risk and thus purchase less insurance. Johnson & Higgins's CEO since 1990, David Olsen, described the shift as another instance of the company evolving to better serve its clients: "Our job as broker, as a problem-solver, is to say, 'If the traditional marketplace doesn't meet your needs, we'll solve them in another way.' And one of those ways is captives." By 1995 Johnson & Higgins managed 400 captives for its clients, primarily in Bermuda, whose favorable regulations, tax-free status, and skilled work force attracted many captives.
As it celebrates its 150th anniversary in 1995, Johnson & Higgins seems to have made a successful transition from an established broker of marine and other insurance policies to a provider of a full range of insurance consulting services demanded by its diverse clients. Its UNISON network allows the company to respond effectively to the growing internationalization of business and to capitalize on the opportunities that the newly opening economies in Eastern Europe, China, and elsewhere provide. A recent change in its leadership structure to include 19 managing principals&mdash⁄areholders without the full voting privileges of directors&mdash⁄ould help it retain the talent that has in the past been frustrated by a lack of ownership potential. Finally, a commitment to explore new technology--evidenced by a Computer World-Smithsonian award in 1993 for its InfoEdge communications system--will help Johnson & Higgins continue to embrace change as it approaches the 21st century.
Principal Subsidiaries: A. Foster Higgins & Co., Inc.; Henry Ward Johnson & Co., Inc.; Shipowners Claims Bureau, Inc.; Willcox Incorporated Reinsurance Intermediaries.
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