Broker, insurer and reinsurer results analysis

Insurers recover from bad start to post solid H1 Reinsurer results look good news for buyers Brokers’ Strong Q2 form in flat markethideAfter a well-earned break, the Englishman was hired by Willis Chairman Joe Plumeri to help him run Willis, now one of the top three global brokers, and build its international presence further. Mr Sullivan had plenty of fun and games with the US and international press of course while attempting to steer AIG back on course and not surprisingly he has not gone out of his way to court the media since re-emerging at Willis. But he accepted an invitation from Airmic Chief Executive John Hurrell to take part in the main panel debate at this year’s Airmic forum that was hosted by myself and agreed to talk about his role and objectives at Willis after the debate. The immediately striking thing about Mr Sullivan is that he is clearly enjoying himself as a broker after so many years on the underwriting side of the fence. He explained that he has a dual role. First, he is Deputy Chairman of Willis Group Holdings and in that capacity will help Mr Plumeri ‘manage and shape’ the long-term growth strategy for the company. Second, he is Chairman and CEO of the newly-created Willis Global Solutions which forms part of Willis Global, under the chairmanship of Grahame Millwater, who is also President of Willis Group Holdings. The company said that Mr Sullivan would work with Mr Millwater to develop and manage a ‘differentiated service proposition’ in the large account sector. “Building on the differentiated global capabilities already in place at Willis, this new unit will distinguish the company as a significant player in the global marketplace, positioned to serve the world’s largest clients and challenge entrenched brokers who have a significant share of multinational business,” boldly stated Willis in its announcement at the time. Being in charge of the world’s biggest insurance company as it plummeted towards a government bailout would not normally enhance an individual’s CV. But Mr Sullivan was clearly not responsible for the ill-judged foray that AIG made into non-core financial markets and financial engineering that led to the problems. Indeed for many he gained credit for his role in the group’s subsequent survival and re-emergence as Chartis on the non-life side. Mr Plumeri was obviously chuffed to have managed to secure someone of Mr Sullivan’s knowledge and experience to help Willis take the next steps forward in its effort to globalise itself along with its leading customers. “Across the length and breadth of the insurance industry, a client would be hard pressed to find a more experienced or skilled expert than Martin Sullivan. Martin’s deep, strong and lasting connections to all segments of the insurance industry will be an enormous asset to Willis, working for our current and future clients in the type of role that has earned him well-deserved recognition over many decades in our business,” said Mr Plumeri of his new man when he arrived. Mr Millwater added: “Willis Global will bring together in one tightly coordinated organisation many of the best qualities and capabilities that make Willis unique in the insurance business...In his role as CEO of Willis Global Solutions, Martin Sullivan will be instrumental in delivering a differentiated proposition to multinational clients whose demands for global services are unmet by larger, less nimble competitors in this sector.” Mr Sullivan admitted during our interview in Bournemouth that he is still not really used to being a broker after so many years on the other side of the fence but said that he is enjoying himself immensely. He said that his day to day function, apart from helping Mr Plumeri with strategy, is responsibility for the global account client base. Willis currently has over 1,200 global clients and prospects with over $7bn in revenues that include the Fortune 1,000. Of these 1,200 companies about 350 are based in the US, 179 in Japan, 62 in China (and growing) and more than 60 in the UK, France and Germany. His experience in the higher echelons of AIG meant that he already had relationships and contacts with decision-makers in many of these companies worldwide. “So when Joe asked me to take on the role it was great because I was able to meet a number of risk managers all over the world that I knew already from my previous career and, perhaps more importantly, knew various c-suite directors of these companies in China, the US and elsewhere. So for me it was familiar territory,” he said. Mr Sullivan was not keen at all on being described as an ambassador for Willis and insists that one of the best things about the job is that he is able to roll his sleeves up and help create solutions for customers rather than swan about being a big cheese at cocktail parties. “I am not ready for that quite yet! I am closely involved with clients and prospects and very involved in developing strategy and advancing our perception of insurance into sectors, building a range of global specialisms into the various sectors,” he said. “I am having a great deal of fun. No matter where you are in your career path most people say that the fun part is the interaction with clients and I am spending a lot of time doing that. It’s a broad role. I can help Joe with strategy and be of assistance to Willis Re and Willis Capital Markets as well. Joe has given me a very broad brief. But having said that I do not want to be an ambassador, I want to make a real contribution and be judged on that contribution,” he added. But while Mr Sullivan’s knowledge, experience and contacts may have made him the ideal candidate for the global role at Willis, the transformation from insurer to broker was still something of a challenge, he conceded. “It’s much harder! If you are one of our major insurance carrier clients and you manage your distribution channels, you turn up at work in the morning and you expect a flow of business to deal with every day. But when you are a broker, you have to make it happen. I always