Arthur J. Gallagher & Co. (AJG) Earnings Call Transcript & Summary

[Audio Gap] and those who are listening on the webcast. We're really excited to be back in person for the first time following the pandemic. So we thought in lieu of each of our business leaders giving a presentation, we would instead focus on 3 topics today through 3 different panel discussions. The 3 topics will be first, insurance and risk management market conditions; second, organic growth initiatives across the organization; third, mergers and acquisitions. Towards the end of each discussion, we will open up for Q&A for those of you who are here in the room. For the benefit of those on the webcast, we ask you to please wait for the microphone before you ask a question. Additionally, we handed out our updated CFO commentary document a few minutes ago, and we posted the same document to our website at www.ajg.com/december13 materials. An 8-K regarding this information was filed this morning as well. So before we get started, I'd like to make a quick legal comment. Some of the comments made during today's meeting, including answers given in response to questions may constitute forward-looking statements within the 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 CFO commentary. Actual results may differ materially from those discussed today. So with that out of the way, I'm going to hand it over to J. Patrick Gallagher Jr, our Chairman, President and CEO, who's joined the meeting remotely. Pat?

Thank you, Ray, and good morning, everyone. Happy holidays. I really I'm sorry, I'm not in the room. Thanks for joining us this morning for our Investor Day. I can't be with you due to COVID, and that is incredibly disappointing. I love New York at this time of the year, and it's been a while since we've been in person with this investor opportunity. And so I really am sorry, I'm not there, especially because I think today, from our perspective anyway, pardon me, is going to be a lot of fun. You're going to hear from the team about our prospects. And I think it -- really what you're going to hear is that things just haven't been better in terms of a time for brokers, and with that in Gallagher in particular. I'm going to stay on the phone, the entire meeting, including Q&A. But I will be muted much of the time as I can't seem to kick a cough that is coming on strong. Today, as Ray said, we're going to change it up a bit. Ray is going to host a panel discussion. This is going to be more like a fireside chat. And as we said, we're going to address the 3 themes that he mentioned, our market conditions, and you'll hear that our clients and businesses remain strong. Our PC renewal premium increases are trending similar to the first 3 quarters of '22, demand for our benefits and HR consulting services remains robust, and claim counts continue to rise. Second, organic. And I think the team will highlight our industry-leading people, technology, data analytics that deliver more insights to clients and prospects just to name a few things. And third, mergers and acquisitions will discuss the nuances by division. Then Doug will take it and hear a little bit about the fourth quarter and hopefully get a little bit more foreshadowing as to what we're going to see in 2023. So from the vantage point of CEO, and again, those of you that have been with the story a long time, know that I'd love to be standing in front of you to say this because I do think we've got the most talented team in the business, I think you'll see that again today as our team talks about their prospects. We've got a track record of strong organic growth. Our client-centric initiatives are driving terrific business across the entire patch. Our merger and acquisition strategy has proven 1 year ago today, we were talking about our new acquisition, which was the Willis Re acquisition today I feel very good about how integrated that is. And frankly, I just don't think our optimism could be any stronger, pardon me. We have our -- the team is in a position of strength -- the culture is incredibly strong. The opportunities in the marketplace just continue to present themselves across every single business unit. You'll hear that from our team today. And as we said, I wish I was in the room to really shake everyone's hand and again, have a really very nice holiday, and I will be participating in the questions. But with that, I'd like to turn it over to Doug. Doug?

All right. Good morning, everyone. I'm actually going to do the second piece of Pat's normal tee-up on this, just as we were a little afraid that maybe he wouldn't be clear over the speakers, but he could have done this piece equally as well. But let me just give you some insights that Pat would have shared with you on the front end before we tee it up to the team. First of all, the global P&C environment today hasn't changed much versus the last 6 months. So what you've heard from us over the last 6 months, it's not all that different today. On the benefit side, the labor market is still very tight, and then war for talent is certainly very important. And even though there's some headline signs of employment loosening a little bit. We're still seeing robust demand for our services. We're not really seeing anything on the economic front that would say that we're seeing signs of slowdown. Right now, when we look at our dailies that come up, and that's audits, endorsements, cancellations, renewals, et cetera, we're not seeing a pullback in exposure units. In fact, it's even growing more today than it was even over the last 6 months. But think [ Gallagher Bassett ], our claims adjusting organization the demand for our services remains very strong. New business is terrific, and new rising property and casualty claim counts are continuing to grow, another sign that we're just not seeing a slowdown in the economy. Inflation does continue to be a theme around the world, but we saw the CPI print this morning. So maybe there's some good news on that. Some geographies maybe were peaking a little bit, and others, it's a little bit lighter, but still inflation continues to grow. So -- but what we've said over the last year since you've been listening to us, is absent a really deep recession, we tend to be a net beneficiary from elevated inflation. It shows up through -- in our revenues through higher sales dollars, more higher property values, payrolls, et cetera, which all leads to higher premium growth and thus, more commission revenue for brokers. And as we discussed earlier, our expense base isn't overly exposed to headline inflation rates. We think only about 20% of our cost structure is exposed to what you would consider to be headline inflation. The team is going to spend a little bit more time on the market backdrop and the panel discussion, so I'll leave the rest of that. Shifting to some broad comments on the P&C pricing environment. Renewal premiums continued to increase across all of our major geographies and nearly all product lines around the globe. We're just not seeing much of a change from what we saw over the last 6 months. Through the first 2 months of the fourth quarter, renewal premiums, and that's both rate and exposure combined, are up over 9% year-over-year. And that's pretty close to what we are seeing, like I said, over the last 6 months of -- the previous 6 months of '22. The team will also talk a little bit more on current market conditions by business, product and country. The takeaway from that should be no change in trend or trajectory is what we're seeing today. So what I'm seeing today as we sit here and look across the P&C market conditions, they can -- I see this continuing well into 2023, and perhaps beyond. So we see good reason for our carrier partners to continue to underwrite risk cautiously for the foreseeable future due to rising loss costs. You've seen that play out in carrier results. Certain carriers are recognizing modest reserve deficiencies while many others are increasing their estimated loss cost trends baked into the pricing models. And so while carriers are also -- they're facing rising loss costs in property casualty lines, reinsurance condition will no doubt -- reinsurance conditions will no doubt influence the primary market in '23 as well. On the benefit side, labor market is improving -- is proving to be very resilient and it remains tight. There's 10 million open positions out there in the U.S., and the number of people looking for jobs is about half of that. So we're not seeing much of a change in that. And so this large spread between supply and demand, I don't think it's going to reach equilibrium anytime soon. So I think Bill's business should have a good opportunity to continue to grow in this environment. So as you look -- sit back and look at it, I think there's a good macro backdrop from where brokers are sitting in Gallagher in particular right now, a tight labor market and growing claim activity, I think that we're going to have a lot of demand for our expertise, products and solutions that we offer. As I'm looking more, like what does it look like for the fourth quarter? We think our Brokerage segment organic above 9%. We should be able to report above 9% organic growth in our Brokerage segment and risk management organic of about 10%. As for next year, we're still in that -- we still are seeing in that 7% to 9% organic growth range for brokerage and high single digits for the Risk Management segment. So no change in what we talked to you about before. In terms of M&A, we've got a terrific pipeline. There's a lot of sellers out there that are looking for a great home for clients and their employees. We've got about 50 term sheets that we're working on right now, about $400 million of annualized revenue on that. So there's good news on that. And then when I look at productivity and quality, we continued our march towards improvement, and providing better outcomes and solutions and service to our clients. If you really look back, we've delivered over 550 basis points of margin expansion in 2019. So that margin expansion story continues to be a good story. In fact, it's pretty amazing. And within our Risk Management segment, our margin expansion is about 120 basis points over the same period. So the Risk Management business is showing good margin expansion, too. And then obviously, you're going to feel it today that we feel like we've got a bedrock culture that will allow us to win as we face 2023, and you'll hear that from the guys today. So who are you going to hear from today. We've got Mike Pesch. Mike runs U.S. retail operation. We've got Patrick Gallagher, who is responsible for the Americas, Canada, U.S. and South America. And Tom Gallagher runs our global retail and London specialty and reinsurance operations. Joel Cavaness, who runs our wholesale operations, now is [indiscernible] Placement Services. Bill Ziebell runs our benefits operations, and Scott Hudson runs our claim administration business, Gallagher Bassett. So they're going to be talking to you today. So I think we've got a terrific lineup for our speakers. I think we're in a really great shape here in the fourth quarter and into 2023. So welcome. And great, let's take it away.

Great. Thanks, Doug. So let's go ahead and jump on to our first of the 3 fireside chats with all of our business leaders. The first topic today will be market conditions, and maybe we'll begin on the property casualty side. before moving into benefits and risk management. Maybe let's start with U.S. retail. Mike, any thoughts you can give us on the market?

Yes. Thanks, Ray, and good morning, everyone. Welcome. So when I think about the pricing as we've experienced over the first 9 months this year, and heading into the fourth quarter, pricing remains broadly challenging for many of our clients. While we're seeing rate soften a little bit from the first 3 quarters, we're still seeing about 7% rate come through the book of business. Property is up 13%, umbrella and general liability up 10%. And this is including rate and exposure and work comp up about 6%. The only line of coverage that we're seeing a bit more softening is in D&O, which we've talked about in the past, for publicly traded companies, there continues to be some pressure downward there. Cyber is still a challenging line of coverage for many of our clients, although I will say that over the last 2.5 years, many companies that have taken action to do the things that they need to do to make their companies more safe are starting to see more stability in their cyber pricing. But overall, it's still a challenge for many of our clients in the marketplace today. Property is seeing some of the largest premium increases. Clearly, coastal properties are going to be a challenge. So as we start to get through the 1/1 reinsurance renewals that will ultimately have an impact on the retail pricing, we expect to see continued challenges in property. So other than cyber and property versus -- the market remains, I think, rational in terms of its pricing, and its view of the risks that we're facing. And we don't expect there to be much change heading into the first quarter of 2023.

Thanks, Mike. Patrick, anything you want to add on or similar or differences in Canada?

Yes, sure. I think we are seeing a lot of the same trends in Canada as we are in the U.S. However, the Canadian market tends to be a little bit more property-focused than casualty, workers comp, less litigious society. But -- so we're kind of seeing that 7% total premium changes up, which is similar to the first 3 quarters of 2022. So if I take them in part, casualty, we've still got -- we're still waiting on social inflation to kind of run through the courts. The backlog of cases from the pandemic shutdowns or short and short staffing. So we can't really tell what we're doing in casualty around social inflation, so that will play out. If you look at property, you got -- it's mainly driven by [ Ian ] in the United States. But you got to remember, Fiona was also the largest Atlantic hurricane which I think was about $650 million of total losses throughout the Halifax, Atlantic, Canada area, plus they've had fires, plus they've had derechos and convective storm. So I think the property market is going to continue to be where it's been for the last couple of quarters. And then you do see the lines with the greatest increases in our cyber umbrella, commercial auto, but definitely property is the thing that drives the Canadian market. so much expected to continue.

Tom, anything to add on U.K. or out there in New Zealand?

When you think about U.K. retail right now, we're running about a 90% increase in premiums on a year-to-year basis, that's rate and exposure units. The renewal premiums for property up about 12% so far this year. Again, it's driven by inflation as the carriers are pushing for rate adequacy. Our cyber and package policies are up double digits as well. And most other lines coverage renewal premiums are coming up a little bit in the 5% to 8% range, dropping down into Australia and New Zealand. We're talking about increases are up towards 12%. That's the first 3 quarters of the year in '22 [ were ] less than that. So we're seeing an acceleration of what was happening in the rate structure down at this time of the year. Nearly all classes of business are receiving double-digit increases at this point in time. D&O is the 1 exception. Renewal premiums here are closer to flat. .

What about -- what do you see in the London wholesale market, Tom? Any comments there?

So when you think about London Specialty, I mean these guys are doing business all over the world. And they are at the core of many of the London marketplace carriers, they're driving 5% to 10% in ordinary renewal times pockets of soft, as Mike talked about, with D&O and professional lines coverages. And it's a tough environment there. But beyond that you start to look at the cat property and the work exposed risks. It's a very, very hard market for these people at this time. Inflation continues to drive the underlying exposure units. When you talk about inflation with these guys, they're trying to make certain that they're keeping ahead of it in terms of their pricing. [ Debt-exposed ] property are facing a very, very difficult time. And think about aviation, we're actually getting a slight decrease in rate. But as people begin to fly again, there's much more of an uptick in the exposure units that we are insuring. So costs are going up.

Do you want to hit on the U.S. also, Joel?

