Aon-Willis tie will create a broker like no other

Aon’s merger with Willis Towers Watson will create the world’s biggest broker and reshape the broking landscape in the process. Eric Andersen, president and member of the global executive committee, Aon, spoke to Intelligent Insurer to discuss the implications of the deals.

What are the basics of the deal?

We announced our intent to combine with Willis Towers Watson through an all-stock transaction, on March 9, 2020. In late August we received overwhelming support from the shareholders of both firms and are progressing along through the process as anticipated. We expect to close in the first half of 2021.

Aon and Willis Towers Watson share a commitment. We are dedicated to helping clients meet rapidly changing, increasingly complex challenges.

Our world is becoming more volatile and interdependent than ever before, creating risks that are more interconnected and severe. While Aon and Willis Towers Watson have both made real progress in the industry, there is a reality that client needs continue to outpace innovation. By taking a bold step to bring our organisations together, we combine complementary solutions, capabilities, skillsets, and expertise that will allow us to accelerate innovation more quickly to address these unmet client needs.

The combined entity will enable the firm to have distinctive client insight across segments and geographies and advanced analytical capabilities, which together will help us deliver superior outcomes for clients by creating access to new sources of capital and introducing new structures that improve client choice.

Ultimately, we will be better positioned to address the innovation gap and help both clients and communities around the world be better prepared for long-tail risks that have a lasting impact on the global economy and society.

Will the COVID-19 pandemic change anything about the deal or its timing?

We do not expect any impact on the timing mentioned earlier.

Our combination was not planned with the pandemic in mind, but the events of 2020 certainly demonstrate the exact type of complex challenges posed by emerging risks that our combined organisation will be better positioned to address.

The pandemic has had significant worldwide economic and humanitarian implications, and it has exposed how risks that were once thought of as rare can happen at any moment, with an impact that grows more severe over time.

Clients are becoming increasingly aware of threats and learning how these issues connect to existing challenges. We conducted a survey of C-suite and senior executive leaders in the US, UK and EU, and two-thirds of those companies said the pandemic exposed new risks and vulnerabilities that require a significant change in how businesses like theirs should think about the future.

As a result, we are witnessing a fundamental reordering of client priorities on a global scale. And they are looking to Aon not only to help them recover now but to help them be better prepared for the next time.

“We combine complementary solutions, capabilities, skillsets, and expertise that will allow us to accelerate innovation.”

Eric Andersen, Aon

To do so, it is essential to expand traditional risk management to address classes of risks that are longer-tail in nature—such as climate change or cyber—that are increasingly relevant but lack comprehensive solutions that address risk mitigation, incident response and compensation for loss.

This is core to the thesis of our combination, because together we will combine our complementary skills, analytics and technology to create predictive models that look forward—not only relying on history—so we can better advise clients and develop new solutions at a faster pace.

What synergies will you be looking to create? Who will benefit?

We expect to create approximately $800 million of annual expense synergies by the third year of the combination through leveraging the capabilities of our Aon Business Services operational platform across the combined group and consolidating infrastructure.

There is also the opportunity for revenue synergies over time as we combine complementary capabilities and accelerate innovation to better address unmet client needs.

More broadly, we believe the combination creates value for all stakeholders—more rapid innovation that we can scale for clients, new opportunities for colleagues, a bigger pie for our partners as we expand the addressable market, and an improved growth profile for our shareholders.

What will the deal mean for clients?

Aon has been on a mission for over a decade to meet client needs better. Our evolution as a firm has been guided by listening to our clients. For years we have listened through direct client engagement and used the skills and experience of our colleagues, supported by analytics, to develop unique insights to assist our clients.

It is their voice that has become the foundation of our client-centric approach and Aon United strategy. The combination is our next step forward.

For example, according to Aon’s 2019 Global Risk Management Survey, five out of 10 of Aon clients’ top risks remain uninsurable. The combination was designed to address this unmet need—to become valuable partners that can become better and faster at innovating.

More specifically, our recent whitepaper discusses four areas of client need that we will be able to have an immediate and long-term impact on as a combined organisation:

  • Navigating new forms of volatility: We will expand traditional risk management to address long-tail risks that are increasingly relevant but lack comprehensive solutions.
  • Building a resilient workforce: We will provide solutions for workers on their terms to address the fundamental shift over the last decade of where, how and when work gets done.
  • Rethinking access to capital: A primary focus of our combined firm will be to embrace and strengthen the multidimensional nature of capital to provide greater access, unlock value and protect it in novel ways.
  • Addressing the underserved: Our combined firm will create more affordable and scalable products to broaden access to a wider range of recipients that today do not have solutions.

