Global brokers RESET TARGETS

The wave of mergers and acquisitions which has occurred between the corporate national property and casualty brokers across North America appears to have reached an end, leaving a landscape occupied by two distinct camps: small regional operators and the new breed of “mega global brokers”. Insurers and risk managers alike have kept a keen eye on the actions of the mega firms, afraid of being either held up for “premium ransom” or declining service standards. However, what may now be the start of a new trend in the Canadian market is divestment by the mega firms of small and mid-sized commercial accounts.

The recent disposal by one of the global broker players, Willis Canada, of its Ottawa book of business could signal what some market analysts expect will be the next phase of the consolidation cycle which has transformed the international commercial brokerage market.

The strategy adopted by Willis appears to that of focussing it efficiency drive by concentrating on only large corporate accounts. This, the analysts observe, is perhaps an inevitable response of the sector’s consolidation, particularly in a relatively small commercial market like Canada. While Willis is the only firm to have made public such a move, the analysts expect it could be the beginning of a re-prioritizing of the global brokerages of their country-by-country portfolios. As such, the Canadian market could see a “divestment wave of small business accounts” by the other global “big five” players, the analysts predict.

However, and perhaps even more importantly, the mega brokers appear to be resetting their target sights in terms of the type of business they are going after globally. As part of their global cost-efficiency drive, and looking to “add value” to relationships with top corporate clients, the global brokerage firms seem to be shifting competitive focus to providing consulting type services, in many cases working on a fee basis rather than traditional commission earnings from insurers. As such, market analysts speculate, the global brokers will in future likely compete less so with smaller regional brokerages providing traditional insurance services, but rather against the likes of the international management consultant firms such as Arthur Andersen and Merrill Lynch.

For obvious reasons, the Canadian regional brokers are keeping their ears close to the ground, anticipating potential bargain deals arising where some of the other global operators, such as AON Reed Stenhouse Inc. and Marsh Canada Ltd., might put up their own small to mid-sized books of business on the auction block.

That however, may prove to just be wishful thinking based on comments of management from the different mega brokers. Marsh Canada Ltd.’s insurance brokerage practice national leader John Chippindale candidly responds that his company is setting its sights on competing globally with the management consultancy sector. The brokerage has already established a management consultant arm, Mercer Management Consulting, and has been actively recruiting consultants with specialty knowledge about a wide array of industries. He believes Marsh will ultimately become a contender against the international management consultants. “We already own one of the largest management companies in the world in Mercer and our strength is that while consulting firms tend to deal with processes, we’re adding financial product development to the mix.”

While consolidation for the firm at the global level continues, Chippindale insists that brokerage has reached the critical mass level necessary to begin the next phase in pursuing its new global interests. And, similar to Marsh and Willis, AON has also set its sights on business currently enjoyed by the international management consultants. Jim Horrick, CEO of AON Canada, agrees with Chippindale’s assessment that the financial services offered by global brokers provides an edge against management consultants. “With the amount of work we can do on the financial services product side, we go into corporations and offer them products and services we’ve created, and we just blow them apart. They’ve been bringing in lawyers and consultants, but have not had the years of experience dealing with the insurance and reinsurance markets.” Similar to the moves made by Marsh, AON is creating specialty practices for various industries through its consultancy arm, AON Consulting.

While the global insurance brokers appear to be holding center stage with their offensive, Horrick points out that it is only a matter of time before one of the management consultant firms acquires a global broker presence.

On the home front

Although the leaders of the mega brokers contacted by CU in researching this article agree that the competition stakes at the global level have been turned up, most claim not to have plans of pulling away from Canadian small commercial accounts. Horrick says AON is cognizant of the competition offered by regional brokers. “Just as the global brokers are getting stronger through consolidation, so too are the niche brokers who are working harder and providing better services.” AON will continue to compete in this market segment, he adds, the firm having recently begun recruiting brokers specializing in small to mid-sized corporate risks.

The regional brokers should not sit back and believe that the mega firms have no interest in the small to mid-sized commercial risk market, adds Chippindale. “We’re investing in brokers focusing on the fastest growing commercial segment in North America — the smaller corporations and businesses, an area we feel has been under-served.”

Chippindale says Marsh has set up a co-brokerage network in Canada, expanding 17 offices across the country to virtually 55 locations selling Marsh products. “Our philosophy is that we don’t want to be viewed as a large broker competing with the community brokers but a small community broker that happens to be affiliated with a global operation.”

Still, some smaller brokers suggest the overwhelming amount of mergers and acquisitions on the global level has resulted in three companies incapable of competing within the small business market. “Even employees of these brokers are disoriented with the mass mergers. With all of the mergers and acquisitions that have gone on at the global level, local representatives and even insurers cannot really be sure who they are working for and with anymore,” one small broker says.

Same environment

Despite the Willis divestment and the rumor mill aftermath, some regional brokers and risk managers say they have seen little change in the flow of business towards or away from the global brokers. In fact, with global consolidation now tailing off, the only real ripple affect that is being felt nation-wide, some say, has been in the regional brokers’ push to bulk up and consolidate local commercial operations.

Jeff Brandham, partner at The CG&B Group, says the notion that global brokers are staying away from small- and mid-sized business is not necessarily a new development. “In terms of the alphabet brokers walking away from smaller accounts, I haven’t seen that. They are there and in a sense, the regional brokers have always been successful against them on the small and medium business. We’ve found that their best service is given to their largest clients and in the case of the global brokers those are very big accounts.”

Brandham believes the true transformation in today’s market is the regional consolidation brought on by the need to size up and foster connections to international operators. “People are bulking up and we very intentionally went that route. Size matters and in the current market [The CG&B Group] felt we had to get bigger and we, like other groups, have gone the acquisition route to get there.”

Risk managers concur with Brandham’s assessment. Susan Meltzer, president of the Risk & Insurance Management Society and assistant vice president of the Sun Life Assurance Company of Canada, notes the consolidation trend among regional operators and suggests risk managers will be the prim e beneficiaries of this market action. “I think the mergers of the smaller brokers has been terrific. It represents a regeneration of competitiveness that risk managers had hoped and thought would happen. That the smaller operators have looked at how they are going to compete with the likes of Marsh and AON is a good sign.”

Furthermore, Meltzer is unconvinced the Willis Ottawa withdrawal is a sign of things to come from the other mega brokers. “I haven’t seen any indication that the large global brokers are going to turn their backs on the medium market, other than the Willis move. Just as an observer, I’d suggest some of the brokers, such as Marsh, are focussing to a greater extent on that middle market than they have in the past.”