Sure. So we broadly look at our book, which is made up of lots of different things, whether it's by specific line or can -- they could be personal lines versus commercial lines, a lot of different things. So broadly, when we look at our book, as Mike indicated, with exposure and rate, we're seeing about 9% broadly across our book. Looking at a little bit more specific. Obviously, a lot of the property in the Southeast, more like [ 20 ]. If -- dependent on the program, a lot of restructuring going on, continued reduction in capacity, like it's been over the course of the last few years, people limiting the amount of line that they want to put out. And then on top of that, we had 1 renewal that took 38 carriers to put together. So that's pretty interesting when you're trying to piece together lines of small amounts just to get to the right limit. And then, of course, everybody, when you're looking at what's going on in Florida, what's going on in -- broadly in cat. So it's a spillover. It's not just Southeast property. People are looking at their aggregations in all cat lines. And it's kind of right now, it's a little bit of a stare off and people are waiting for the renewals to get done because they really don't know what their costs are going to be able to pass those on down the line. So if you don't know what your cost is, it's really hard to quote on business until you get all your treaties put to bed and put together. And that's why you're broadly seeing a lot of business, a lot has been written of late of the growth of the E&S sector. And so when you have a flexibility to not have to write your business on a -- in a company that's admitted and you can change that over a little bit more to the freedom of rate in form, which the E&S market provides. That's why you're seeing an awful lot of growth in that particular sector and probably will continue to see significant growth in E&S over the coming year. So probably, when you look at it, trucks up, well, we continue to see truck up somewhere around 7%. So a lot of that is being driven by the increase in physical damage, the cost of trucks -- and of course, the court systems, as others have spoken about. D&O is really, as Mike said, is only one that's really seeing a downward trend. We're not seeing the huge increases like we saw in the last 2 years in cyber, but it is still increasing because there is a level of capacity you need there as well. Broadly, again, kind of the highlights, 9% broadly across our book, and we don't see that stopping in 2023.

Thanks, Joel. Tom, do you want to hit the reinsurance and renewals and the 1/1 renewals.

Sure. Q4 is not a particularly big month for the reinsurance market, as I'm sure you know. Every gears up for a big 1/1 season. And our guys are working out 10 days left. I had the opportunity to go to dinner with our New York team yesterday, and spent some time talking about it. It's going to be late, complex, difficult renewal season. Obviously, cat property is tough. But across all lines, they're working on trying to find great solutions for our clients. When you think about the geographies, the classes of business, where these are. The cost increases are going to depend upon their results, their geography to classes business themselves. So we're just working right now with the team to try and get as much of this done as quickly as possible and put it to bed this year.

Patrick, do you want to maybe comment on the captive market, what we've seen in [indiscernible]

Yes. I mean, [indiscernible] is our captive brand solutions part of the Americas. And the ongoing firm market helps captives. I mean it helps all alternative risk. People are just looking for other opportunities to fund their losses, and captives come into play. We think both single parent and group captives will grow in '23, but we'll see the larger companies really embracing their single-parent captives a little bit more throughout -- so it will be a good year for the single-parent captives and group captives within our type.

Thanks. But maybe let's shift gears a little bit. Bill, can you give us some commentary on what you're seeing in your core health and welfare business?

Sure. So you look at your basic group life disabilities, those have been pretty flat, pretty steady for the last few years. But one of the big coverage, obviously, medical fully insured. The typical renewals in the last few years have been around mid-single digits, 5% to 6%, that type of thing. And we're starting to see some uptick in that. There's a lot of reasons for that. There's a little bit of a COVID impact, adding a couple of points. Then you have some really high claims coming through now. And you're also seeing new pharmaceuticals coming on the market that have very high prices for treatment. And so all of this is adding up to where we're seeing medical -- fully insured medical creeping up towards 10% to 15% going into '23 and beyond. Another issue that some people aren't really familiar with is the health systems are under contract with the insurance companies. And what they've been dealing with through COVID and the wafer talent, there's a lot of inflation with their staffing, burn out things of that nature. So as they're coming off of contract, they're raising their rates to the insurance company. And so you're starting to see those things happen over time as well. So we do see the hardening, if you will, of the market on the medical side going into '23 and into '24 as well. What's also happening is you're seeing a lot of folks going more into self-funded, and so they need stop-loss insurance for that. And stop-loss is actually going to be even harder by about 5 points as well, contributing factors, people like looking for alternative funding. That's the equivalent on the medical side. So you want to sell fund, find a stop-loss carrier. You're seeing smaller organizations self-funding than they have historically. They're looking for solutions like captives. And those are the kinds of things that are trending towards this. give things in perspective on the stop-loss market. About 2014, the entire market was around $14 billion in premium. It's -- this year, going to be about $27 billion. And we're thinking about 5 years will be up to $40 billion just because of the movement from fully insured to self-funding, and that's a trend that's going on out there. So people continue to look for the solutions, and that's a market that's really growing in our work.

Bill, maybe can you give us some comments on the HR consulting business, retirement and life as well?

Sure. So you really think about what's going on in the employer -- you've heard about the war for talent, the labor market and what's going on there. It's very complex, very, very tough out there. HR departments are oftentimes understaffed as well. So they're trying to find a way to attract people and keep them. Certainly, the insurance benefits that they provide is a big part of that. But we're seeing a lot of demand these days for compensation studies. What do they have to be paying folks instead of chasing something out the door because they have a bigger offer, are the end market or not. And so we have the ability to survey quickly and tell folks what the rates are going for certain job classifications, executive comp, things of that nature as well. We're also seeing a lot of demand for the area on the retirement side, specifically on executive benefits, trying to lock down more of a retention strategy for highly compensated talent in organizations. So a lot of demand there. And the third area that's really in high demand these days as well is our communications practice. So you can have all the best things in the world, but if your employees don't understand it or don't get it or don't really appreciate it, then you're wasting your money. So we're seeing a lot of focus on communications these days with professionals, their creatives, they know how to connect with people and they have quite a backlog on the pipeline as well. So the comps is part of that business as well. That's really in demand.

Thanks. Maybe Scott, within Gallagher basis, how is demand shaping up for our services?

Ray, I think it's -- Doug mentioned it, it's been extremely strong. And kind of across all of our geographies, whether you go down to Australia. I was down there a couple of weeks ago. We're winning business down there. We're seeing the same thing here in the U.S. So we're quite excited about that. I think a lot of it is a reflection of the investments we've made, the expansion into the specialty lines of business that we've had over the last couple of years is really playing very, very well in all of the markets that we're operating. The other thing that makes the difference is we go to market with the idea of we can deliver a better result. And with organizations seeing cost pressures, inflation and so forth, that story is resonating quite well with most, if not all, of our clients.

Maybe can you give us a little flavor? I mean, [indiscernible] pays out, what, $11 billion plus in claims over here. What are we seeing on the sort of the frequency and loss trend side?

Well, I mean, overall, claims are up, in a very nice way. The majority of that is driven by new business, to a lesser extent, if you look at our existing clients, just kind of the rise in claims within their organizations do, to some extent, within their own growth. We would see fourth quarter claim counts, in particular, in fourth comp, being similar to what they would have been the trend being similar to the third quarter. One of the factors that we've seen over the last couple of years is the introduction of COVID claims into the work comp space. That was tailing off. So if you look at kind of work comp claims overall, the underlying core probably had a couple of percentage point increase, but with the drop in COVID claims over the last couple of quarters, in aggregate, it's probably about flat. Interestingly, over the last couple of weeks, probably not surprisingly, we are seeing a little bit of an uptick in COVID claims. So we're probably going to get a little support for that here towards the end of the fourth quarter, and into the first quarter. The other thing that's interesting is if you look at just medical inflation, which is another thing that hits kind of the loss costs overall. I think the medical component of the CPI is north of 5%. One of the things that we go to market with is our GB Care services. They're all focused on trying to figure out how to keep that down to reduce the impact of that. And like I said, with a lot of our services, that's resonating extremely well. And I think the impact that we're having in terms of managing loss costs for our clients, it's showing through.

Great. Thanks,. Maybe we'll open up for Q&A now on the first topic, anything to talk about market conditions. We'll wait for a mic. Maybe start with your Yaron.

I'm Yaron Kinar with Jefferies. I want to start with maybe a couple of questions on the reinsurance market, and expectations into 1/1. I see the smiles, probably not surprised there. I guess the first question is from your perspective. If I look back at the last hard market reinsurance, I don't think the brokers actually saw a massive organic growth story back in 2006, '07, the reinsurance brokers. How are you seeing that play out into 2023? Do you think that the demand will be there? Or is the lack of capacity maybe keep growth in check?

I think there are a couple of things that are in play at the same time. First, there is capacity I think there'll be capacity in the marketplace, but it's -- for the most part. But it's -- whether or not people want to pay for that capacity. I think that will have an impact on it. The other aspect of it is that I do believe that it is a business that has a unique problem related to cat in America. Property cat in America and other exposed places around the world are definitely impacted, and people have got a huge portfolio of business that's reflecting that exposure are going to be impacted by it as well. So beyond that, there's capacity beyond that, there are players that are sitting on the sidelines, the retro market, just reading in the press this morning, retro markets coming back in a big way it hasn't over the course of the last 6 months, 8 months. So there's going to be up. There are going to be those places where we're struggling to maintain any kind of adequacy in terms of revenue related to some cat property. But beyond that, I think the business will be good.

Do you think that organic growth would be better in '23 than in '22 in the reinsurance business?

You know what, it's too early to call that right now. But I don't think we're going to be going backwards by any stretch. The team has done a terrific job. Think about where we were 12 months ago. We're talking about a team that had no investment in it for at least 2-plus years. Over the course of the last 12 months, we have spent a tremendous amount of time working with the team to help drive them forward, hire new people, invest in their business, do the things that they need to do around the world. These people are in a completely different place as we enter 2023, as they were in 2022. Beyond that, you take a look at the work that we're doing together in our retail business in conjunction with our reinsurance team, we've now got millions of dollars of trade that we're presenting to each other and actually writing as a business and as a team because of the collegian nature of the business. So I think 2023 is going to be an outstanding year for them, but I can't look at it right now and say exactly what kind of numbers are. I think they're going to be in a terrific place as they go forward.

And to my second question, if I can, also in reinsurance. So we are hearing from some of the reinsurers that they're looking to maybe flex their muscles or ever you use the capacity that they have available in property in order to get better deals in casualty, are you seeing that today?

From the dinner last night with the team, and the time that we spent in the office prior to that, they're working very hard on all aspects. There's nothing easy right now, but I will tell you they're doing a terrific job of trying to deliver on behalf of their clients. And yes, the big carriers holding out and demanding. Yes, it's their time right now.

We're moving on to Greg.

Greg Peters with Raymond James. I'm going to go back to Bill and Scott, in your comments about medical inflation. And if we can just step back, can you talk a little bit about perhaps the role that Medicare reimbursement rates play in setting medical inflation. And what's going on with Medicare reimbursement rates? Because you talk about an inflationary environment picking up steam. And I'm just curious how that's trending over to Medicare. .

I don't really have a lot of insight on the Medicare impact on those things. We're hearing from the markets is more about the other issues with regard to the COVID impact, the high excess of claims over $1 million, the new drugs and so forth. In my mind, when you start buying services through Medicare at below-market areas, that does have a little shift to the balloon, you squeezing one, and it goes the other way for the rest of the market. that's kind of been historical. I don't have any current on that to share with you now.

Yes, I probably don't have much to add on that, Greg, at this point.

Yes. So then I guess my second question, we'll pivot back to the market areas other than cyber and reinsurance. And you spoke about a positive -- let's take workers' comp. You spoke about positive rate trends continued through this year. But when we hear the rhetoric from some of the players in the marketplace, it seems like other areas of the market are beginning to weaken from a pricing perspective. I didn't really hear that in your comments this morning. So maybe you can talk about these other areas, the outlook beyond just this year, how you think it's going to sustain itself next year, and what the drivers are for that?

I can answer that or go first here. Look, I can tell you right now, we're not seeing a systemic softening of the marketplace. We have those pockets like we talked about in D&O and then any account that has taken the steps and measures along cyber to make them a safer environment from an attack perspective, are seeing softening in the sense that they're not seeing the triple-digit increases that we saw in cyber. There still is -- and I think you heard from Joel, there still are increases being passed along in the cyber marketplace is just not nearly what it had been over the previous 2 years. But having said that, there's a lot of uncertainty out there as you look forward into '23, specifically around property, and how much is going to get passed along to our clients on the retail side, especially those that have catastrophe-prone exposures which, by the way, has broadened in scope when we talk to our carriers, and they think about just simply -- clients that are in coastal areas like Florida. There are catastrophes that have come through from flood to wildfires to other areas that were traditionally not impacted that underwriters have to take into consideration. So -- there -- I think overall, as we look into '23, I would expect there to be continued pressure for our retail customers in property, and then how much of that carries over into the casualty space as well because of the backed up court system because of some of these significant jury awards. I still think there's going to be an impact. Auto is no picnic either. When we talk about auto and you talk about personal lines and even commercial auto, it's a big challenge for many of our carriers, especially in certain states. So outside of some rational pricing as it relates to things like D&O and good risks that are certainly not in catastrophe-prone areas, we'll see that sort of relief for those kind of customers. But by and large, we're expecting the market to continue well into '23.

I think you take a look at where Australia and New Zealand were even you almost call a more competitive market, and it's turning around. The rate structure that we're seeing on a monthly basis that's coming through is actually turning around. And so it's an interesting time for us. We don't see it in our numbers to this point at all that there's any kind of weakening of any meaningful amount anywhere with the exception of things like D&O and cyber. As we approach the renewal season [ 4 1/1 ], remember, Australia and New Zealand, the big [indiscernible] 7, it's not 1/1. But when you look at the Northern Hemisphere, most of it is coming in. We don't see it -- we don't feel it right now, but there's a significant change taking place in terms of the underlying rate structure. But at this point in time, we're really optimistic about what's happening around the globe.

Terminal [indiscernible] from a pricing perspective?

The pricing perspective is actually in Australia and New Zealand that actually accelerated rate again.

