In 2005 Mark became an Insurance and Reinsurance journalist. In 2008 he joined The Insurance Insider, which grew to be the most successful and influential insurance publication in the industry.
He is the only Insurance journalist to have had a career transacting international insurance and reinsurance business.
Well, that was fun. I’m glad I trousered all those exorbitant fees the stock arbitrageurs were offering while it lasted – such a situation will never happen again in my lifetime. Aon and Willis Towers Watson (WTW) have been reminded that two’s company and three is definitely a crowd. Now they have to go back to competing with each other for a living, instead of deciding who gets the corner office.
No-one can blame Aon CEO Greg Case or Willis boss John Haley for trying. It was a once-in-a-lifetime chance to cement a permanent place at broking’s top table and they embraced it. And it came within a whisker of happening.
Frankly no-one saw the US competition authorities coming because the US big client retail market is more competitive than anywhere else in the world. But for a few electoral college votes in the presidential election, there could so easily have been a different outcome.
The massive loser is Willis. Aon couldn’t lose. Imagine the war-gaming exercise it would have gone through years ago?
Scenario one – the deal goes through: you get to be the undisputed number one broker in the world, forever. You kill one of only two global broking competitors and you gain effective control over your clients. You synergise Willis into having the same margins as you do. The shareholders will love you.
Scenario two: the deal gets blocked. You destroy morale at one of only two competitors. Bits of it fall off. Willis people who thought they were an integral part of a global team find out that they are “remedy assets” to be discarded for the greater good. Human beings tend to react badly to finding out that they are disposable. Would you like to come into work one day to find you have been labelled “remedial”?
Scenario two also instigates a succession crisis. Practically the whole WTW board now has to go. Who will replace them? And who owns Willis stock today? Do they want to stick around or would they prefer a fire sale?
Marsh and everyone else can’t believe their luck. They have had the best possible outcome. Chaos and instability sowed in the hearts of rivals and opportunities opening up left right and centre – all at absolutely zero cost to themselves.
Willis is paying the price for its own defeatism. If you plan for failure, that’s what you get. We often gasp at the size of breakup fees, but a billion dollars doesn’t come close to the damage done to the Willis franchise. It’s chump change for Aon in the long term.
For example, selling Willis Re to Gallagher would have been unthinkable before all this kicked off. Willis Re is not a replaceable asset. Its slightly higher sale price does not reflect its utter uniqueness. It takes two generations and huge commitment to build a major reinsurance broker from scratch.
Yet the day the two-year non-compete is up on the deal, Willis will have to start doing just that. Even if every Willis Re executive had resigned I still wouldn’t have sold for any price. I would have defended the business to the death.
Willis is a unique broking asset that has been undervalued by its own leaders. It is a matter of perspective.
They saw being third in a global race of only three participants not as an opportunity to outgrow the other two and catch them up, but as a poisonous combination of a fixed global cost base with lower revenues and therefore permanently lower margins.
Each to his own. But there is no way anyone with the surname Lockton, Gallagher, Howden, McGill or indeed Plumeri would allow themselves to think in such a negative way! They would want to grow and innovate their way out of the problem. Successful broking CEOs are all eternally bullish, entrepreneurial and aggressive in equal measure. Yet somehow Willis lost its mojo and gave up.
Now it is like a boxer in a three-way contest that has tried and failed to concede. It threw in the towel and fell to the canvas, expecting to be counted out. Yet it somehow finds itself in the bizarre situation where the referee has pulled it to its feet, refused to ring the bell and is telling it to “get out there and fight, for the good of all of us!”.
Willis may not have believed in its ultimate value but the competition authorities certainly did. And you did too. In the last issue I implored you to give one last heave and ask regulators to block this deal. It worked, they listened.
Sometimes in life you simply have greatness thrust upon you. Now is one of those times for Willis. I implore you to re-engage with what is left of the broker and stick with it. Willis is punch-drunk, dazed, damaged and confused. It needs to rediscover some self-esteem.
It really needs a lift from the crowd and you can provide that boost with your loyalty. If you help it through this rough patch your reward will be a nimble and responsive alternative to the big two. You will be the ultimate winner.
But we don’t know what will happen, further leakage is inevitable and a break up of WTW and its remaining broking assets are distinct possibilities.
It all depends on how incoming CEO Carl Hess views the world. For me the job ad for John Haley’s successor should have comprised one simple sentence: “Wanted: someone who really believes in Willis.” We’ll see what Hess is made of soon enough.