On Market Transformation
Insurance Experts' Forum, December 27, 2013
Time certainly flies. It was more than twenty years ago that Aon bought the Dutch firm Hudig-Laneveldt; a deal prompting a chain reaction of moves and counter-moves, like a giant game of Risk, by the end of which the broking world map was completely re-drawn. Today the market is accustomed to the mighty fire-power of the three global brokers — Aon, Marsh and Willis — who emerged as winners from that tumultuous period in the industry. They have all just posted strong organic growth figures at the third quarter suggesting that years later their dominant positions as distributors of insurance products are consolidating further.
Perhaps it is a coincidence that two of the brokers have former McKinsey men at the helm, yet especially viewed from a carrier’s standpoint there appear to be more similarities in the strategy of the ‘big three’ than major points of divergence. Each is significantly rationalizing the number of insurers they trade with; nurturing more meaningful relationships with far fewer friends and designing interfaces and facilities of various types to channel business on a more automatic basis into this preferred bunch of suppliers. Not alone by any means but leading the charge is Aon with a premium flow now in excess of $100 billion and an objective to package up and trade out in bulk to their pals more than just a few percentage points of this vast bank of revenue.
An over-supply of capital in the industry currently, where carriers are prepared to consider and do most things, is a source of encouragement to the ‘big three’ in pushing this transformation now. Yet to characterize these initiatives as soft-market shenanigans — the age-old battle fought between broker and insurer over who gets their fair slice of the premium dollar — might be short-sighted. The scale of the brokers’ investment and long-term commitment to reforming their methods of placement carries with it an air of permanence. With clients (and perhaps even regulators) attracted to an outcome of an industry model that is potentially more coordinated, efficient and cost-effective, the pace at which the global brokers are shoving the market could gather momentum.
With the distribution die possibly now cast, therefore, it is the response of carriers to the new insurance world order which is fast becoming the intriguing issue. Of course there are plenty of specialists, comfortable with their bespoke offering, who will truck on regardless with smaller brokers and work with the larger ones on a transactional basis. Nevertheless for generalists with designs on standard commercial mid-market and corporate business, signing up to new style trading relationships with the ‘big three’ brokers is starting to look like the only option. Unfortunately many of those tempted to dive in will discover that it is a game for grown-ups where size, financial strength, rating and global reach matter a great deal. A new round of Risk like that of two decades ago played this time not by intermediaries but by suppliers seeking scale could just be one of the defining features of 2014.
This blog was originally published on Roger Bickmore's website, "The Lookout."
Roger Bickmore is the Group Business Development Director at Kiln Group, insurance underwriters at Lloyd's of London.
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