Outside of property, or is it just property?

It's casualty as well.

We'll go to Dave.

Dave Motemaden, Evercore ISI. Doug, you had talked about, I think, the renewal premium change up over 9%, which is still good, but that's just a modest deceleration from -- I think it was up 10.5% in the third quarter. Is -- I guess what is driving that modest deceleration? Obviously, still at a good level, but is it what we're talking about just now the D&O and cyber that's really that headwind?

Yes. And I don't know if I'd call it a headwind, but yes, that's what's actually weighing a little bit on that as those 2 lines right there. .

Got it. And is -- I guess just in terms of how you're thinking about that for '23, when you think about within the 7% to 9% expectation, what is -- is it possible to break down the expectation on the RPC for next year as well?

Right now as we're budgeting, and going into the budget season for next year, we're looking at very similar across all lines and all geographies rate assumptions is what we're seeing right now. So we have not pulled that down next year. Just -- it's the cumulative effect of the growth that might be pushing us between that 7% and 9% versus me coming in today and saying it's not.

Mike Zaremski from BMO. Can we get more details on, maybe peel back the onion on exposure growth in property ex kind of cat-prone areas. Is it replacement costs? Is that the main factor? Maybe you can kind of talk about what's -- it seems like there's a lot of inflation and exposure growth in the property side, noncoastal as well.

Yes. I can start and then maybe pass it through. It's a big topic. It's a big topic for us with all of our customers is adequate limits for their portfolio. And it's something that we work hard to inform our clients. We work collaboratively with GB, who has an appraisal division to make sure that our clients are very aware that there has been not only inflationary factors that are affecting the locations that they own. But many clients had a look at that in a number of years. And so when you think about some of the supply chain challenges of just getting raw materials, if there were to be in a situation where they had a claim and the impact that, that has on how long it would take to rebuild. It's something that we're constantly talking to our customers about making sure they have adequate pricing. Now again, that's something that's going to be a collaborative conversation with the client and with the insurance carrier to make sure that everyone in the food chain feels good about, feels comfortable with the valuation so that they're getting proper pricing for it, but then also making sure that if there is an event that they have proper coverage. So other than saying it's a constant topic of conversation. I would tell you that I don't have a figure on how much of it is currently being passed along in terms of the exposure and some of the numbers we talked about 13% sort of all in as we look at our portfolio.

I would just add that our data and the information that we have at hand and carriers' data and the information that they have is creating a more direct discussion. So it's not just put in your statement of values from last year, and we'll go ahead and renew it. There's a lot more discussion are these properly insured. And we need to get them in the proper insurance. And that does see inflation in the cost of construction and replacement costs.

Yes. I think to pile a little bit more to what these guys passed on. In the soft market, it was probably the one of the larger ignored areas. People didn't pay as much attention to a statement of values because in most cases, things were blanket limits. So nobody really necessarily care. So you put together a $250 million limited on it's on a blanket so you didn't really have a underinsurance problem from a client's perspective. A lot of that has changed. And of course, we multiply the problem, unfortunately, for clients because you have significant rate increases. Then on top of it, well -- and by the way, you're underinsured by 15% on your big statement of values. So you're just compounding all of the issues on top -- one on top of another. And broadly, when I was in London earlier in the year, our delegated authority business, our underwriters were pretty adamant about making sure that we're getting the proper limit shown because if you're 15% low, broadly across a large portfolio, then really whatever they were asking for in rate is truly 15% off of where it should have been across a large portfolio. So you've seen a big acceleration of people talking about square footage costs and what the increased cost of construction now is due to either supply. And of course, you've got a lot of demand with the rebuilding down in Florida, and that's putting more pressure on your ability to get things replaced. As you go out and try to find windows right now, we might be 6 months out. And all of that just continues to elevate a particular loss because somebody has to live somewhere, and most insurance policies, especially on the personal line side, provide coverage for being out of your house. So it just continues to elevate the problem. But broadly, people are beginning to pay an awful lot of attention to total insured values.

Mark, do you have a question? Maybe we'll take one more.

Mark Hughes at Truist. Bill, you had mentioned the inflation in medical costs going up to 10% to 15% from what had been mid-single digits. How much of that flows through to your organic?

Yes, great question. Just remind you, our job is to mitigate those rises and come up with strategies to lessen the impact to the employer. So you might see more like mid-single-digit double in terms of the lift we might see. But again, I'll go back to you that some of those strategies include going to self-funded, which has a different compensation structure, but there's lift there as well but also cost control strategies, carve-outs, things like point solutions. So what we're doing -- so for example, you have an insurance company, and they have -- we consider them more the bundled solution, right? We pay the premium to an Aetna, United, Cigna, and they try to do everything from soup to nuts. What we're seeing more and more of is unbundling. We're being asked to find lower-cost solutions for different things like kidney dialysis, things of that nature. That may be is a lower cost. So it's not just the rate that's impacting. I think we're always trying to find ways to lower. We also have a mix of our clients that we're not on a commission basis. We have a fair amount that we have a set fee. So sometimes we don't get any lift at all for a client, depending on the size. And the large...

[indiscernible] that into account, is it still accretive to organic or is it kind of [indiscernible]

Yes, yes, for sure. Yes.

And then Joel, your submission growth so far in the...

Yes. We tracked data. That's how granular we become inside of our organization of being able to actually track day over day, 7 days over 7 days, month over month. I mean it's crazy, the amount of detail that we get to today. We are seeing -- we continue to see submission increases. And again, it might be different in a particular part of the country or a line of business, particular business. But we're still seeing submission counts. Now remember, talking about tens, even hundreds of thousands submissions a year. But we're still seeing tracking it. We're still up about 7.5% broadly in increases over prior periods, about 7.5%, which is a big number when you're talking about millions of submissions.

What was that in 3Q?

I'm sorry?

What was that in 3Q?

About 7.5%.

So 7.5%.

It's been very, very similar. Again, we might have a low period in cyber, offset by a large same period in property or in transportation or in the other line because it's a big offering that we do. But yes, about 7.5% increase.

All right. Maybe with the market condition discussion now the way we can go into more exciting things, our organic growth initiatives. So I don't know, maybe we'll start with our market strategy by division, sort of our value proposition. Mike, you want to start with CORE360?

Yes. Right. Yes, way more exciting. So for those who have been in this room or on the phone before, you've heard me talk about CORE360, which is our unique value proposition, which is now -- which started in the U.S. has now broadened really across the entire globe from a retail property casualty standpoint. And why is this important? I think it's been sort of the secret sauce for us over the last 7 to 8 years in terms of our ability to write new business. And we're seeing our new business at record levels again this year by comparison to last year, which was also one of our top performing years here in the U.S. And I think a lot of it can be attributed to having a value proposition that risk managers and CFOs understand. It's really identifying the 6 cost drivers. It's not just about going to market and procuring insurance for our customers. It's about walking them through all the different variables that impact cost and impact pricing, from program structure to risks such as cyber and other underinsured or uninsured risks, to loss prevention and claims mitigation, to contract review. Those are the things we walk a client through and that really resonates not only with a middle market customer that doesn't have a full team of risk management professionals on staff but it really resonates with the customer when you're going through a hard -- or hardening market. When they don't understand why something costs x versus why and you walk them through the variables and then show them the solution, and that's what CORE360 does, it really makes an impact. And I think it's one of the reasons why we win in the marketplace and our clients value what we do. So that would be my response to you.

Thanks. Bill, do you want to talk about on the benefit side?

Sure. So it's Gallagher Better Works similar to Mike talked about it a few times. It's just really an easy way for us to organize our businesses. So the largest is our traditional insurance and employee benefits area. We call it physical and emotional well-being on the inside, and that's about $1 billion or so. And that's focusing on those traditional insurance-type products for benefits. We have a great team on that side of it. We have our financial retirement services, second bucket on the Gallagher Better Works, and that's getting into areas like retirement plan consulting, where you have the actuaries, we do DC, DB work, things of that nature. We also have our executive benefits in that space as well as wholesale and life retail products as well. So that financial services area is about $200 million as well. And then we go into our HR compensation area. That's more what we call the [ carrier ] well-being, and that's where we have the compensation consulting survey work. And we do some talent development as well as getting into the communications area as well, and that's about $100 million in that -- and then you have on the rest of the world outside the U.S., another $100 million, and there's more of a mix of all 3 in those other 3 countries we're working as well. But this holistic approach is really, really helpful for a lot of different reasons. We walk in and ask the employer what their challenges are, and it may not be benefits that day. We do think that, that demand will be rising as inflation goes up again in medical. But right now, it's been about that war for talent. How do we actually help solve that issue on attracting and keeping the talent. So having a communications team, having a compensation team, having experts in the area of the financial side where we can actually lock down top talent with executive benefits and retention strategies. So depending on the needs of the employer, we can solve for that. And it keeps the competitors out. If we can solve the issues, they're not going to go out and bring somebody else and that might be going after our benefits as well. So it's really a way to holistically take care of our clients as they're trying to figure out what they're trying to -- their value proposition, and keep it up to speed to compete for that talent. And it's not just one size fits all, and it isn't just one lever. Think about where you work, it's more to it than just your core benefits and why you work there. All the things that -- while your organization, we try to help our clients with those reasons as well. So...

Thanks. Joel, do you want to hit on RPSes [indiscernible]

Sure. Obviously, our business is a little bit better than the retail side. We -- these guys up here are our customers, and then we deal with about 25,000 other customers across the U.S. Remember that we do a couple of different things. One is open wholesale, which has been a huge organic driver go-to-market, we're able to solve people's problems. So in those particular cases, when they need an individual risk placed. We're very broad in our offerings and having the expertise that a retail customer might need to get their clients' problems solved. So it's really all about aligning the right people with the right need. And we're really good inside of RPS and making sure that we're driving that expertise and having everybody inside our organization know that if they have a risk that they're not comfortable with that it gets flipped to somebody who actually has expertise in that particular line. So a lot of that is, of course, on open brokerage. The other thing that we do a lot of is we're big underwriters. And it's really about again, have an access to those carriers who have appetites for particular line of business in a particular geography. When we set up RPS on the underwriting side, it was really to be able to provide broad access. So we have about 35 carriers that we have underwriting authority for. And we're able -- because we have such a broad-based of insurance companies that we underwrite on behalf of. We can make sure that they're getting the types of risk that they want us to underwrite on their behalf. And that's really important that you're matching that appetite with that risk because that's our job. Our job is to make them an underwriting profit, and we're very good at that. So again, when we go out to market, we go out broadly and very specifically on particular types of risks that people want. It could be snowplows. It could be margin to average. It could be anything that fits within the definition of E&S. And as you see, there's a big drive into E&S. So if we can make sure that we're making ourselves very available from an underwriting perspective or a wholesale broking perspective, we think that the future looks really, really bright.

And just to be clear, you don't take any underwriting risk.

We don't take underwriting risks. I've got the [ tattoo ] to see it. We don't take risk.

Scott, how about [indiscernible] how do we approach?

Ray, I think it's actually pretty simple. Every day we get up, we're trying to be the best provider of P&C claims services out there in all the markets we operate. We go -- we segment the market into 4 different groups. There's the large commercial entities that's been kind of the core of the business for years. We serve a lot of public sector clients. The alternative market is an opportunity for us as well, in particular, the large group captives. And then somewhat more recently, it's outsourcing with insurance carriers, which is one of our fastest-growing parts of it. As we think about each of those segments, we go to market with the same message on our value propositions, we're willing to customize our services to their specific needs. Each one of those entities may want to think about our services a little bit differently. We're willing to do that. We do a very good job at it. The second thing is, I mentioned it earlier, it's all about delivering the best outcome for them. Interestingly, it's not the same for every organization. Sometimes it's all about getting people back to work quickly. Maybe on the liability side, it could be around brand protection, a lot of our large retailers, if they have a customer who comes in and gets injured. It's all treating that person either way that they want to come back and paradise that organization. So the notion of what a superior outcome is, what a great result is does vary. And so that leads us to oftentimes having to tailor our services in a way that reflects what that organization goes.

Great. Thanks, Scott. Maybe switching gears a little bit. Maybe talk switching to our organic growth initiatives in particular. Tom, do you want to touch on niches and our niche strategy?

Sure. Our new strategy has been around for more than 50 years. If you think about the Catholic book of business that we had that we began in the mid-60s, it was really a foray into a very specific niche. Going beyond that to what Scott talked about, we moved into the public sector, and we built a formidable, formidable public sector practice group around the U.S. The team has been growing substantially for many years, and we are a very important player in that space. Using those as a backdrop, we began more than 25 years ago to build out our niche practice groups. And today, we've got more than 30 different verticals that we operate in. Some of them are product-driven like cyber, D&O and related, others are industry groups. Back in the '90s, I had the opportunity to work inside of our construction practice. So it was an agency that we acquired at that time. And it didn't matter that we were small. It was the fact that we were the very best at doing construction at that time in the Bay Area. Today, that team still is around virtually all of the same teammates are there, and they still are incredibly successful at taking knowledge, our knowledge to the industry. As the team said to us that time, we're not part of the insurance industry. We're part of the construction industry. And I think about the power of that when you talk about that in industry practice groups that they actually think, eat, breathe and deliver on behalf of the clients that we have in those verticals. It's a terrific position to be in, and we have been able to compete effectively against anybody in any of those industries that we set ourselves to. A good example of it, I'll talk about one, which is cyber, right? That's a product niche, that particular practice group. We have more than 20 coverage specialists, claims specialists. And we're not talking about salespeople. These are people that are helping drive wordings, drive claims and help with the claims, take care of loss mitigation, doing the things that you have to do to prepare your business in the event that there is to try and protect the business from hackers. That's not selling. That's delivering on behalf of our clients that's providing value to our clients. And so this strategy, which has really been incredibly important to us. For many, many years, it's something that we continue to push throughout the organization, not only in the U.S. but on a global basis. And we have great expectations that, that will help drive strong organic growth for us in the future.

