Higginbotham: Better to Have a Sense of Humor to Work Here

Fort Worth’s Higginbotham goes from “sleepy” agency to one of the country’s largest brokers. How? It helps to have a sense of humor if you work there.

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Rusty Reid was a few years out of college and had a good job, managing a territory for the major insurer American General. His job was to sell insurance brokers and agents on repping his company’s products. “We had a saying at American General,” he says. “You get on the northbound train. I was on the northbound train.” One of those reps Reid signed was Higginbotham, a small Fort Worth agency. Bill Stroud, the owner and a nephew of the Higginbotham founder, noticed Reid and began recruiting him. “I was 23 when I met Bill,” Reid remembers. He jumped a year and a half later. Then in just three more years, Stroud asked Reid to figure out how to buy the company.

What Reid and Stroud came up with: an employee stock ownership plan, which meshed well with the nature of insurance. “It’s a very people-centered business,” Reid says. “We kept coming back to the ESOP as the right structure.”

Today, with employee ownership one major piece of the firm’s underpinning, Higginbotham has grown to a projected $155 million in 2016 revenue from $132.1 million in 2015 and $1.2 million in 1989. Reid was employee No. 12. The agency today has 774 employees in Fort Worth and across Texas and, in 2015, was the nation’s 32nd largest insurance broker of U.S. business, according to Business Insurance magazine.

The company, targeting commercial clients and high-net worth individuals, has built itself into what it calls a “Single Source” for all insurance-related needs, including adding employee benefits early on in response to clients’ suggestions.

And Higginbotham built an array of related risk management and employee benefit administration services, including safety and loss control, contract review, claims advocacy, risk management information systems, employee communications, wellness programs, compliance and HR technology.

In 2000, Higginbotham hired its first risk management specialist and began examining how it could continue adding value beyond providing insurance policies. “How can we do a better job at helping our customers better control their risk?” Reid said. “How can we be a greater value to the client beyond just selling them an insurance policy?”

That’s when “we really began to penetrate these customers with our risk management services,” Reid says. On the employee benefit side, that’s included emphasis on wellness programs that help drive claims down and contain premium increases, and advising clients on how to comply with Obamacare’s requirements. Higginbotham now boasts 91.5 percent customer retention, Reid says.

The company has expanded aggressively since 2007, all within Texas, including using its private stock to make acquisitions. To drive growth internally, it’s developed a sales strategy team that teaches methods and technique to producers and provides mentorship to new salespeople.

The company, in another move to nurture employees as partners, founded a charitable fund in 2011 that’s granted $717,161 to Texas nonprofits since. 

It became the first local employer to achieve certification in the Blue Zones Project Fort Worth, a well-being initiative based on lessons learned from communities worldwide where people live the longest. And it’s also a sponsor of Fort Worth Bike Sharing, with a station just outside its downtown offices. “We can’t tell clients to have wellness programs and then not do it ourselves,” Reid said.

And then there’s another thing that helps if you want to work for Higginbotham: having a sense of humor.

Employees are known to lock their offices ahead of the annual Red River Rivalry game between Texas and Oklahoma, lest they return to find the sharp work of a practical joker.

And take managing director Jim Hubbard, the agency’s 13th employee, who painted a colleague’s office purple while the man was away on a trip. And the three people who Saran-Wrapped Hubbard’s car, cleverly dressed in monkey suits to escape detection. Hubbard, who had to borrow a pair of scissors and a knife to extricate his car, was unable to identify the offenders from security video. Then there was the day, Hubbard, who is particular about his clothes and had left a change of clothing at his office, had to endure watching Reid’s secretary walk in wearing the outfit the next day. “Things come back to haunt you,” Hubbard says.

First, a Pre-Med Central to the company’s success over the years has been Reid, 53, who initially chose a different path in college, even though his father and grandfather were both in insurance and worked together. Reid was set to attend the University of Texas at Austin when his father died, and, deciding to stay closer to home, he enrolled at the University of North Texas in a pre-med program.

