Mega-mergers put ‘needs of their clients’ at risk
As news of the latest insurance mega-merger between Marsh and JLT begins to settle, StrategicRISK spoke to PARIMA chairman Franck Baron to get his thoughts on what this means for risk managers.
Earlier this week, Marsh & McLennan Companies (MMC) and Jardine Lloyd Thompson Group (JLT) shocked the market with news of a $5.6b merger deal, wholly approved by both boards.
Upon the announcement of the deal, MMC president and chief executive officer, Dan Glaser, said: “The acquisition of Jardine Lloyd Thompson creates a compelling value proposition for our clients, our colleagues and our shareholders. The complementary fit between our companies creates a platform to deliver exceptional service to clients and opportunities for our colleagues.”
Keen to find out how this may help or harm the market, StrategicRISK spoke to PARIMA chairman Franck Baron who said the deal is ”no surprise as market consolidation is expected,” adding ”Organic growth is not robust enough to satisfy financial markets expectations,” especially with cash flow easily available.
”Brokerage firms are still in search for a reinvented business model. Where to invest next? Employee benefits, for example, seems to be the new frontier but so far this expansion is producing mixed experiences: e.g. AON/Hewitt, WTW where the articulation of brokerage operations remains unclear.”
”JLT was perceived as too big for a specialised broker and too small to compete with the 3 jumbos, especially in markets such as North America.,” Baron added.
But Baron also warned that mega-deals between insurance and broking giants, such as the recent AXA/XL Catlin merger, means ”there is a risk that such demanding process will divert resources and focus on internal matters rather than the needs of their clients.”
”Consistency and access to expertise and market leverage are key across Asia-Pacific. Those objectives should not be impacted by firms seeking ’synergies’ and focus on efficiency gains and too demanding profitability goals.
However, it is not all bad news for the market as Baron said these M&A cycles also highlight the need for and relevance of niche/specialty/boutique-type of brokers. ”The support needed by risk managers calls for specialised expertise and attention to the specificities of each client. This is especially true in a very changing risk environment.”
“Of course, some ripple effects are expected which should further nurture this acquisition trend. Financial markets and shareholders will probably pressure the leading industry players to develop similar growth strategies,” Baron added.