The enhanced ability to innovate is a principal motivator for Aon’s proposed acquisition of Aon and Willis Towers Watson. It’s a message that Aon CEO Greg Case has been emphasizing since the $30 billion deal was announced in March 2020.
For the past three centuries, the insurance industry has essentially assessed risk in the rearview mirror —looking backwards at loss profiles and then developing solutions and premiums, according to Case, who spoke recently at S&P Global Ratings’ insurance conference.
But risks have changed in the 21st century, and the insurance industry needs to respond in order to stay relevant with clients. Case said the industry must employ forward-looking analytics, content and insights to be able to assess cyber, intellectual property or climate risks.
“Our ability to address client need and accelerate innovation will only get better in our pending combination with Willis Towers Watson, which continues to increase our commitment and excitement to the potential of the combined firm,” he said in comments made during an April 30 earnings call.
During the S&P conference, Case said, the Aon-Willis Towers Watson merger is all about enhancing the industry’s relevance, which has been slumping over the last 30 years.
Case spoke at the S&P meeting on June 9, just a few days before the U.S. Department of Justice announced that Aon’s purchase of WTW would hurt competition by leaving “Americans with fewer choices, higher prices and lower quality services.” Aon and WTW responded in a joint statement that they disagreed with the DoJ’s action, “which reflects a lack of understanding of our business, the clients we serve and the marketplaces in which we operate.”
The brokers said they “remain fully committed to the benefits of our combination.”
A research note compiled by GlobalData said: “Aon and WTW’s merger would allow for a combination of complementary solutions, capabilities and skillsets that would better assist consumers, during a time where the pandemic has drastically changed the way companies need to make innovative and rapid solutions that mitigate their operational risks.” London-based GlobalData provides data analytics and analysis about the world’s largest industries. (Article continues below)
R.J. Lehmann, a Senior Fellow with the International Center for Law & Economics in Portland, Ore. weighed in with the following comment: “While it’s understandable that there are competition concerns, I would urge the Department of Justice to be cautious about interfering in a space where this combination could increase innovation and bring it to a much greater scale.”
To bring innovation to major multinationals, he added, “you need brokers with global reach.”
At the S&P conference, Case explained that the Aon-Willis Towers Watson combination has nothing to do with being bigger, which he said is “irrelevant” to clients. Instead, he said, it’s all about creating a company “fundamentally focused on innovation.”
“Bigger means nothing to clients. They don’t care about that. What they care about is what are you doing on our behalf that’s going to help us lead our businesses more effectively,” he said.
Aon and Willis Towers Watson are “fundamentally focused on innovation” and are looking for ways to be more effective in bringing new content and new insights to clients.
Declining Industry Relevance
He said the industry overall isn’t doing enough to develop content for long-tail risks such as pandemic, cyber and climate change as well as the risks to intangible assets (which include intellectual property, data, brand and reputation). As a result, he added, the industry is becoming less relevant to clients.
Case said one measure of industry relevance is to look at risk placement as a percentage of GDP, which continued to rise between the 1970s and 1990s. As the economy grew, during those two decades, the insurance industry grew and grew proportionately more than economy “because we were helping clients on things that were truly relevant for how they built their businesses.”
But, in the mid-1990s, the industry’s relevance started declining.
“This doesn’t mean we haven’t done great things on behalf of clients.” It just means that intellectual property and intangible assets now represent 85 percent of the value of companies, for which the insurance industry isn’t generally providing solutions. In the 1970s, he said, this figure for intangibles was about 20 percent.
What is the industry doing to address and defend intangible assets? Case said the answer is: “Not much.”
He cited cyber as another example where the industry isn’t doing enough to help clients.
“Cyber insurance is a $7 billion-$8 billion premium program now across our industry, but our clients are facing upwards of $600 billion in potential connected loss. Fundamentally, we’re not doing enough. We are becoming less relevant in the context of client need, which continues to go up,” he said.
Case said the proposed merger of Aon and Willis Towers Watson aims to help the insurance industry break the downward trend for relevance. He described the combination as “a step, the best step, we can take to help break that trend.”
Creating ‘Net New’
Case said the merger will benefit everyone—clients, the market and competitors.
“Everyone benefits because we want to create ‘net new.’ Net new in climate, net new in intangible assets and intellectual property. Net new in cyber. Net new in pandemic, which we’ve got to be able to think about.”
He suggested the merged company will act as a bridge between capital, clients and new markets. Here’s now he explained it.
Capital isn’t going to commit to a new market unless it understands how it “can make a difference and get a return,” he said.
In addition, clients are not going to buy a product “unless they can describe to the C-suite how it’s going to help them improve operating performance, strengthen their balance sheet, and reduce their volatility.”
“We’ve got to be the bridge,” Case continued, noting that part of being a bridge is creating understanding via data, analytics, content and insight.
“How do you take a cyber market from $7 or $8 billion and make it $25 or $30 billion? How do you take an intangible asset market, which is largely nothing, and actually make it a $100 billion market?” he questioned. “That’s doable. That’s within reach if we can develop and drive the [needed analytics].”
He described one success story in the area of intellectual property where insurance products have been created to help entrepreneurs borrow against their intangible assets, their patent portfolios. With such products, entrepreneurs don’t have to give up equity to raise capital, Case explained.
In many respects, the analytics, the insight required “means we are compelling clients to say, ‘Wow, this can help my business. I want to invest. I want to pay for this…'” When that happens, he noted, it’s natural that capital (from insurers and investors) will follow.
If the insurance industry is going to move the curve on relevance, it’s got to create content that is compelling for clients, which is what the Aon-Willis Towers Watson combination is “trying to get done.”
Although the deal with Willis Towers Watson was announced before the pandemic, Case said, “The pandemic amplified every reason we’re doing Aon-Willis Towers Watson. It increased the need for innovation and increased the awareness and understanding of the need for innovation.”
During the meeting, Case said, the brokers were hoping to close “our combination as early as possible in the third quarter.” But that was before the Department of Justice announcement.