Bill or Scott, anything to add on niches?

Yes. GBS, we have a similar strategy, not as many vertical niches as GGB, but where you have a unique need by the client, something that's a little different than everyone else that definitely makes it different for us. We use a lot of data, national benchmarking surveys for both benefits and for compensation. The benefit levels that a distributor with low margins wants to provide may be entirely different than a law firm or a hospital. And so they want to know that you have that information that's going to be helping them with the competitive decisions on how much we're going to spend on comp or benefits and things of that nature. So having that concentration on certain verticals really does help us quite a bit. We have quite a lot in the -- our largest is healthcare. And then we also have some very strong strength as well on religious public entity, and one that's really growing for us right now is private equity, the portfolio companies as well as the fund itself. So that's an emerging vertical for us also.

Ray, we've always had, I think, tremendous depth and expertise in a lot of industries. So we know retail. We know hospitality. We've got experience in countless industries. But interestingly, it's really just in the last year that we're going to go to market based on a specific industry, and that's construction. And it's due to the fact that over the last couple of years, we've acquired environmental health and safety capabilities in the construction space specifically. So we're actually your going to hear a lot about Gallagher [indiscernible] construction offering, which starts at the very beginning. We've got safety training, awareness programs and other loss-prevention strategies for construction companies. And then we've got people on site at those construction sites. They are providing safety assistance. What really helps us out if by chance, there is some sort of incident, there's a claim that needs to be filed. We're there at that spot. And then our normal claim handling services will kick in. So we see this as potentially a pretty significant growth opportunity for us going forward. This is the first industry where we're actually going to market that way. And if this proves to be successful, we would anticipate it doing that in a couple of others as well in the future.

Great. Thanks. That's really interesting. Maybe switching gears a little bit. Another important initiative is the use of data and analytics. I don't know, Patrick, do you want to talk about Gallagher Drive?

Yes. So I mean I -- when I look at the business, I'm proud to say that we invest in a lot of things. We're going to invest in customer relationship management tools. We invest in loss control and claims advocacy tools. We invest in CORE360. But when you really peel it back, the most important things that we're doing right now is always going to be the niches or niches. You can tell he's traveled a lot. He's multilingual, but I call them niches and data and analytics. It's just absolutely something that is at the core of what our customers and producers need to be talking about these days. It used to be an anecdotal business. I'll tell you a little story about a client I had. Now you got to be able to show them. So Drive is our data and analytics tool that helps us work with producers, to work with clients to show them what other customers like them purchase to show them what benchmarks they should have to talk to them about claims history in our book of business. on not an anecdotal basis, on an objective basis to actually look at their business and see what they can do to lower their cost of risk. And we will keep investing in that. We've got a great team of people. People can visit our website and do a test of our cyber liability or our umbrella benchmarking tools that you can work on Drive client with your producer and talk through your actual individual data for your count. And we're just going to keep investing in that the expectation gets better and better or gets bigger and we get better and better every year.

Great. Maybe on the -- keeping on the data front, do you want to talk about smart market?

Yes. And so Smart Market is also a data tool, but this is not as much for the producers, clients and prospects, although it has benefits to the clients and prospects. But it really is the interface between our producers and our branches with our carriers. It used to be the carrier sent a business development manager into one of our offices. They tried to explain what their appetite was. Our people tried to explain that our toughest accounts fit that appetite, very discussion driven and timely driven conversation. Now we've got the data. We're 25 -- across retail markets in the United States and Canada, we have 25 carriers set up with us on the platform. They can see into our book of business, they can see into our prospective book of business, pipeline. They can show us what they think in the book of business fits their appetite which is a lot better than having the business development managers sitting in the office and we've changed our appetite. They can actually show it to us over a swath of clients and prospects that we've got out there. We then interface with them through this data tool to be able to make sure that we're kind of like the Uber of insurance brokers. We're matching willing buyers with willing sellers. We're figuring out exactly who is the best fit for our prospects and clients. And it proves to be a major assistor in our relationships with our top markets. Our top markets that are signed up and utilizing SmartMarket very well, are growing their gross written premium with us at a much faster rate than the people that are not on the platform. So another data tool that just allows us to make sure that our clients get fit with the best carrier partner with the best program structure at the best point.

And you mentioned 25 carriers in the U.S. and Canada. What about outside the U.S., Tom or Joel, you want to...

In Australia, right now, we've got 6 carriers that are on the platform, and we're pushing to have additional carriers and our various geographies around the world.

Yes. So we have our version of SmartMarket as well. I think it is probably the coolest thing. I don't know really how to describe it any more than that other than the ability for people to -- on the carrier side, the insurance company side, to be able to identify accounts that fit their profile, the type of profile that they want to write. And the ability to look into our book and say, I want to tag, which is effectively what they do. They're tagging accounts to go in and tag those accounts and say, these are the accounts that I want to see. It didn't get any more efficient than that. And it's good for everybody. It's good for us as a wholesale broker. It's good for the carrier. It's good for the retail client, and it's good for the ultimate insurer. So I haven't seen a lot of things across my career where everybody in the chain wet. In this particular case, everybody wins. It's more efficient. If you're an underwriter, you're seeing 1,000 accounts a year -- this is a way for an underwriter to go in and say, I see this particular type of account and it's a particular type of account that I want to underwrite. I would like to have in my book, and it's tagged and then it goes to our producers much like on the retail side for them to be able to automatically submit that particular risk to a willing and very interesting underwriter. So again, I use the word cool, but it is really, really cool, and it's good for everybody.

Maybe we also started talking about Gallagher to submit this past year. Mike, do you want to give us a little bit more color about what that is?

Yes. Look, our relationship with our clients and making their jobs easier in our relationship with our carriers and making that more effective and efficient is critical. Smart Market is how we become more effective and efficient with our insurance carriers. By the way, the one thing that maybe wasn't said about SmartMarket is we have a -- say, for example, in the U.S., we've got 100 offices. We didn't know this. Nobody knew that the pandemic was going to hit. But arguably, in any 1 given day, we have 4,000 offices in the United States with people working from home. So to be able to connect our insurance companies through a digital platform to their appetite when you've got many people, not necessarily in the office, that particular day to interact with our insurance carriers is critical. And the same applies to Gallagher [indiscernible], our ability, which is basically to take our clients' information. And this industry made the renewal process about as challenging as we possibly can for many of our retail customers over decades and decades, and that had to change. And Gallagher Submit was our solution, our ability to get their data from their renewal, everything that was updated all throughout the year in a digital format so that, that information can be easily uploaded and utilized in a much more effective and efficient way internally at our client and then ultimately being passed through to the insurance carriers through a digital platform into their rating system, makes the entire ecosystem more fit, more efficient. The feedback from our clients is it's a home run. They love it. They got tired of sending in spreadsheets from here and Word documents from here and now having all of their information in a digital link that can ultimately be passed through to the insurance company and to their rating systems has made their jobs and their lives much, much better. When you think about a CFO who has a million other things to do in his or her day, and the ability to make their job a little bit easier by making the renewal process smoother. It's a home run. And once we get all of our customers, we're -- in every one of our offices, we're about 3,000 to 4,000 of our customers currently. We will have all of our customers on Summit to transform that experience from simply filling out an application to an experience that they like and want to do every year to get the best possible deal in the marketplace.

Great. I mean we're running a little short on time on this discussion, which I thought might happen. But maybe touch quickly on another way we use data and our care relationships to get to new products and solutions for our customers, the advantage of [indiscernible]

Yes. We've talked about this for this group in the past, but just as a reminder, we several years ago, we started looking at our book of business and any -- and picked out certain lines of coverage, take, for example, umbrella or Builder's Risk or cyber, where we felt we could improve coverage terms and conditions. So go to a panel of carriers and say, for every policy that you place for a Gallagher customer, it's going to have these 13 or 15 endorsements automatically included better coverage for our clients, the carriers who sat on those panels were getting more of our business that was within their appetite. And we received additional remuneration. That business now has about 17 different products that we've built on different panels. It grows well into the double digits each and every year because it's good for the customer, it's good for the client, and it's good for Gallagher. And so we're excited to continue to add more to our Advantage platform. Joel, do you want to add the [indiscernible]

Yes. Just quickly, obviously, we have our own version called Edge, where we're building aggregating data across -- and get across a large amount of business and looking for carriers who want to grow in a particular area, and they're willing to give us enhanced coverages for the ultimate client and for our retail customer to be able to, of course, sell more. It's our ability to again match risk with appetite and be able to enhance the coverage provided to the ultimate insurer.

Maybe want to hit on the e-commerce strategy or...

Yes. Love to talk about e-commerce very briefly, most everybody has heard us talk about our e-commerce initiatives. So when we looked at kind of the emerging [ insuretech ], of course, everybody talked about digital and all the things. And of course, we're going to be able to provide digital offerings to our retail customers and to be able to go to a platform and find 25 different either lines of business or, as Tom says, niche areas that fit what they're needing. Our biggest uptake has, of course, been cyber, where people could go on a platform and literally within minutes, get a bindable quote and actually pay for it online, and policy issued in their office. It's a phenomenal process that's been developed by our digital folks. We're continuing to add -- we're adding about between 7 and 10 new products or new offerings a year. We just launched a new truckers JL. We had a lot of truck business. So it's natural for us to go ahead. And this is so awesome where a retail customer goes in, it puts a CAB number into it. We're connected to that bureau, and they can get a quote within a few seconds because it attaches it to third-party data, spits out a quote based on all the information that's stored into CAB, and they can get a bindable quote in literally seconds. And we continue to make those type of offerings to our customer and it drives more traffic. As you, of course, like any other website, if you drive more traffic, they see other products that are available and then they naturally go back contingently to the website to bind the business. But again, our distribution benefits us there because of the fact that we do business with 25,000 retailers. And if you make something that easy, people will continue to come back. We're very excited about where the prospects are for that part of our business.

Great. Maybe, Bill, do you want to touch on some of your organic initiatives [indiscernible]

Yes. Sure. I'll go back to the theme of 2 themes of the stop loss and self-funding growing, but also the data and analytics. The medical world is just very rich in claims. If you think about you go to a doctor for your physical, that's an experience. That's a data point. You fill a prescription data point. You start having something more serious. These are all the things that go into the claims. We get the data feeds from the carriers. About 20 years ago, we bought an actuarial firm with its own data warehouse to be able to start analyzing to see what's going on. CFOs, everywhere in the world hate surprises. So they want to know what the new renewal is going to look like. We use the data to inform them midyear where it's trending, give an idea where the renewals should go, and also helps us negotiate with those carriers on the renewals. As these costs continue to rise, more is demanded. It's not enough to say, hey, you had a big claim, and it's going to have an impact on your next renewal. It's now about the strategies going forward, getting granular it's what can be really uncover with that data. And so we've invested in financial benefit consultants. We used to have our resi, as mentioned before, just our own exclusive actuarial data warehouse. Now we have more of an open platform. There are other firms out there. This is all they do, and they have different ways of looking at the data as well. So there's a lot of things going on with point solutions. I think I said earlier today about car valves, whether it's pharmacy or kidney dialysis, better points of care and so forth. But how do you know how good some of these solutions are? So we actually have a platform internally to allow for our consultants to wait and give feedback to the rest of the GBS community on how they're performing. Are they seeing the results they promise and things of that nature. So being able to go out on an organic basis, going -- competing for new business and retaining our clients to able to give the insights and the solutions that the employers are looking for. Those are big initiatives for us to take part of this growth in the self-funded side as well.

Scott, maybe you want to hit on the carrier outsourcing business?

Yes. No. As I mentioned earlier, that it's probably our fastest-growing segment. We actually have a dedicated team led by Joe Barrios. So we've got dedicated sales professionals, client service people as well as our claims adjusting staff that's strictly focused on carriers. What's fascinating as long as we've been around for 60 years, working with a lot of these insurance carriers when we go talk to them about this part of our business, they don't necessarily really appreciate our size and depth and expertise. The fact that in a lot of cases, we're significantly larger and have a much farther reach than they do. So -- once we get that story out there, we see a tremendous amount of interest. We probably have in the neighborhood of 150 carrier clients. It represents probably about 20% of our business. So when we pay out in north of $10 billion to $11 billion of claims, for carriers, we're probably paying out around $2 billion in claims. It helps interestingly that we have a relationship with them on the distribution side. I've spent time with our carrier executives with many of our -- the folks here at the table and other parts of our organization talking about how Gallagher can serve them in not just a distribution way but well beyond that on the claims side. It's some of the challenges that they're having today. When you're sitting there, and you're a carrier that's faced with, okay, am I going to spend $100 million, maybe $200 million on new technology in my claim operation because it's outdated. And somebody comes by and says, hey, we can move you to our platform as well as eliminate some of the challenges around staffing, keeping staff and so forth. That's a pretty compelling value proposition we have, and it is resonating in a significant way. We've got carriers that literally didn't have spent 2 to 3 years building a new system in a matter of 2 to 3 months once they converted to us. They've got brand-new technology. That technology, we will white label. It looks and feels like them, not necessarily Gallagher Basset. And interestingly, too, that technology is tightly integrated into their underwriting function. We are providing direct real-time data and information into their underwriting staff so that they're making smart and intelligent underwriting decisions. So what we have on the carrier side is, I think, quite exciting -- and the good news is probably 90% of the claims in this world are still handled directly by carriers. Even though we do work on the unbundled side. So I think the prospects are quite significant. We're also starting to work with running-type carriers as well -- or excuse me, run-off type carriers. So that gives us a another opportunity within the carrier market. So we're quite excited about what we got going on there, Ray.

