Risk managers concerned about Aon’s $30bn WTW acquisition

High-profile risk managers have told Commercial Risk Europe they are concerned about Aon’s planned $30bn acquisition of Willis Towers Watson (WTW) and are not convinced it makes sense for them. Risk managers across Europe are already reeling from the impact of a rapidly hardening market across many key lines and need a competitive and innovative broking sector more now than for a long time. The loss of WTW after Marsh’s recent acquisition of JLT means that competition for their business and international programmes, in particular, will fall significantly. Aon said the deal to create a broker with combined total revenue of $20.1bn – outstripping Marsh’s 2019 revenue of $16.7bn – will be good news for risk managers because the combination of the two firms will “accelerate innovation”. But risk managers and association heads have told CRE they are not so sure. Leading risk managers in Spain, Belgium, the Netherlands and Switzerland were forthright in their initial view of the proposed deal. “This is a sad day for insureds and for the industry. There is a lack of competition knocking on our doors regarding the multinational brokers panel. Concentration is not helped by this reduced number of players,” said Daniel San Millan, corporate risk manager at Spanish conglomerate Ferrovial and president of Spanish risk management association IGREA. “I have serious concerns about this merger as it leads to a decrease in the choice for risk managers to look for the best solution in broking,” said Adri Van der Waart, president of Dutch risk management association Narim and corporate insurance manager at Arcadis, a global design, engineering and management consulting company. “The reduction in the number of global players for international brokers is not good from the perspective of market position and I am afraid might also be not the best result for Aon itself in the future. In this top-market M&A, it is not always one plus one that makes two or better; it might be less than two. Aon clients might be concerned about the too-strong leading role of Aon, with potential price leading. Secondly, within both companies, it will lead to less employment, so-called internal efficiencies, which will potentially hurt the reputation of Aon in future. There is too much uncertainty, too much to be concerned about,” he added. Carl Leeman, board member of Belgian risk management association Belrim and the International Federation of Risk and Insurance Associations, is also sceptical about the value of the deal from the customer’s perspective. He was not the first to ask whether competition authorities may question the deal and perhaps force Aon to divest elements of the business to make it happen. “The only winners will be shareholders and some selected executives, and generally speaking, clients and employees of both Aon and WTW are going to be the big losers in this mega merger. We should see if the European Commission is going to agree with this merger, because it could become ‘market disrupting’ because of its size. Are they going to sell off parts of the existing companies in order to get the green light from the EU?” asked Mr Leeman, who is also chief risk officer at logistics firm Katoen Natie. Sabrina Hartusch, president of Swiss risk management association SIRM and global head of insurance at Triumph, a global lingerie manufacturer, pointed out that bigger is not always better. She told CRE that larger organisations tend to be less flexible and responsive to customer needs. But Ms Hartusch believes that the gap will be filled by others with a more flexible and customer-focused approach. “You would at first think this is good news because it provides more expertise and knowledge. But really, how much more expertise can there be? It is not just big and bigger and who is the biggest. The combined Aon and WTW will be big but they will struggle with standardisation, having to push clients into a standard way of working. That's not what clients want,” she told Commercial Risk Europe. “More and more risk managers are after bespoke boutique consultancies that can really understand the client and adapt to the client, not the other way around. Bigger brokers tend to tell the client what to do. Perhaps they don't do that with intent, it is just their way of working. The further concentration leads to just one less player in the market. But this gap will be filled by the market once again. Others will push into that space and will fill it creatively and serve clients’ needs. The space will not remain unoccupied,” added Ms Hartusch. Alexander Mahnke, chairman of German risk and insurance management association GVNW and CEO of insurance business at Siemens, and John Ludlow, CEO of UK risk management association Airmic,responded to CRE as news of the deal broke. They said Aon will have to rapidly show that the combination will deliver value for customers. “Further consolidation in the insurance service industry does not come as a surprise to us. We sincerely hope that the new organisation shall quickly combine the strengths of Aon and WTW and shall not be preoccupied with internal, merger-related issues for too long. Many clients need strong professional service providers and brokers in order to manage a risky and complex world as well as the hardening insurance markets,” said Mr Mahnke. Mr Ludlow said it is not clear that the merger of Aon and WTW will deliver real value for customers and added that Aon will have to show real benefits sooner rather than later. “Clearly there is going to be a reduction of choice in the broker market, which is disappointing for policyholders, and many of our members and the competition authority will have a strong view on this,” he told Commercial Risk Europe. “It is not yet clear at all what value this merger will bring to our members, and they will challenge the newly created broker to demonstrate, not just in words but in actions too, how they are going to offer increased value in exchange for more limited choice. Brokers are already increasingly homogenous in culture and constrained by regulation, both of which can lead to a reduction in service, creativity and diversity,” added the Airmic CEO. Mr Ludlow said the combination of Willis Group with Towers Watson back in 2015 in a deal valued at $18bn actually showed that, if handled well, customers can benefit from such consolidation. But he added that if value is not delivered quickly, customers will look at options and alternatives, especially as the market continues