say you quickly reach 250% capacity—you spend 50% prospecting, 50% defending, and 150% advising your clients every day. Therefore, you have to make it happen every day,” explained Mr Sullivan. The creation of the Global Solutions unit and Mr Sullivan’s brief clearly indicates that Mr Plumeri and his board are keenly aware of the need for the modern corporate insurance broker to be on top of and ahead of the rapid changes in global business. Risk and insurance managers in Europe, the US and worldwide are having to rapidly learn how to manage risks in new territories and markets as their companies seek growth in emerging markets and at the same time manage the more operational risks created by globalisation itself. For brokers it is critical that they are able to help guide their customers through the morass of local rules and idiosyncrasies that exist because of the widely differing rates of economic and political change across the globe. At the same time of course they also need to try and help their customers and insurers tie it up neatly through manageable cross-border solutions such as global programmes. Risk managers demand evermore focused and specialist risk and insurance advisers that truly understand their business and can provide bespoke solutions rather than standard packages. This means that global brokers such as Willis clearly face a challenge from more nimble, specialist competitors with deep local knowledge and contacts no matter how big they are. Mr Sullivan recognises the challenge to global brokers but believes that Willis for one can rise to it. “Generally speaking the major brokers are well respected in the global market but when you drill down to the specific lines clearly you see customers look outside the top three, at local options with specialist knowledge and skills. Occasionally, I am surprised by decisions made in this respect by risk managers, but I would say that, overall, the big three majors are well respected and represented in the segments, but occasionally other brokers do become involved in large accounts on a global basis,” he said. During the panel debate earlier in the day one question thrown at the panellists was how insurers and brokers could help deliver more consistency, clarity and assurance of compliance for risk managers that need and use multinational programmes to help manage their fast-rising international exposures. Fellow panellist Tom Bolt, Franchise Director of Lloyd’s, said that he thought the idea of the creation of a global database of local insurance laws that could be updated by national supervisors as recently suggested during Commercial Risk Europe’s seminar on global programmes in London could certainly help and Mr Sullivan agreed. “Obviously if you’re responding to a global programme you’ve got to make sure you’ve got the market intelligence to make sure that the ultimate client is compliant with all the laws and regulations of a given country. Certainly we’ve all got our online systems that give us all the current data that we believe we need to make sure that our clients both from a broker and from a carrier perspective are compliant,” he said. “But things change rapidly. It’s an ever evolving world and I think the suggestion Tom made [on the creation of a database that could be updated by supervisors] is excellent. Whether the regulators will actually take on that responsibility of course is a different issue. But I think the industry, from both the carrier and from a broker perspective, has to ensure that our ultimate clients are compliant with local laws and regulations,” added Mr Sullivan. Apart from this big topic Mr Sullivan mentioned during the subsequent interview a number of other key matters that he believes are critical for risk managers and keep board directors ‘awake at night’. “For me the big challenge is to really understand what is keeping the c-suite awake at night. Given the experience I have I want to help risk managers understand these issues that keep their bosses awake at night. Currently I think the c-suite is kept awake by topics such as cyber-risk, patents and brand risk, reputational issues and macro events such as those occurring in North Africa and the Middle East, not to mention tax and trade matters. That is certainly a discussion and there is some uncertainty about that in c-suites and it is an underlying theme,” he said. Mr Sullivan said that his goal is to firmly position Willis as the risk adviser of the client rather than simply the finder of adequate insurance coverage because, as he said, ‘at the end of the day it is not just about the transaction’. “Take intellectual property for example. This needs to be a risk management discussion before you discuss a transaction if indeed there is one at all. At Willis we have a great level of thought leadership and ability to deliver for our clients. This is what we are continuously thinking about. How to deliver the best risk advice from risk management through to risk transfer solutions,” he explained. This is a logical objective of course, not least because it is what customers want. But, it has not escaped the notice of Willis’s rivals on the global and national stage. So the key question is: What makes Willis different and why should customers use it instead of another broker? “I have seen some major steps forward here at Willis over the last eight to nine months in the Global Solutions universe, which is very pleasing and has perhaps come as a surprise to others. I cannot take the credit for any of this but I think we will continue to provide others with surprises. I think the key advantage of Willis is the fundamental part of the value proposition. Whether it be reinsurance, capital markets or insurance, our clients have the entire Willis organisation available to respond to their needs. This is where Joe’s leadership is so important as it helps ensure we deliver on the transaction for the customer. Hopefully what I have helped contribute is an ability to help join up the dots,” he said. Mr Plumeri is a very charismatic and high profile figure which is a