Great. Thanks. So we are running a little bit over time, and we're running into the break. So maybe we'll stop and take a 10-minute break until 10:30 a.m., and then we'll pick it back up then. Talk about M&A, and then we'll open up for Q&A, and we can discuss some of the organic growth initiative questions then, too, right? So we'll be back on at 10:30 a.m. Eastern. [Break]

All right. We're going to start back up here in a minute. just for those in the room, the WiFi password is not NYHM20. It is AJG2022, just so everyone can get connected back to the WiFi. I know they're having issues. Okay. So we're going to go ahead and get started on the final discussion tablet for the morning. Another one of our key drivers of shareholder value M&A. Mike, you used to lead our U.S. M&A efforts. Can we start with you and break down our tuck-in acquisition strategy?

Yes. I'm sorry. I thought I heard some M&A is a big opportunity for us in the U.S. When you think about the quantity of U.S. retail agents and brokers, there's estimates 30,000 of them just in the U.S. alone. The #100th broker in the top 100 does about $25 million worth of revenue. So clearly, there's an opportunity for us amongst the all others. And then, of course, in that $10 million to $20 million range and even in the top 100. Our strategy is to remain the same and consistent, and that is we want to find good businesses run by solid operators who want to stay in the business and are looking for opportunities to add value to their customers. It's as simple as that. You get the culture thing right, you get most of everything else right. And so finding those kind of firms takes a lot of time and effort. Many of our relationships that we've built over the years, whether it's a $2 million firm a $10 million firm or a $30 million firm have occurred because we built that learning curve, establish that learning curve to help them understand why their people, why their customers and why they will be better off being a part of the Gallagher family. This is not just simply a drive by occurrence where we're looking just to by revenues and earnings. This is about finding the right people that fit our culture that look to grow in a bigger environment where they can possibly call on bigger accounts. or serve their smaller accounts more effectively and efficiently. So when I look at our strategy here in the U.S., it's really targeting firms of $2 million to $10 million to $20 million. And we've talked to firms north of $20 million over the last several years. Again, it's about getting the right fit. If you get the right fit, all things can come together and the new colleagues will be happy in their new home, and we'll be better together that 1 plus 1 equals 3 sort of environment.

Great. Patrick, maybe outside the U.S., any similarities in what the opportunity?

Yes, I'd probably say that across our major platforms outside the United States, we've got a very similar strategy. It's a very similar swiping pool to fish in. And we've got did a couple of tuck-in deals in Canada last year. We got other things that we're looking at on the Artex platform and throughout the rest of the Americas. Same exact profile, entrepreneurial want to be part of something where they can write the 15 largest accounts that they have the relationship to write, but they don't have the expertise or specialty or size or breadth or London capabilities or niche capabilities and we're seeing a lot of activity sourced at the local level and very similar to the U.S.

Maybe Tom outside the major geographies, any differences in the strategy?

I think it's really important to say that we're not interested in just planting flags all over the world. And when we do a geography, we typically have known them for a long time. we trade with them in London. We actually have a network that we call a Gallagher Global Network. We trade with them both in the U.S. and in the U.K. And those people are really proud to have our flag and to be able to work with us all over the world. And so as we get to know these people over a period of time, if there is a good fit, there's a good opportunity, we will partner with them beyond just taking on partnership in terms of trading together, we can buy into the whole or import. I'll give you one example of it, Renomia. Renomia is a family business that is in Central and Eastern Europe. They're in about 7 countries in Central and Eastern Europe, where they have owned operations and they trade in that part of the world and probably another 8 or 9 geographies very extensively. We took a minority shareholding in that business. But we've known that family for going on 20 years. We've traded with them for that long. And it's -- we're 2.5 years into our partnership it couldn't be going better. They're trading into London better than they ever have. We're helping them continue to grow their enterprise, we're sharing with them our knowledge, our processes, the things that we're doing -- and we're just binding ourselves together that at some point, perhaps the family will decide that they want to solve the remaining portion of the business to us, but we don't care if that's next year or a decade from now.

Joel, any differences on the RPS side?

Probably on the RPS side, the biggest difference is we really have 4 different divisions that we can do M&A in. We can do wholesale brokerage. We could do our general binding. We can do programs. or we can do not standard auto. So it really gives us a pretty big playing field for us to look for and discuss M&A opportunities. Again, as everybody has probably read since you've followed the insurance business, a lot of consolidation on the retail side, obviously. And as those firms get bigger, they tend to more formalize who they want to do business with. So as you look at smaller MGAs, especially your so brokers -- they continue to get squeezed out of some of these arrangements, some of these approved panels, so to speak. We are a very good answer to that because of the breadth of our relationships. And as I've said earlier, we bring them distribution that they've never organized distribution that they've never been able to access. So we really do underwrite, as Mike said, the culture of the organization. We want to make sure that they're the right partners for us long term. RPS has been a seasoned acquirer. We've acquired over 60 businesses in our history, and we continue to actively go after them. The one area that we're very, very kind of look at closer than some of our competitors is really looking at the program space, making sure that the programs that are out there are long-standing programs that have been around for a long time. And it's not deals flash in the pan, things that have been developed over the course of the last 2 or 3 years had substantial growth, and then somebody comes in and acquires them. we're really not having the amount of time for those claims to have developed. So we're -- we look very closely at our program mergers and making sure that we're picking the right ones that are going to be around for a long, long period of time. Some of the roll-ups, they just got to live through the 3-year period. I got to look through a career, and that's a long time. So you need to be very selective when you look at program managers.

Bill, anything to add on the benefit side?

Well, very similar as well. The last 5 years, we've done 50 acquisitions in our space. We're always looking for traditional benefit shops. That's our core in our business. But we're also looking to get some extensions in that area as well. Recently, we bought an organization called LIG out of the Cleveland area. And what they focus in on is more about the individual health plan [indiscernible], which is an emerging alternative funding area, but also Medicare sub. So in the past, we would have people -- our clients ask our consultants, can you help my person at 65 or so find Medicare sub-plan that kind of thing. And we're doing it by the agent, no real platform, and they were going through a general agent. And so the general agent gets to keep the supplemental compensation, et cetera, et cetera. So this LIG acquisition gives us a foundation to really be a part of that alternative funding are CROs, individual HRAs. So basically, the employer in that instance as, here's the money you go figured out and not be in the business of managing that health plan. So it gives us a great extension into where people are aging workers to give the employer a solution and be able to capture some of the revenue and fix that as well. Moving on to the financial side of things. So prior to '22, we had done 0 acquisitions in the retirement consulting space. We had a bit of an antiquated model, but more importantly, we didn't have a solution for those business owners who about 10% to 15% of the revenue was actually giving advice to the owner of the client of the 401(k) plan. So helping them with their choices and where to invest for retirement. We now have done an acquisition this year called F3, and it's more about the financial planning for the employees. And so we get a warm hand off from the employer to help with these folks. We also added a partnership called Gallagher Money coaching to actually educate the employees and how to live within their budget inflation. I'm jumping to another job because I'm getting $5,000 more -- but if they learn how to be better money managers themselves, the education component of financial well being is huge. So this F3 and the gate money coaching is something that really helps us complete the value proposition on that side of things. So you'll see us do more of those kinds of things going forward. We really think there's a whole lot of these $1 million, $2 million tuck-in retirement consulting plans that will be on our list to be pursuing now that we have modernized our capabilities.

[indiscernible] on Gallagher Basset?

Yes. I mean, not sure it's necessarily different, but they were -- when we think about acquiring something, we don't do a lot of it, but it's all about building greater expertise or expanding our product reach. We don't get really excited about just adding scale. We feel pretty good about kind of our overall scale and our technology and so forth. So a good example would have been what I was describing earlier around our construction vertical. We've always been in -- we've always handled claims for construction companies. But with the acquisition of WCD and Total Safety, we got into the preconstruction space. and we're actually able to change the conversation we were having with those construction companies around their total cost of risk, not just we can help you once the claim occurs. And so as we look across our business, no matter what the geography is, if we see an opportunity to add some sort of specialty, some sort of additional claim handling capability and some sort of specialized claim type. That's what we'll do, but not just for scale for our purposes.

Great. Maybe switching gears a little bit, what do we typically hear from merger partners when or why they want to join Gallagher. I don't know, Mike, Patrick, do you want to comment on that?

Yes, I think I'll just maybe reiterate some of the comments I made a bit earlier. I think when folks join us, it's usually because of course, they have perpetuation challenges that they're facing. But moreover, they're seeing that their customers are asking for more and needing more. So the things that we spoke of earlier from Gallagher Drive to Gallagher Submit, the digitization, the technology that they're seeing from competitors just like us, they don't have the capital in many cases to reinvest in their business. And so the ability for them to join Gallagher and ultimately gain access to many of those resources and tools is critical. And then it's about their people. What can -- what is the next level up for their individual coworkers in terms of career paths and bringing on young people into the business through any some form of internship program. Those are some of the key areas that we hear. It's about their clients, it's about their people. And ultimately, it's about having a home and a culture that matches theirs.

I think we win when the sellers still really have an excitement for growing their business. So whether they're the $10 million broker in Decatur, Illinois that has a large account and is worried that they're not being able to keep up with our resources, our niches, our specialties or it's like I said earlier, one of those accounts were just they've been banging their head against the door trying to get into the 15 accounts that they have an unbelievable relationship with and can do great things for but just can't show them that they have clients like them, that they have a specialist in L.A. that specialize exactly in their business that has a team in London that can do it. and they get really excited about the fact that they can join Gallagher and use our resources to get those 15 accounts. Not to mention CRM and CORE360 and Gallagher Drive and Gallagher Submit, that's too much capital for them to out away, and they know they need to do it to keep up and they want to do it. So it's not like they just start giving up and saying, I'm done running a broker. It's they want it, but they see the easiest path to getting there. is to go into a strategic.

Joel, any thoughts on the...

And I'll say this broadly across all of our divisions. Pat where he'd be -- he's listening and crop the bid saying -- we give them the -- we open up the candy store. That's always been kind of his description. And if you think about all the things that this organization has invested in many we talked about today, we talked about digital, we talked about data we talked about -- we didn't talk about the internship program, but that's something we're all hugely proud of that you can have over 500 young people that we introduced. These firms can't afford to do that. and to bring in a young person and develop them and take the risk of paying them for -- and for 2 summers in a row and introducing them into their business or the insurance industry in general. It is truly a candy store. We opened up all kinds of new avenues for not only their growth because I know we've been made up of a lot of mergers. And those mergers have opportunity for doing bigger faces, not even just for their own business, but internally, taking on new roles because as the organization grows, so does the opportunity to grow. And I'm a huge believer of that. And the growth of Arthur J. Gallagher at all provided a career path for all of us, and it's been -- you can feel the excitement when you bring a merger and to show them all the past. So it's a cool place to join.

Bill, any thoughts on benefits?

Yes, very similar. It's all about the candy store and all the capabilities. A lot of our merger partners are joining us for those capabilities I described in the in the self-funding area, the financial capabilities, our pharmacy consulting practice, it just goes on and on. One of the things that we haven't heard yet from the panel is a lot of our folks, they don't have a P&C capability, they're just benefits only. and there's a competitor there on the P&C side. And for them, it's the sort of democrats hanging over them, like what are they going to come after my business. So the opportunity to join Gallagher and be able to bring a GGB property casualty expert in helps them feel more comfortable and they can actually help the client do a better job. So there's all these things that go into the different equation everywhere we go, it is about getting into that candy store and the capabilities, the tools and resources. Every one of them has the same story that Patrick described. They've got a relationship with a large employer but the employer doesn't want to take the risk because of the size of their organization joining Gallagher, they get those capabilities and go in and win. I've been able to have the experience of joining a merger partner on a large prospect and dislodge a 21-year relationship because of what we were able to bring to the table. Those are the kinds of stories that we just love to share with everyone, and this goes on and on and on.

All right. Maybe we'll shift and open up for Q&A, and we can touch on some organic initiatives, too, since we didn't run out of time. Any questions, Greg?

Okay. Greg Peters from Raymond James. We're going to start -- go back to your comments on SmartMarket before the break. And you talk about carriers coming in and looking at portfolios of business. And as you're talking about this, I'm just curious from the insurance perspective and from the broker's perspective, switching costs going from one carrier to another carrier. They're more work involved, the same room work involved in doing renewal? And then what about for the insured? Is there more work when they switch to carriers? Just trying to understand where the friction is?

2 points, is it harder for the client insured? And is it harder for the resi the new insurer?

Harder for the insured and harder for you, switching carriers or keeping it?

