A flight to specialists?

Specialty business should be served by specialty brokers. Discuss. Ever since the mid-1990s when Pat Ryan and his counterparts at MMC started trotting the globe and buying up the market leaders in each territory, there has been an inexorable logic grinding its way to the conclusion that there will be a small number of global broking powerhouses dealing with most large corporate clients. Globalisation has produced global businesses needing global insurance solutions, so there are bound to be global brokers that will emerge to serve these new universal corporate citizens globally. Right? Well, maybe not anymore. The embarrassing collapse of the biggest, most heavily strategised and most lavishly lawyered deal in global broking history has shown us where the high watermark in worldwide intermediary consolidation now sits. Growth will have to be largely organic for Aon, MMC and Willis Towers Watson (WTW) from now on. And for every seemingly unstoppable trend, there is always a smaller eddy current running contrary to the main flow of the tide. Counter-movement While some brokers have been getting bigger, others have been becoming highly specialised. Steve McGill, formerly of Aon and a pioneer at JLT, has decided to follow this current, launching McGill & Partners with very generous funding and ambitions to become a global boutique specialist. The subjects I have in front of me are part of the same counter-movement. In two years from foundation, a brand-new specialist aviation broker, Piiq Risk Partners, led by CEO Philip Smaje and president Marcel Chad, has put itself on the front pages with some eye-popping blue-chip household-name client wins. Piiq doesn’t like to name names, but media reports have listed Airbus, Rolls-Royce, Dassault, Embraer and Marshall as customers of the startup. That’s quite a calling card for a broker that has only been in existence for two years, and belies the dominance of the big three of Aon, MMC and WTW, whose corporate mantras consistently intone that clients will become institutionalised and personal broking relationships become less important over time. So, how has this happened? Mr Smaje and Mr Chad are both products of the big broker system. Mr Chad was at WTW for 18 years, followed by 15 years at Marsh, with posts including CEO of the global aviation practice. Mr Smaje is a WTW lifer with ‘CEO of aerospace’ on his CV. He was latterly its global head of broking before linking back up with Mr Chad to form Piiq. Mr Chad explains the philosophy of the move: “I’ve got a personal view that specialty business is much better served in a specialty broker, because this is what we spend all of our time doing. We are a specialty business today and will be a specialty business tomorrow, so that’s very much the focus of the whole enterprise. That tends to focus the organisation’s mind on what the clients need and how they are best served.” But while clarity of purpose is a big factor for the two former big broking executives, another factor is significance. With a headcount of about 50, Piiq may be a small business in the grand scheme of things, but in aviation broking terms it is not in any way insignificant in size, relative to rival departments at big brokers. A third dynamic is the focus and alignment that being a specialist brings. As Mr Chad explains: “I led one of the larger aviation businesses, but it was less than 1% of the revenues of that broking firm. They valued the client base that we looked after, but in terms of revenue and investment, we didn’t necessarily move the dial.” It goes without saying that with a 100% reliance on aviation, the Airbuses, Rolls-Royces, Das-saults, Embraers and Marshalls of this world most definitely move the dial for Piiq. Indeed, they are the dial. Getting the right people But what of talent acquisition? In a people business, if you can’t attract the right talent you don’t have a business. Certainly not everyone is cut out for the high-octane life of an entrepreneurial and disruptive startup, and not everyone is prepared to take the risk of ditching the certainty and stability of a big-three broker employer. But Mr Chad feels there are enough people Piiq can tap into with a latent ambition to make a difference and see a more direct correlation between their labour and their rewards: “Talent has choices, but people leave their current employers because they want to, either because they are unhappy with the circumstances they’re in – how they’re rewarded, how they’re recognised, who they report to – or sometimes because they can’t do what they want to do or take their career where they want to go next. “If you can find that double-match – that people are unhappy and that aspirationally we can offer them that opportunity to fulfil their ambitions, then you’ve got the perfect storm.” Mr Chad acknowledges that this is probably a risk too far for many, but counters: “I think there’s risk with everything, there’s risk staying where you are. That’s clearly illuminated by JLT rolling into Marsh and the Willis-Aon situation.” Mr Smaje adds another view: “There is a lot of fatigue factor that is growing within those collective organisations, because they’ve been in limbo for a long time.” Market turbulence With the recent collapse of Aon-WTW, things will eventually settle down to a new normal, but Piiq is clearly making the most of any turbulence while it can. Aviation buffs will remember that JLT’s aviation department was the original remedy asset from that deal, falling into the welcoming arms of the ever-ambitious and acquisitive Gallagher. Gallagher has since performed a similar trick with reinsurance broker Willis Re. But how do clients feel about their market being disrupted again, so soon after seeing JLT Aviation passed between owners like a trinket? Mr Chad is sympathetic to frustrations around short-term turbulence, but explains that what Piiq is trying to build should engender more stability over the longer term: “We often say to clients, ‘we made our decision, we have arrived here, we are going to be here as a group of individuals working together and therefore we offer stability’.” The executive agrees that some clients may be feeling their own measure of fatigue with all the chopping and changing in broking personnel: “We do talk about having a talent-based business, but let’s not forget that the client ultimately makes the decision and I think you’ve got to be thoughtful about disrupting clients by taking teams. “That doesn’t necessarily suit every client and you can’t expect them to say, ‘thanks for hiring my team, you can have my business’. Clients, particularly the larger ones, will evaluate their options. “Very often I find myself apologising to prospective clients because we have hired a key individual or a number of individuals that have represented them at their previous employer.” Doing things differently But enough of the turbulent business of starting a new broker from scratch – when it has hired its staff and turns up to pitches, what is it that Piiq does differently from its direct competitors at global brokers? Mr Smaje explains: “We talk about having a differentiated client proposition – well, anyone can say that. But we’ve had feedback that our offering is different. “We are looking to develop third-party partnerships to offer some different perspectives and different products, so that we can compete on the core, mandatory-type covers, but we can also offer some things that others won’t.” The timing itself couldn’t have been better. Aviation is a discreet niche market and a diversifier to other risk pools. As a consequence, it tends to move in its own orbit. Recently, a decade-plus market run of consistent price decreases came to an end as attritional losses caught up with eroded ratings; and a major catastrophe event in the Boeing 737 Max crashes and subsequent grounding hit already loss-making underwriters very hard. Then Covid-19 came, decimating all clients’ revenues simultaneously and adding stress everywhere. Rising insurance costs, restricted coverage and Covid have made for something of a perfect storm. When things are going well and cost pressures are manageable, changing broker is not very high on the agenda. Not so now. But while pressure to shop around for a new intermediary rose substantially last year, the Covid crisis pushed tenders back down the agenda. However, in 2021 as pent-up demand for new solutions is finally released, Mr Smaje and Mr Chad are seeing a three to fourfold increase in broker beauty parades. Opportunity is knocking hard. Aviation is so often an exception to the general rule in insurance, so maybe Piiq will prove an anomaly, with nothing to teach the wider insurance world? But despite the gradual homogenisation of big-client broking of the past 30 years, Piiq is going some way to demonstrate that people, connections, specialist knowledge and expertise, and an ultra-client focused approach are still incredibly important in the insurance business. It will ultimately be up to you, the client, to decide if one day all specialist business is served by specialist brokers, or if the big three will continue to steamroller all before them. But it must be gratifying to have the choice.

A flight to specialists?

A niche challenger is upending the status quo in the global aviation insurance broking market. Mark Geoghegan meets the team giving the big three a run for their money

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