“I ran into a wall with organic chemistry,” Reid says. The head of the pre-med program, in a conversation with Reid, learned about his family’s insurance background. “He said, ‘Let’s start with insurance,’ ” and then sent him to the dean of the UNT insurance program, Reid recalls. Reid graduated with a bachelor of business administration in insurance and started his career at American General in Houston.

Morgan Woodruff, now Higginbotham’s secretary/treasurer, was one of Higginbotham’s first five employees when he showed up in 1970. Higginbotham’s offices were on the east side, and “there were three ladies then” and Bill Stroud, he says.

“We were a sleepy agency” when Reid arrived, he says. Woodruff says he immediately noticed Reid’s level of energy, expertise, knowledge of insurance, administrative capability, and easy interaction with people at such a young age. “Salesman personified,” Woodruff says.

 Reid, who joined Higginbotham in 1986, assumed leadership in 1989 and immediately recruited Hubbard and insurance executive Michael Parks. Reid and Hubbard were fraternity brothers in college and served in each other’s weddings. “I was in the construction business; it was feast or famine,” Hubbard says of his decision to come into Higginbotham. The same year, the company also set up two cornerstones in the ESOP and launching the employees benefits line of business.

The ESOP in 2015 had 370 employee shareholders and 620 holders of “HIG units,” stock appreciation grants the company gives all employees after one year of employment. The company's strategy is to monetize the HIG units every three to five years. “Some people take that money and pay student loans or buy homes,” Mary Russell, a managing director and Higginbotham’s 15th employee, says. “We see a lot of new cars on the parking lot” after the company monetizes grants.

Employees can also buy Higginbotham stock outside of the grants each year. The stock price is $1,100, set annually by an outside audit firm and voted upon by shareholders. The last several years, the company declared and paid dividends to shareholders. “We go through the motions as if we were a public company,” Russell says. All shareholders have a put right if they elect to sell, providing liquidity. “It does have a certain amount of liquidity to it,” Reid says.

Higginbotham uses a three-part structure, including the stock, to make its acquisitions. Selling shareholders agree to use part of their proceeds to buy Higginbotham stock, another piece of the sales price is based on the acquired company meeting projected earnings, and Higginbotham finances the remainder of the acquisitions with debt.

Reid calls the ESOP “a perfect scenario. In 1989, we went from being owned by one person to being owned by all employees. When you have a good year, then they’re going to win. The ESOP was a great vehicle for distributing shares.”

Trusted Advisor Higginbotham added employee benefits as a business on the recommendation of clients. “A lot of our customers trusted us as an advisor,” he said. Today, benefits are Higginbotham’s second-largest line at 37.7 percent of the business based on 2016 data, behind commercial property-casualty and risk management, at 53.9 percent.

After employee benefits, the company added life insurance, then retirement plans, risk management, Section 125 health plan administration, employee benefit communications, human resource technology, health risk management, compliance, and, this year, human resource services.

The company grew to $37. 5 million in revenue and 206 employees by 2007, mostly through internal growth. That year, the agency, through what it called its “Best in Texas” vision, moved to become Texas’ leading broker. It began acquiring independent agencies - Higginbotham calls them partners - strong in local markets.

Since 2008, the company has brought in 23 partners, aggressively expanding its footprint in Houston, Dallas, Austin, San Antonio, Arlington, Friendswood, Waco, Lubbock, Victoria, Mount Pleasant, Odessa, McAllen, Port Arthur, Tyler, McKinney,  Corpus Christi, and Wichita Falls. Reid declines to say how much the company has spent in making the acquisitions.

Higginbotham finds prospective partners in firms that have a need for scale, where large shareholders want to diversify, or where they’re focused on one industry segment and want to broaden out, Reid says. Higginbotham makes it clear that key executives just be willing to hang around – at least for a while.

“We want them hanging around,” he says. “They may want to hang up their cleats and go out to the farm. We’re OK with that, but it’s got to be a strategic transition down the road.”

The reason is obvious: “Our new partners make a significant investment in Higginbotham stock, so they have a vested interest in our future success,” Reid says. “It’s the absolute best due diligence we have. A lot of the acquisitions that joined us weren’t for sale at all.”