It's our job to switch them if the switch is right. So Yes, remarketing rates being up higher is more labor on our team. So in a harder market where you can't just say, "Hey, the renewal is to 5%. Let's just renew it, keep the continuity of carrier relationship, then there is a bigger marketing experience for us, but that's really our job. We ought to be prepared and able to handle that. From an insurance standpoint, we definitely say that having continuity, having money in the bank, having a relationship with a long-term carrier is something that is really important to you as a client. If you've been with Liberty for 10 years, the 11th year, you really should be considering staying with Liberty. But in harder markets, again, you do have to test the market. For the insured, it should be seamless. Yes, there's going to be more decision making at the end of the dialogue? Do you want to break the 10-year relationship with Liberty. What are the qualities that CNA or AIG have or what's the service going to be like on claims. So there's more decision-making, but we should make it pretty darn seamless for them to get quotes.

So okay, thank you. Sort of I thought that would be the answer. And then on SmartMarket, can you talk about how the carriers are paying you for that service? Because obviously, it's data and analytics that you're preparing for them and that's investment on your side?

There's a lot of technology investment in it. There's a lot of people investment in it. Our smart market investment not only comes with a platform and, hey, go ahead and take it, do your work, tell us what you want. We have concierges, we have a team of people that work on SmartMarket on behalf of the carriers that are signed up to it. And for that bundled service of all the technology and all the concierge service plus ad hoc reports around we really want to get into construction in this SIC code, we'll run reports for you. We'll do a lot of follow-up. We'll file with all the branch managers. And for that, there is a subscription fee from the carriers to have access to the entire suite.

Okay. And then the other area I wanted to focus on is just in the niche -- in the conversation on niches, about recruiting. Can you just -- each of you talk about there's a lot of stories that we read about wage inflation. And then we see a lot of headlines about brokers switching from one firm to another firm. And maybe you can agent talk about how wage inflation is affecting your relationship with your producers, your employees and then talk about retention in agent of your business units? And that's it.

Greg, why don't I open with the comment about in the U.S., in our geography here, our production force is paid typically on a formulaic basis, right? As a result of that, they know what they're going to make. We're very competitive. We have to be. That's the way it's been for a very long time. You go to other geographies, it's the pressure of the location. It's not so formulaic. Actually, in the U.K., they don't want production people to be on a formula. And so the regulator prefers that not to happen. But what we find is this, you create a place where people like to come and work together and do their business together, they're going to stick around. We don't have the kind of attrition inside of on the marketplace that many of our competitors have. And it's because the team is in a really good place in engagement. We go through a process of making sure that the team is tested when people are getting offers from the outside and it does happen, they like to come back to us and say, here's what happened. Now if you don't run a place where people like to wake up and go to work there, they're out the door. They don't even talk to you again. They've got a new opportunity. Wage inflation for us is not at the production level. It's actually happening down below and it affects those people that are most impacted by a change in costs. So 10% inflation, 7% inflation affects somebody a lot more at a $40,000 or $50,000 income than it does somebody who's making a lot more than that. And so we have to be very careful about what we're doing. We measure it all the time. The thing that's interesting about where we are today, and we measure it every single month is our turnover ticking up as a result of the war for talent. It's not, yet staying relatively flat to where it has been historically. That to us is a bellwether of whether or not we're doing a good job with the team in this environment.

Others want to chime in?

I would just -- I was going to add aside from the production comments that you made, which are spot on from the standpoint of the support layers and the wage inflation and the competitive nature of that business. We've done a lot of things, particularly here in the U.S. They've done in Canada to really bring in. So we've always brought in interns. We talked about that earlier. In terms of a sales role. So 500 interns that ultimately would come in and be part of a production type role at some point in time, if they chose us and we chose them when they graduate it. But we've really increased our ability to go out and recruit talent for our support layers and building in that same sort of training and mentoring program for our team to be able to go out and recruit people out of community colleges who are interested in a career insurance, but may not be interested in selling something. And we call that our Achieve program here in the U.S. And what it does for us is it helps keep us out of the fray of just going and recruiting talent from our competitors in that support layer where the wage inflation is significant and organically building our own, where they are trained on our systems, they understand what the career path is. And so we bring in a class every single year last year's class was over 175 people in our support layer who are ultimately going to be taking those roles so that we can remain competitive but build our own talent, if that makes sense.

And Greg, you asked if the niches help with recruiting, yes. I mean if you're talking about production from our larger competitors, it's table stakes. They want to be involved in something that's a bigger group of specialists that are in their area. And for our smallers, they see the specialties and the niches as the way to take a $1.5 million book to a $3 million book, and we pay variable comp, just like the smaller brokers do. So yes, it's a big part of the recruiting discussion with production.

Ryan?

Ryan Tunis, Autonomous Research. A question for Joel on the wholesale property front. I guess focusing -- what I'm trying to understand is what is like the stickiness of -- on the demand side, given these capacity limitations? Like when I think about reinsurance, better capacity market, it makes sense and a lot of primary insurers might retain more risk and you could have fewer programs. It's not as intuitive to me that it would work that way if you're buying insurance. But I'm wondering, does that dynamic exist that there's less capacity, maybe you'll buy less limit maybe there will be less new business, you're right. I'm just kind of trying to understand that demand piece.

Well, there's an awful lot of demand. People still need to ensure their properties for a lot of die reasons, just obviously, from a risk perspective or a mortgage perspective or whatever it might be because some people just plan have to buy insurance. So the demand continues in a big way. What we're trying to do in our particular world, of course, is to put a product on the table that satisfies the risk characteristics of the particular insured in question. Again, large public entities are going to protect their assets, their physical assets. Now maybe the deductible is different. Maybe the limit that they carry is different. And so if somebody has a budget and they say, my budget, pick a number, $100,000 , you're going to buy insurance until you spend that $100,000. And that's pretty much kind of where we are in that particular cycle right now, prices, rates and of course, the cost of construction are up, but the demand is still sizable. And it's -- I don't see that changing. Actually, if you go through a hurricane and you see what kind of devastation that it can bring, people see that. They're like, what if that happened to me. And so I think you're going to continue to see demand. I think in my mind, some of this is -- it is a little bit short term. We are in a tough spot right now. I think people are trying to figure out where they want to fit where the reinsurance attachment points might be, how they're buying their reinsurance. And as Tom said, things are going to be late this year. We there are some level of extensions going on. People saying, hey, I need to extend this for 3 months until I have figured it all out. So there are things people are being somewhat receptive to those extensions.

Joe?

Joe Christiana with Downling & Partners. I had a couple related to the organic growth strategies. First, on the wholesale side, how much revenue is sourced internally through Gallagher and how has that changed over the last, say, 3 to 5 years? And then also across the firm, what has been the overall commission rate or yield over the last several years? And if I assume the answer is going to be somewhere around stable. And if that is the case, would you find that notable amidst a rising rate environment over the last several years that the commission rates for Gallagher and the industry broadly have remained pretty stable and be curious on your outlook around that as well.

Yes. The GGB side is a very large client for us, and it has continued to grow 20%, 25% a year. It's a large number. The a couple of factors in there you need to obviously think about. Obviously, the demand for wholesale has continued to increase year-over-year over year. Everybody has seen that. You read the news about the stamping offices seeing it continue to grow, especially in catastrophic prone areas. And then you got to also understand that I don't -- we don't write all their wholesale. So let's be clear on that. There are other options. And I think that's a healthy relationship. I have to compete. And if I don't have the people or the expertise of the markets, then I don't want. So I want to make sure that I'm providing the absolute best people, services and carriers to Mike's team and PM's team across -- broadly across the country. But remember that they have grown as well. So they add producers. It could be interns, could be seasoned producers. And as they add those people we get additional customers. Also think about it this way, as they do mergers, when they do mergers, I get a potential new customer. So it has continued to escalate. It is a stable and growing piece of our business. They are an important customer, and I look at them as a customer. Every day, I got to go out and compete and battle and hopefully went. The good news is for us, and I say this from a safety perspective as far as RPS is concerned, they can fire me every day, but they're not going to fire me in total. And we do continue to offer the great solutions for his producers, and we continue to grow that very nicely.

What's your commission ratio to those?

Yes. The commission rate Today, I would tell you it's been very, very consistent across the marketplace. It hasn't varied. Remember that we live in a world of E&S, everything is up for negotiation, just like commissions. But our folks have done a really, really good job of making sure that we maintain very consistent net retains, which is what we call them. So after everything is said and done, what our nets are and they've stayed very stable over the years.

And for our customers from retail at to postal it's fully transparency.

Yes.

Yes, I would just add a couple of things. Joel is spot on. They earn their business with -- and it is important to note that because we do have other choices, but it makes them better, which makes them better for the other brokers that they do business with. So adding expertise in various niches. As far as the commission, we have not noticed a change in compensation, in fact, a bit of the opposite. Through Gallagher Drive and our platforms, we actually measure compensation by carrier, by trade, by line of coverage. So we know what market is for any particular trade and all of our producers can see that. And again, as Doug said, we're transparent with our clients. They understand exactly every dollar, every penny we make, but making sure we're adequately compensated. Now what you did see in many of the carriers for some of the smaller brokers that they did business with is a retraction of commission when the market was continuing to harden they use that as leverage to reduce those commissions. We did not see that in our book of business. And part of it is because we have the data to support the conversation around what others are paying for that same trade that same line of coverage for that same industry to get fairly compensated.

And I think that SmartMarket aspect is important to that as well. I mean we have certainly created less friction with our key carrier partners. It is easier to trade with us, hence, lower distribution costs on their behalf. So even though they're paying a subscription, they're seeing better business. And every carrier to a man or woman while they want to get their rates right, still wants to grow. And if they want to grow, cut and commissions isn't the way to do it.

We'll take our last one from Paul Newsome and we'll move to the financial discussion.

Paul Newsome from Piper Sandler. Actually, I want to ask a couple of M&A questions. The first one is really probably a Micelle. It seems like there's been 30,000 small brokers to buy for as long as you and I have been talking about this, which is a long time. Why is that? Shouldn't that number have gone down materially. And so what's the market dynamics of that? And the second question, which I think actually could be more broadly both domestic and internationally is why we not had seen much of an impact on valuations given the interest rate increase. I would think your competitors are seeing a lot more squeeze at their costs because they're more levered, but I'm surprised it doesn't seem to have done anything at least.

Yes, Paul, very good questions. The -- maybe it's a little bit of whack-a-mole I think as these brokers -- what you'll see is as some of these mergers have occurred. We haven't seen it in our particular mergers, but as some have occurred that didn't want to be part of the transaction. I didn't feel like it was the right home for them, parcel off. So you see a lot more start-ups. The barriers to entry in our business are not significant. So if you've got a small group or a team that wants to start up their organization and plant their flag. I think that's why you see -- if you look at that 30,000 which is not a very scientific number. That's how well we follow companies like MarshBerry and Reagan consulting, and they have a pretty good handle on the quantity of firms. So if it's ebbing and flowing a couple of thousand. But to your point, it's not going down drastically because I think those start-ups, if you look at the number of firms that are under $2 million of that $30,000 or so, it's about are in that under $2 million or even under $1.5 million in revenue. So I think it's because there's some entrants that have splintered off or started up in this business. I think over time, you'll start to see that number come down, whether it's scientific or not. And I think to the valuation question, look, we've always said we're going to pay fair market value for an asset. And right now, we're seeing valuations where they're at, and we're being competitive when we want an asset that we think will be a great addition to Gallagher. I don't know, and Doug could probably speak to it probably better than I can in terms of the impact that it will have on some of these heavily leveraged firms and their ability to go out and continue to acquire at the same pace. We have started to see some evidence of it. Some of our competitors have said we're not going to do any acquisitions in 2023. We're going to take inventory of what we have. We're going to get our profitability to where we want it to be -- that could be the first sign that there will be more of that to come. We're going to continue to be in the game, and we want to bring in good people. So we'll pay fair market value for assets we really want and what the competition deal with, what they have to in terms of rightsizing their profitability.

And we're watching every month or every quarter, the M&A firms are putting out their statistics. The M&A in our sector is down this year. Deals are down, size of deals are down. And so I think it is bleeding through quietly into what's actually transpiring out there.

Maybe I'll pile on on that on the M&A. I think there's 3 forces right now that are impacting the competitor's appetite for M&A, we get out of the way here. Second, I think, first of all, I think a lot of firms that have been rapid roll-ups are realizing that the pro forma that they bought isn't materializing. Even in a terrific market right now where pro forma should be easy to achieve. I think there's a lot of trumped-up pro forma income. I haven't looked at a deal in a long time where our pro forma is higher than what the seller's pro forma would be on that. So I think it's not living up to it. I think it takes -- you got to pay about 2 turns less in order to return the same amount of return to your investors. So that is putting some pressure on maybe it's a 1.5 turn less. So that's drying it up a little bit. And then I think the value proposition is starting to be realized that maybe some of the sales pitch on the front end isn't being delivered on the back end. So when pro formas aren't living up returns are getting squeezed, maybe you're not bringing additional resources to bear, it's just now you have a different shareholder. I think there's a little bit of a chink in that story right now, the chink in the armor there. So I think it's going to fracture more and distinguish -- do you want to be at the strategic or do you want to be in a spot that you're basically doing the same thing you were before and just now you send a check to a different owner instead of yourself. So I think that we're starting to see that out there in the field. We're still paying fair prices. We don't dilute. We still have a nice arbitrage to our trading multiple. So on the M&A front, I'm pretty excited about it right now. The deal sheets -- we said we've got 50 deals, $400 million of revenue on the deal sheet and they just pop up every day more and more. As to the $39,000 or whatever, I don't know, maybe he has discounted in the past. They do their best to go through the yellow pages, if there is such a thing anymore and identify agencies and they just pop up every time I drive to work, it's like where that agency come from just also you see a sign on a building. So I think they're coming out of the work. The nationwide in turn got rid of their independent agency platform and basically made all of those entities that were once part of one organization, a slinger of 3,000. So I mean that went from 1,000 to 3,000 pretty quickly in terms of independent agents that were created.