“A primary focus of our combined firm will be to embrace and strengthen the multidimensional nature of capital.”

What are the main factors driving consolidation between brokers and what does it mean for clients?

If you look at the history of the brokerage market, consolidation has been happening for decades at varying speeds. The market is very fragmented, so it is likely that consolidation could continue based on pure dynamics. There are also many ways an insurer’s product reaches a client—brokers, agents, bancassurance, digital, etc. The distribution is always changing and has been for many years.

As previously noted, our industry is not innovating quickly enough to meet our clients’ needs. Brokers need to improve their value proposition beyond pure transactional activities to remain competitive, and this transaction is intended to accelerate innovation so that we remain relevant to our clients.

The combination will create the biggest broker in the world—where do you go next in terms of expansion and growth?

The combination is not about getting bigger, it is about getting better. On day one, we are raising the bar and setting a new standard of client leadership.

We will be able to help clients identify, manage and transfer risks in a way that has previously been unmanageable.

Cyber risk is a great example. Cybersecurity is extremely complex, because there is nothing linear about its history or trends, and each organisation has its own unique set of challenges. While it is impossible to eliminate cyber risk, it is possible for an organisation to build more resilience by taking a comprehensive approach.

Aon has been investing for a number of years to strengthen our technical expertise related to incident response and digital forensics services. When we combine these skills and analytical capabilities with Willis Towers Watson’s existing cyber risk transfer capabilities, it will generate insights into severity and frequency that will help accelerate market confidence in underwriting this emerging risk—unlocking a larger addressable market for the industry and driving better solutions for clients.

How will the deal and your plans post-merger point to a changing business model for brokers?

At Aon, we are focused on continuing to evolve based on what our clients need. Today, many traditional insurance brokers and benefit providers tend to view client relationships through product silos with an emphasis on risk placement. Meanwhile, professional services firms can offer advice but don’t have capital to bear, and leading technology providers have aggregated data and recognised patterns but have not translated those insights into actual client solutions. As a result, it has exposed a gap, and I come back to my earlier point that client needs are outpacing innovation.

Our combined organisation will defy traditional categorisation. We will be a more capable professional services firm, with better insurance brokerage services, more complete benefit provider capabilities and a better consultancy across a number of areas including health, retirement, investment and human capital.

What we build together will enable us to have a vital seat at the table, advising clients on issues that have traditionally been left unmanaged due to the gap between traditional brokers, professional services firms and technology providers.

“Now more than ever, it’s about having the right insights that can enable better decisions.”

What is your view of market conditions at the moment? What challenges will brokers face?

Market conditions are very volatile at the moment due to several factors, including increased natural catastrophes, low interest rates, social inflation and adverse development of prior losses, which are all affecting the profitability of the market.

The pandemic has put additional pressure on the insurance market to a degree I have not seen in quite some time. It is not necessarily because of the magnitude of losses that have occurred but because of the complexity of challenges it created for businesses, communities, and individuals.

Now businesses have even more to think about, to prepare for and protect against. The response of the global insurance marketplace has demonstrated great resilience and agility—new technology, products and services have emerged at rapid speed to try to help clients adapt.

All this activity has made insurance more expensive to procure in many segments, and capacity has had to be re-evaluated to help minimise uncertainty. We have also seen new or expanded coverage terms, specifically with clarifications and restrictions being introduced.

Policy language is of the utmost importance for both parties right now. For example, infectious disease and cyber exclusions were a major factor playing into Q3 renewals around the world.

Claims are being dominated by coverage questions and limitations related to non-physical damage and business interruption. I believe this activity will be ongoing for a significant period of time as coverage is tested.

As long as uncertainty remains, it will continue to impact market dynamics for the foreseeable future. The role of the broker is more important than ever to help their clients navigate all these factors, but more importantly, to advise them on how to best prepare for the future.

Any final thoughts?

In times like this, our clients need our collective experience and insight like never before. Intermediaries and risk-takers alike—this is the time when our clients look to us to help them navigate the current situation. Now more than ever, it’s about having the right insights that can enable better decisions and help unlock new solutions for clients.

We saw the COVID-19 pandemic wreak havoc on business continuity around the world, and it exposed even more the need to help clients better plan for the next long-tail risk on the horizon and build more resilient workforces.

This is why I am so excited about our combination with Willis Towers Watson. Together we will be able to accelerate innovation and strengthen our client-serving capabilities to meet these new challenges and address the demands they place on our clients.

Images (from top): Shutterstock / Africa Studio, sakkmesterke, Radachynskyi Serhii


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