to harden. “If customer value fails to materialise, policyholders will undoubtedly find new ways of fulfilling their needs. We have already seen in our members’ response to the harsh market that when the market reduces its value and service, businesses are prepared to look at alternatives. Organisations have a much better understanding of their risk than in the past and have more options available to them,” he said. “When handled well, there can be benefits to consolation: for example, when Willis Group merged with Towers Watson, businesses gained wider access to specialist risk management practices, which was a real positive for our members. But for this merger to be successful, the broad spectrum of needs and wishes of policyholders must be at the heart of its strategy – they cannot be treated as the end point of a transaction. We look forward to seeing where the new sources of value will lie,” added Mr Ludlow. Franck Baron, group deputy director of risk management and insurance at International SOS and chairman of the Pan-Asia Risk & Insurance Management Association (Parima), said risk managers worldwide can expect further consolidation in the insurance broking sector as medium-sized firms try to keep up and compete with ever-expanding giants Aon and Marsh, particularly in the increasingly important area of global programmes. “When the acquisition of JLT by Marsh happened last April, I mentioned that more consolidation is expected in the broking industry, and this is the case. The largest ones will look at keeping up with Marsh/JLT and small to medium-sized ones will find their way to develop their size, expertise and geographical footprint to offer clients a credible alternative to the jumbos, which may face some headwinds in convincing some clients that ‘very big’ is beautiful,” said Mr Baron. “This deal is no surprise, as market consolidation is expected. Organic growth is not robust enough to satisfy financial markets’ expectations, especially with cashflow easily available. Brokerage firms are still in search of a reinvented business model. Where to invest next? Employee benefits (EB), for example, seems to be the new frontier, but so far this expansion is producing mixed results. The challenge of truly operating as a unique partner on both P&C and EB remains a challenge for the brokerage firms – Marsh and Mercer,” added the Parima head. Mr Baron said recent mega-deals between insurance and broking giants, such as the AXA and XL Catlin merger, is not necessarily good news for risk managers because there is a risk that the “demanding” implementation process will divert resources and result in a focus on internal matters rather than the needs of clients. “Consistency and access to expertise and market leverage are key across Asia-Pacific. Those objectives should not be impacted by firms seeking ’synergies’ and focused on efficiency gains and too-demanding profitability goals,” said Mr Baron. “However, these M&A cycles also highlight the need for, and relevance of, niche, specialty and boutique-type brokers. The support needed by risk managers calls for specialised expertise and attention to the specificities of each client. This is especially true in a changing risk environment. Of course, some ripple effects are expected that should further nurture this acquisition trend. Financial markets and shareholders will probably pressure the leading industry players to develop similar growth strategies,” he said. “At a time of global crisis such as that caused by Covid-19, the need for expertise is even bigger in order to support the true needs of risk managers and organisations. Are mega-mergers the answer to this? I am not convinced. More emphasis should be put on core expertise rather than being sales-driven organisations,” concluded Mr Baron. Mary Roth, CEO of US risk management association RIMS, was more positive about the proposed deal but also stressed that risk managers will hope it does not lead to a debasement of services and products. “Both Aon and Willis Towers Watson have been tremendous champions for RIMS and the risk management community. Risk professionals rely on insurance partners to innovate and offer competitive solutions to build resilient risk programmes. Our hope is that the new combined entity continues to deliver excellent products and services to the risk management community, as they did apart,” she said. The two broking companies have announced that the combined firm will be called Aon and will be led by its current CEO Greg Case and chief financial officer Christa Davies. WTW CEO John Haley will become executive chairman at the combined company, with a focus on growth and innovation. Aon will maintain operating headquarters in London. The new board will comprise proportional members from Aon and WTW’s current directors. When the deal completes, existing Aon shareholders will own approximately 63% of the new company and existing WTW shareholders 37%. Aon anticipates that the transaction will provide annual pre-tax synergies and other cost reductions of $800m by the third full year. Some 73% of this is expected from consolidating business and central support functions, including leveraging the capabilities of the Aon Business Services operational platform across the combined group. A further 27% is forecast from consolidating infrastructure related to technology, real estate and third-party contracts. No doubt pre-empting concern among customers that the deal will lead to less choice in an already restrictive market, Aon and WTW said it will create a “technology-enabled global platform that is more relevant and responsive to client needs”. “This combination will create a more innovative platform capable of delivering better outcomes for all stakeholders, including clients, colleagues, partners and investors,” said Mr Case. “Our world-class expertise across risk, retirement and health will accelerate the creation of new solutions that more efficiently match capital with unmet client needs in high-growth areas like cyber, delegated investments, intellectual property, climate risk and health solutions,” he added. Mr Haley said: “The combination of Willis Towers Watson and Aon is a natural next step in our journey to better serve our clients in the areas of people, risk and capital… This transaction accelerates that journey by providing our combined teams with the opportunity to drive innovation more quickly and deliver more value.”

Risk managers concerned about Aon’s $30bn WTW acquisition

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