All right. So for the panel discussion, we're going to join me in saying thank you to them.

Thanks.

Thanks, guys.

Great job, everyone.

All right. I guess it's my turn.

Yes.

What do you want to talk about?

Why don't you tell us what all this means financially and then do some vignettes.

All right. Great. All right. Thanks. I'm Doug Howell, Gallagher's, CFO, and it's pleasure to see you again after 3 years, and it's amazing how all of you got older during this time. So listen, today, I hope We are channeling a different way of talking about this. We're going horizontal across a lot of different topics. And let me try to see if I can put it back into verticals for you financially. We heard Mike, Patrick and Tom talking about our retail and specialty P&C business around the globe. They're looking at organic kind of in the fourth quarter in that 10% to 11% range. So the -- which is very similar to what they've been seeing before. I mentioned earlier when I was reading Pat's piece of the script, that we're seeing premiums up about 9% in the quarter thus far. There was a question from the audience about that seems to be down sequentially from the 10-plus percent that you were seeing in the second -- or excuse me, yes, in the third quarter. So I went back and I pulled out what have we said in the past and what's really come through. So if you really go back in first quarter of '21, we were saying we're seeing 6% -- in second and third quarter and fourth quarter of '21, we said First quarter of this year, we were saying is about 8%, a little over 10% in the second and a little over 10% in the third. Now we're saying 9%. The actual number is about 9.3%. I wouldn't dug that out to see what it is. So it's a little closer to that 10%, 10.5%. Second thing, the phenomenon, I think Joel hit on it. There's been a lot of renewals that happened October 1 and even November 1 that really were priced before the impact of Ian. So it won't surprise me a bit that is when we close out the December numbers, that, that 9% could be $10 million Am I going to worry that it comes in at 9.3%, not at all. I think that there's enough in precision in that measurement because remember, it's premium that's rate and exposure that. I just wanted to clarify, Dave had a nice question about that, and I just want to make sure you understand. I wouldn't read anything into a 9.3% versus a 10.5% or whatever it was last quarter because I think you're going to see positive development in that number as we go through. When we look at the wholesale operations, that Joel has seen terrific results on is open brokerage, is binding business is still a little tougher out there in the business, just the nature because it's loss ratio exposed sometimes on that. But by and large, I think is going to post in that 8% to 9% organic in the fourth quarter. Bill is telling you about what's going on with his business benefit side, I think you'll see somewhere in that 3% to 4% organic range in the fourth quarter. consistent with what he's been seeing most of the year. Remember, we had some compare issues in the second and third quarter. That's behind us now, but he's running in that 4% organic range. So where does that end up for the Brokerage segment for the fourth quarter, I see it in that 9% to 9.5% organic range, similar that -- which is right in line with what we told you 6 weeks ago. So no change in our outlook there. When I look at next year, I said earlier that Pat said, that I said, was in that 7% to 9%. We're still feeling good about that. We're in the middle of our budget season right now. In fact, that's where I'll go after today is go back and see if we can wrap up a big piece of that by the end of the week. And it's coming in, in that range in that 7% to 9% range. What do I feel more optimistic about 7 or 9? I don't know what the difference is how I'm feeling, maybe 7% to 8% right now. But there is a bull case on that, that will be next year if we continue to see exposure going up. Scott was talking about his business. I mentioned earlier, his organic for the fourth quarter is shaping up to be 10%. When he looks out to next year with this new business pipeline, it takes a long time to sell some of these. I think you'll be nicely in the high single digits, again, maybe pushing 10% in our risk management business. So now with organic behind us, let me move into what we're talking about for margin expansion. I've told you throughout this entire year, it's been a little bit volatile this year because of coming out of the pandemic, the roll-in of the reinsurance operation to have significant seasonality I'll be glad, by the time we get to '23, that we have that volatility on a quarter-to-quarter change volatility behind us. We're still seeing here in the fourth quarter margins to be pushing to be up, pushing 125 basis points. When I look out for next year, if we do that, we will have delivered a year that's in that 10 to 20 basis points of margin expansion for the full year on top of the $50 million that we talked about that we've done since 2019. So when I look at next year, I'm seeing still comfortable that margin expansion can start somewhere around 4%, maybe it's 50 basis points by the time you get to 6% and maybe more than that -- obviously, more than that if you get up into the 7%, 8% or 9% organic range for '23. Risk management, we're going to be someplace in the mid- to high 18% for the quarter. And I would think next year, we should be somewhere around 19% in the risk management business for 23 on margins. One thing that was interesting is we're going through the budget I'm just going to do a little short vignette on. And this is a no never mind to EPS, but it does have an impact on EBITDAC. As companies go more and more to software as a service, that means that we're leasing software and pay as you go on a lease basis versus buying it in the past, installing it and depreciating it or amortizing it over the life of the software. So what that's had an impact of doing if you go from a CapEx and depreciation now to an operating expense, that actually puts pressure on EBITDA margin. And so I was just curious during the budget process. How much of that eroded our EBITDAC margin expansion story since 2018 or '19. And the answer is just that accounting change, and I'll go over it again, it's about 50 basis points. So when you look back since 2018 or '19, instead of being up 550 basis points, we've actually expanded margins about 600 basis just because of that accounting change. And just the subtlety of it used to be depreciated, and we'd add that back to get to EBITDAC. Now what it is, is that you charge -- if you have implementation costs associated with software as a service, you capitalize those, but you amortize those or depreciate those against comp and operating expense. So it was just an interesting little vignette that I thought. It doesn't have any impact on EPS. But as you think about our margin expansion story. It's even more impressive than what it is on the headlines. Now looking forward, we're going to have more and more of that. And if it ever becomes really significant, clearly, I would let you know about what that increase is so that when you're looking at what we're saying if margins are going to be up 50 basis points next year. They might actually be up 60 basis points because of Software-as-a-Service coming in on a comparative basis. So I just thought that was kind of an interesting vignette that you had an interest in, and I'd tell you. If you don't, you had to listen to it. So we talk about cash and capital management. We're generating a lot of cash. I don't see a lot of cash pressures against us. I told you about how I feel about inflation that I think it's controllable in our case, you demand management. I think that our head count right now, it's interesting because there was a question about recruiting. Are we just looking at our stats. Our voluntary terminations has dropped dramatically in the last 2 months. I think it's a little bit of a confidence canary in the mine a little bit. We're just not seeing resignations. Even if you seasonally adjust because nobody really quits over the holidays, and they quit in January, they get paid for doing nothing during the holiday period. So even if you adjust that out, our retention is way up, our exits are down considerably. So that was an interesting piece of data that I was looking at last night on that. So we'll see what happens here in December on it. So when I look at it from the organic and from the margin, I don't think our future could be any more bright at this point. We've proven that we can be operationally excellent. We've proven we can grow organically, and we've proven that we can grow through M&A all of that being accretive to our financial results. Before I go to Q&A, just a few things on the CFO commentary document. Sorry, let me put on my eyes here. When you get to Page 3, that's where we show you the impact that's bouncing around all over the place, but it's not as much as a headwind that we thought it was going to be in October. The dollar strengthening -- and so we thought we're going to have a $55 million headwind, and we think it's only about a $50 million headwind in the brokerage space and not much impact on risk management. Also, when you're trying to model the impact of of 20 23, just take our annual amount for '22, divide it into 2, and that will be about the impact of FX on our numbers next year. Now -- but if the dollar weakens over the next few months, that number would contract. And the reason why it's about half of this year is because the strengthening of the dollar really didn't come in until midyear more so than it did at the beginning of last year. So just take a look at that for your modeling holders. On Page 4 while we -- you'll see in the corporate numbers, -- it does -- while we get the benefit up through the Brokerage and Risk Management space or less of a detriment, it does come up and we have a remeasurement gain or loss that goes through our corporate numbers. So take a look at our corporate numbers on that remeasurement gain. It's noncash, but that's a remeasurement. Other than that, we're right in line with what our forecast was at the end of October, other than a few tweaks as we look into the quarter, but not much change at all. As for next year, -- we've provided our first look at what we think will have on the corporate lines for full year next year. I'll give that to you on a quarterly basis during our January earnings call, but I provided the first look there of what '23 will look like on those 4 different corporate line items. And then on Page 5, the purpose of Page 5 is to show you the cash flows from clean energy. One small note, we filed our tax returns. In October, we took some different filing positions that allowed us to use more of our tax credits effective in '21. So if you picked up this document and you went to the 2021 column, it would say that the cash generated by Clean Energy was about $40 million. Now you'll see it's about $190 million -- that's just because of the effective cash generated by using tax credits earlier, helped us in our tax return filing position in October. Technically, that's 2021. But because we don't file our tax returns to October, you'll see that. So it does show the flexibility of the credits too. I think that's an important aspect. These credits using them in that flexible way is an important tax planning strategy for us. And then finally, moving to Page 6. We've just continued to provide our outlook of what our reinsurance operations guys are killing it. They're doing a terrific job. They're going to deliver the pro forma that they said that we thought when we bought and I couldn't be any happier for the team that they are actually being able to achieve what we said what we signed in August of last year, and they're living up to that pro forma. So they're doing a great job on that. We'll have them in our numbers. I think starting in December, they start reporting organic. So maybe this is a very good time to own a reinsurance operation as we come into '23, that I would hope that the organic is pretty spectacular on the 1/1 renewals to get through it. So those are my prepared comments. I think we're stacked up to a pretty good year. I'll take Q&A now.

So Greg, I saw your hand pop up.

Okay. I want to get back to your vignette on capitalized software expenses. So when I look at your cash flow statements, I think about future capitalized software as a percentage of revenue? Is that going to be trending down?

Yes, you think that we had come out that CapEx would look smaller going forward. Now we may be spending more on other things. So it might offset that. I don't know if it will ultimately come down, but it should not go up quite as much.

If you're spending capitalizing other things, is that what you're...

Well, just there are some software development cost that would be capitalized still, right? And if those get amortized, they would just go against the comp and operating line is what it is.

Got it. And then one of the other -- in the presentations, a lot of comments about data investment in data, technology, can you just step back because you're doing the '23 budget right now, can you give us a perspective of what the tech budget looks like for Gallagher for '22? What you're thinking about? Is it going to grow? Does the tech budget grow in line with organic? Does it grow faster than organic in terms of the expense you're paying -- you're investing in tech?

Great question. It's probably growing faster than our top line revenues are by a little bit. So if I really look at the tech spend, I think across Gallagher globally, we're spending about $600 million a year on tech, right? And if you believe that we're going to grow organically, pick a number next year, 7%, 8%, 9%, and we're going to throw M&A on top of that maybe in a like amount. Those 2 numbers together get you to 15% top line growth next year, something like that. Just in steady-state type Gallagher way, that tech expense is going up about 17%, and most of that is driven by cyber, cyber cost right now, the investment. I think if you go back 10 years ago, we were spending $6 million a year on cyber, I think next year's budget is $75 million, just for data protection, cybersecurity, infrastructure enhancements, it's those type of numbers. When it comes to development of client facing important drive, connect, all of those smart market. We're spending about $50 million a year on that tech investment every year, and that's been growing. We spent $10 million 5 years ago and every year, it's been going up.

So related to that, we're seeing other service providers, many of them calling out this migration to the cloud as additional expense that's running through the P&L as part of tech, can you talk about -- and there's a last question for the time being, what you're doing with the cloud? Are you -- is there an initiative? Are you already in the cloud? Where are you in that sort of spectrum?

Both. Some of our applications are already in the cloud. Some are moving to the cloud. Yes, it's putting some additional expense load into the structure right now because you have kind of duplicate cost on that migration. How much? $20 million, something like that, it's that type of number.

Doug, you had mentioned the change in the guidance for the corporate segment for the fourth quarter, a $10 million shift. I think you said the remeasurement gain -- is that something that's adjusted out? Or is that -- will flow through your adjusted EPS?

No. All right. Great question. I probably should have belabored it more, but I don't know if you were that interested. So here's the thing. Remember how we account for FX. We never ever adjust our reported numbers for the impact of FX. What we do is we go back to prior year and put prior year as if it were on the same FX basis and then we compute the change. So that's a change in revenue or change in EPS. Our current numbers today are not restated. We just adjust last year, so you can see the change, what's the impact. Because of that, I think it would be unfair -- if we're in our core brokerage and risk management operations, we're leaving the impact of FX in, I have to leave the FX in our corporate segment. So that means that if I have a win or a loss up in the Brokerage Risk Management segment, I got to have that winter loss down in the appropriate segment because the balance sheet remeasurement gain. So we called that out in footnote #2 and try to give it to you. So you can see on Page 4, what the impacts of FX remeasurement gains have been in agent of the last 7 quarters, and I'm saying now it's going to have a remeasurement loss of about $10 million in the fourth quarter, whereas before it had been a remeasurement gain in there. So I think it would be unfair of us to do that, but you're welcome -- I mean I would think that would be an important note that, okay, the corporate line of Corporate has been revised by $10 million lower but that's all due to the FX remeasurement gain, not as a result of anything to do with our business, to be honest. But I don't think I could -- would be appropriate for me to adjust that out.