Higginbotham, in evaluating targets, likes to talk to their owners, employees and insurers they carry, honoring confidentiality. “It’s a people business,” Reid says. “The numbers certainly have to work, but what’s more important than that is the people dynamic.”

Texas: Where It’s At Reid says the company continues to focus on Texas for future growth. “We think we’re underrepresented in Dallas,” he says. The company sees opportunity in San Antonio. “There’s an opportunity to support other industries.” It’s on the hunt in Houston. “We think there’s great opportunity in Houston to expand,” he said. And there’s the Texas Panhandle. “We don’t really have anybody in the Panhandle. That’s a good market from an insurance standpoint.”

It’s not too interested in going outside Texas, he said. “Rather than dilute our efforts and build a firm that was national in scope, let’s just focus on Texas,” he says. “We think there’s ample room within the state of Texas.”

The company has continuously built its community profile, particularly since launching the charitable fund. Each of Higginbotham’s markets has a representative for the fund. Employees who are contributors to the fund have the right to request contributions from it. Potential recipients must be nonprofits and meet the other criteria of the North Texas Community Foundation, which administers the program.

“You’ve got to be a contributor, even it’s just a dollar,” Reid says. “That gives you the keys to to be able to request a contribution. And generally speaking, if we’re not able to accommodate (a request) the first time around, we get them the second time around.”

Since inception, the fund has amassed $1 million in employee contributions and pledges, more than half of which has gone back out to nonprofits operating in Texas, Higginbotham said. 

“The community gives back to us,” Reid says. “We just can’t be takers. We also have to be the givers.”

Higginbotham’s History

Paul Higginbotham opened his agency nearly 70 years ago. It estimates it will turn $155 million in revenue this year. Here’s a look back at its history.

1948. Higginbotham founds agency.

1960s. Bill Stroud buys agency.

1986. Stroud recruits Rusty Reid to agency.

1989. Stroud tells Reid he’s ready to sell, asks Reid to find a way to buy the company.

1989. Reid assumes leadership of company, introduces employee stock ownership plan that allows Stroud to exit.

1989. Reid recruits executives Jim Hubbard and Michael Parks, Higginbotham forms employee benefits line of business based on customers’ suggestions.

1986-2007. Higginbotham grows to $37.5 million in revenue from $1 million, largely through internal growth.

1997. Higginbotham adds life insurance as line.

1999. Higginbotham adds retirement plans as line of business.

2000. Higginbotham adds risk management.

2001. Higginbotham adds Section 125 administration to its lineup.

2004. Higginbotham adds employee benefits communications.

2007. Higginbotham adds human resource technology.

2007. Higginbotham management decides it wants to be Texas’ leading broker, decides to fulfill this by acquiring agencies. Has 206 employees in seven offices and $38.6 million in revenue at the time.

2008. Higginbotham adds health risk management.

2008. Higginbotham buys two agencies, in Houston and Wichita Falls.

2009. Higginbotham ranked 41st largest broker in the country by Business Insurance magazine, with $54.7 million in revenue.

2009. Higginbotham buys two agencies, in Waco and McKinney.

2010. Agency reaches $61.1 million in total revenue.

2010. Higginbotham buys three agencies, with offices in Corpus Christi, Houston, Portland, Victoria, Austin, and Friendswood.

2012. Higginbotham adds compliance.

2012. Higginbotham buys three agencies, with offices in Friendswood, Houston, and Dallas.

2013. Higginbotham buys two agencies, with offices in Austin, Houston, and San Antonio.

2014. Higginbotham buys three agencies, with offices in McAllen, San Antonio, Odessa, Port Arthur, and Tyler.

2015. Higginbotham buys two agencies, with offices in Friendswood and Houston.

2015. Higginbotham reaches $132.1 million in total revenue, is 32nd largest broker of U.S. business, according to Business Insurance.

2016. Higginbotham adds human resource services.

2016. Higginbotham buys three agencies, with offices in Mount Pleasant, Victoria, and Dallas.

Source: Higginbotham