bonus in many respects. But, in this age of sharp focus on reputational risk, one also has to ask whether this represents a risk to Willis. What would happen were he to suddenly depart? Mr Sullivan said that, while Mr Plumeri is clearly the very public face of Willis, he is backed up by an excellent management team. It is much more than a one man team, he said. “Joe is very charismatic and energised but we do also have a great team throughout the organisation and strength in depth. From a customer’s perspective we have technical depth which is continually expanded and improved and we are always thinking about the risks that we all face,” he said. The future model of the insurance broker and the very survival of the concept as it exists currently has been a serious question for many years now as customers become evermore demanding, competition more cut-throat and annoying people like former New York Attorney General Eliot Spitzer ask awkward questions about how the brokers are paid. The Spitzer-led debate on broker remuneration and the role of contingent commissions appears to have died down in recent times. This has been aided by efforts by insurance buyer organisations and broker associations to sort out their own codes of conduct such as that recently signed in Europe by Bipar and Ferma and by efforts by leading groups such as Willis to raise the levels of transparency offered. But slip-ups continue to occur and don’t do the brokers any favours. In July the UK Financial Services Authority (FSA) announced that it had fined Willis £6.895m for failings in its anti-bribery and corruption systems and controls between January 2005 and December 2009. The supervisor said that the failings had created an ‘unacceptable risk’ that payments made by Willis to overseas third parties could be used for corrupt purposes and was the biggest fine imposed by the FSA in relation to financial crime systems and controls to date. No surprise then that the brokers have to constantly justify and reinvent themselves to all and sundry. This latest slip-up did not occur on Mr Sullivan’s watch and the interview took place before the FSA made its announcement. Speaking more generally, Mr Sullivan said that there is no question about the value of the broker in the risk management and transfer chain. But in order to maintain and even raise the value that they bring to the chain, brokers must focus on knowledge and, in particular, industry specialism, he said. “You have to look at the business segment by segment. This is no longer a transaction-led business. The transaction is an integral part of the overall picture. If you are looking at larger global accounts then you have to add meaningful value as an adviser. This is done through deep analysis of the multiplicity of risks and the search for best solutions, whether that be risk transfer or management,” he explained. And, despite the recent reduction in focus on the payment model adopted by the brokers, it remains an important matter that brokers need to focus upon, said Mr Sullivan. “Joe [Plumeri] has talked extensively about the payment model. This large corporate segment is normally a fee-driven market. Joe has led the way on transparency and consistency of approach. What the future may be for individual companies, who knows. But for Willis full transparency is the key, whether it’s commission or a fee,” he said. This is a critical point and one that Mr Sullivan can play a big role in ramming home at Willis and across the market. It is clear that insurance and reinsurance brokers, whether global operations such as Willis or more niche operators, must make a clean break from the transaction-driven past if they are to survive and prosper in the modern global economy. Insurance buyers are still very concerned about the cost of coverage and watch the direction of terms and conditions closely, especially at a time of severe pressure on their budgets. But, it is a fact that most insurance buyers with larger national and multinational companies clearly state, on and off the record, that the quality and reliability of the coverage and ability of brokers and insurers to deliver sophisticated and bespoke solutions to their specific needs is more important than a competitive price. Thus any broker that can deliver such solutions in a transparent, professional and innovative manner will be paid a decent price for that service and perhaps be able to extricate itself from the arduous and negative debate about the scale and form of remuneration, contingent commissions and ill-defined service fees to insurers and the like. One can’t help but suspect that Mr Sullivan would very much like to spend his time at Willis helping to ensure that it is in a position to do just that. The role of the broker in the corporate insurance market and how they could and should raise their value in future is discussed in depth within CRE’s latest management report—Risk Distribution—that has been sent to all CRE readers.

Broker, insurer and reinsurer results analysis

Want to read this article?

Read Next

Insurtech partners with USAID on climate adaptation programme

ICEYE in data collaboration with Juniper Re on flood and wildfire

Senior appointments in Lockton’s crisis management team

European rates up overall but financial and cyber lines falling: Marsh

European Parliament approves regulation to tackle forced labour

Insurtech partners with USAID on climate adaptation programme

ICEYE in data collaboration with Juniper Re on flood and wildfire

Senior appointments in Lockton’s crisis management team

European rates up overall but financial and cyber lines falling: Marsh

European Parliament approves regulation to tackle forced labour

Want to read this article?

Read Next

Insurtech partners with USAID on climate adaptation programme

ICEYE in data collaboration with Juniper Re on flood and wildfire

Senior appointments in Lockton’s crisis management team

European rates up overall but financial and cyber lines falling: Marsh

European Parliament approves regulation to tackle forced labour

Related Articles