Okay.

I give you enough information for you to do it to explain it.

Yes. And then any carryover into next year, you've given the initial guidance here. Is there a similar phenomenon when I look at corporate that there's a meaningful difference?

Yes, if you look at it, we've had remeasurement gains of $35 million that have gone through the P&L. And so next year, you would -- if you don't expect those to repeat you're going to have more corporate expenses coming through. That's why that number on the corporate line would jump up from where it is today. It's mostly that. There's not a lot of difference. I mean, to be run it's -- we're running one point of corporate costs. That's about all that runs through there. And is there anything else in there, Ray, that for next year?

David Motemaden from Evercore ISI. Just a question on the 50 basis points at 6% -- 50 basis point margin expansion in that 50% -- or 6% organic. Just wanted to confirm that doesn't include any impact from fiduciary investment income? And maybe if you could just share -- so how we should be thinking about that potentially flowing through adding to margin next year?

Yes. Good question. That's right. Thank you for reminding me. I should have hit that. That does not include what we think is going to happen with fiduciary income. Right now, our best estimate might be that there's a net $50 million, $60 million more next year on top of that. I think that probably gives us a little cushion to see what happens with wage inflation. If you think about how we're looking at it. I don't have a definitive answer yet. And I think that I don't know what's going to happen with savings rates if returns are going to be next year on it. But probably $50 million more is what that would do. But I got to look at our raised pools too. And if there is continued inflation, remember, we didn't see the CPI print until this morning. And so if inflation is a little more subdued next year in our raise pools, yes, a lot of that $50 million is there.

Got it. And then also just a question around, I guess, the IT expenses that are now being expensed. Is that -- I sort of always thought, I just look back to 2019 where you guys grew 6% organically and expanded margin 75 basis points. And now I think on the low end, it's about 25 basis points lower margin expectation -- margin expansion expectation. Is that all cloud costs or IT costs that's driving that?

Well, I think it's a culmination of inflation across a ton of different I mean that might be the better way of saying that if you think about 25 basis points on $7 billion, what's that, $25 million, something like I do in the math right there, somebody smarter than I had $22 million, something like that. When you spread it across 100 different line items and you have a little inflation in them, that's probably where the erosion is there a little bit. And put inflation in check yes, maybe you'd seem closer to 75%. But right now, we also have a really -- we have a lot of really exciting things you heard the guys say, talk about today and where we can spend some money to. So gee, if we start getting to the point, our margins in the brokerage segment are nicely in the 30s. And so spending a little bit of that to fuel some organic growth, I think it's a good investment, but it's $20 million.

Mike Zaremski from BMO. Reflecting on the 500-plus basis points of margin improvement you've shown over the last number of years. Can you remind us how much has come from the accelerating move to offshore centers of excellence, if any? And is that -- is that a lever you can continue to pull?

I think that's a great question on productivity. And I mean we're pushing 8,000 folks now that are in lower-cost labor locations that are doing really value-add work. We don't do call centers. We don't do load transaction processing type. This is a knowledge-based were I think that a big piece of that is last time I looked, is probably 2.5 or 3 points of that, half of it maybe is as a result. What do we have is opportunity? I think the sky is the limit still. I think that we have some units that have 30% to 40% of the workforce I can speak to myself. On the finance side, if you really look at it, about 57% of all my finance people are in India. I can see a number that's 80% at this point. So the capability of our colleagues in India and remember, we offshore, we don't outsource. These are our folks. They work dedicated 100% of the time. On Gallagher, they're insurance experts, they're financial experts, they're data experts, I think the sky is the limit there. It wouldn't surprise me on my finance in 2 more years to have 80% of our total need over there. And remember, our strategy, we move work offshore to efficient locations and then they, in turn, automate themselves into different jobs. So we have a lot of robotics going on right now. In India, we have a lot of Kaizens or total quality improvement work that we're doing there. It is a machine right now that is 8,000 people strong, and it continues to go up the value chain. Actuary CPCUs certified auditors, I mean the education of our colleagues in India continues to grow in the insurance space in particular. So we generate a lot of insurance experts in India that are doing policy renewal, quote summaries, auto ID issuance that's kind of a low process there. But when they're actually reviewing your policy to see whether you have good coverage, pretty smart folks.

We ask this every couple of months, but is there still a window on the -- any potential for a clean coal tax extension?

Yes, I think there is. I think a divided Congress right now might be a little hard to get something to work. It doesn't cost us that much to just leave them sit. And the question was, can we restart our clean energy Yes. In fact, when you look at the most recent launching, the value of tax credits has grown. Section 45Q was an important part of the Inflation Reduction Act that really has said that creating innovation through providing tax credits is an important policy for the U.S. government to foster innovation. So I do think there's a chance for it to happen. Will there be an extenders bill, I don't know. We'll see. Washington can move very quickly when you don't want it to and very slowly when you do.

Scott Heleniak with RBC Capital Markets. Just wondering if you could talk about the potential cost savings from reducing real estate. I know that's something that you guys have talked about in the past. And other cost levers besides the centers of excellence that you can look to in '23 and '24?

Yes, let's talk about, first of all, what are we seeing in terms of a pandemic dividend coming out of this as a result of that? On the real estate, we are constantly renewing our real estate footprint at about 50% of what we were -- what we had in square footage before. Sometimes we're moving into a slightly more a better location necessarily. So we may give a little of that back as the office space comes up because what we're looking for in certain buildings is ability to have conference rooms or gyms or something like that, so we don't have to do it ourselves. On that, right now, we're seeing we're up to about $40 million of savings since the pandemic on that. And I think in our budget next year, we're looking at $8 million of savings. Most of our footprint is leased, that's on 3-, 5- or 7-year leases. So as we roll through that, you would continue to see that. How much do I see going out over the next 3 or 4 years, I would say, an $8 million annual rate of savings would be pretty consistent is that we roll off on that. So that when we get done with it, there's probably -- there'll probably be $70 million of savings over a 7-year period, something like that. That's good. Other areas, we actually are traveling about 85% of what we were before. Now some of the cost of that travel is up with actual -- the per trip number of trips is down, but our overall cost is -- we've kept it leased up 8% dividend from the pandemic. I thought it might be a little bit more than that. But if you take out the price pressure against it, it's probably a 15% dividend. Other task force of growing -- centralizing mail rooms, doing them a different way. Right now, we're completely -- we're almost all digital on -- so we don't have any off-site storage for records and records retention. These are a lot of other -- there's 25 small little projects that are going on inside of the company right now that each might have a $0.5 million to $1 million worth of savings that just they all add up. So for us, using offshore being better together where we're starting to actually use expertise from one division to help another division. For instance, agent licensing or producer licensing, one of our divisions used to do it really well, another one not so much. Now they're just -- that division is using the better division on that. Surplus Lines filings is a huge amount of effort Joel's business does a great job of it. Mike didn't -- initially so Joel is just doing that work on behalf of Mike, and it's actually the other way around on the agent licensing here or our producer licenses. So we're seeing these projects, and so we do have a lot of opportunity to continue to get better working together on it. So I think that next year, how many more folks do we need in India, I would hope it's another 1,000, and our total cost per person there is about $15,000 a year all in.

Sorry's, versus what? So if you move another 100 people over because it's probably not 1 to 1 because you probably have to move?

$5 million, I'd say it's $5 million. So it's $50,000 a copy. I shouldn't say it that way, but 1,000 a person that you say. And actually, the quality is better. Believe it or -- these are really high rewarding jobs for any -- I would say, for anybody, but in particular, in certain of our offshore locations.

Derek Han from KBW. Just a question on your brokerage organic growth outlook of 7% to 9% next year. How do you contemplate the easing financial inflation kind of baked into that number? I know you talked about PC being up 9% probably next year, but if you can just parse out pricing versus nominal inflation impacting exposures?

All right. So a couple of different things. I think that you heard the team talk about there isn't a meeting we're in right now where we're not talking about replacement values. Regardless, however you piece what you heard on the panel, every place from reinsurance all the way down to your small business owner policy, the meetings with the clients, the carriers, the reinsurers all about exposure. I think there needs to be another step-up in exposure unit or values, okay? So I think you're going to see exposure unit growth on dollar or value of exposure unit, maybe more so than return of exposure units. So what's the value of that truck? I may not be adding another truck next year. But if I have a fleet of 10 and the value is up 10%, it's effectively like I added another truck, right? So I got to ensure that extra value. I think that premium or rate increases are more indicative of what will happen next year than headline inflation, right? So premium increases, in my opinion, unfortunately need to move further higher. I still believe that there is a need for carriers to take rate out there to get paid fairly for the risk that they're taking, right? And that's something that we're explaining to our customers every day as this is not an unfair rate that they're charging you. This is a fair rate in terms of that. So I think you're going to see more impact of premium inflation, if you want to call it that, then you would just headline inflation. So as I think about organic next year, that's why I'm comfortable in that 7% to 9% range. And if we post over 9% for full year this year, all right, maybe there's a point step back next year or so, but maybe not. Maybe if this thing has legs and it continues to go deep into next year and what I'm feeling like is going to happen with loss cost that 9% might be a low pit. But right now, we're budgeting in that 7% to 9% range. And that's informed people that are on the field looking at their accounts telling it versus from a macro basis. So the micro level is rolling up in that 7% to 9% range for our units. The macro level seems about right also. And I didn't have that micro roll-up view in October yet. So it's confirming kind of the macro view. Go ahead Mark?

Just a little question. Anything you're seeing on the construction industry that denotes any kind of marginal change?

Well, listen, I think there's fewer starts up. I think there are fewer developers starting properties right? I think that my own personal world of knowing property developers are kind of waiting to see what shakes out on what's going to cost them to borrow against it and what's going to be the raw material cost because they still see huge cost in the raw materials, right? That's what's keeping them -- if they're on the sidelines at all, it has more to do with the cost of materials, then and labor cost to build the building and availability of labor than it does the interest rate because you just price the interest rate into your rents. I mean they're in the price. So that's not concerning them so much. I think there's an excess demand where we supply -- we ensure supply, not demand. So the only thing we can ensure is apartment buildings at start, right? We can't -- so if there's 20 that are on the drawing board and one gets built, we insure one. If there are only 10 on the drawing board and one gets billed, we ensure one of them, right? So we ensure supply, not demand. The same thing on homeowners. 20 people are trying to buy a home, still on one home to insure. So housing starts, I'm sure there's a trickle effect of that. But right now, what we're seeing might be as a contraction of the demand side, not the supply side. Look in your own neighborhoods, there's cranes everywhere. That's all got to be insured now and when it's -- when the cranes are done. So I don't know if that answers your question, but we're not -- we're seeing a little pullback, but it's something -- it's more on the demand side.

During Joel's some of his comments, he called out nonstandard auto, some of the programs he's doing and the auto market has been under an incredible amount of stress. Can you talk about your noncenter auto programs and your ability with your relationship with your insurance carrier partners because I imagine the results of that business haven't been great.

Right. So we sell basically nonstandard auto in Texas, and we have our own kind of proprietary product that we front through a carrier and then we reinsure out the back end. We also sell third-party products through that same distribution. We took some aggressive pricing actions a couple of years ago, seeing this happen, probably dried up some organic on it, to be honest. I mean I think that it puts some pressure on the sales folks there. Right now, our loss ratios are holding up well. We have reinsurance that's willing to reinsure that. We are hearing when we're in the market for that reinsurance on that program. that because we reinsured down to 0, basically, right? So because we're really just an MGA on it, but we have a proprietary product that we sell on a fronted paper. We're hearing there's some small auto folks that aren't going to get the reinsurance this year because they haven't taken the pricing action that they needed to. So you've seen it in homeowners, you're seeing a nonstandard auto so I think -- I hope our pricing is right. I think it is. Our loss ratio was pretty good right now year-to-date. So some of the -- we don't have a lot of adverse development on prior years. So we're able to go get reinsurance right now. And it's a small piece of business. It's -- our revenues on that are $50 million, something like that. All right. Well, maybe if there's no more questions, maybe I'll try to wrap up from this. First, thanks for being here. Thanks for coming out. Today, Pat said at the front, I don't think there could be a brighter time right now for brokers and Gallagher in particular. I think that when you're looking at the need that -- the value that a broker provides right now to its clients has never been more important. So that means that we're bringing value to our customers, we're having to help them navigate some difficult issues. It's in a rate increasing environment that's going to be there, and I think it's going to persist for quite a while. And I think that we have the experts that can be brought to the point of sale that differentiate us against our competitors. Remember, 90% of the time, we compete with somebody that's substantially smaller than us. So the capabilities and resources, technologies, in market insights, customer service level is right now it's our time to shine and show that we can compete in this marketplace. So for me, I don't think there's ever been a brighter time for brokers at this point in Gallagher in particular. All right, those are my comments. Thanks, everybody, for coming. Anything else, Ray?

That's it. The only thing I'd say is lunches are outside if you want to grab one before you leave. You're welcome to eat in here as well.

Thanks, everyone.