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Marsh & McLennan Cos. Inc.'s acquisition of rival broker Johnson & Higgins surprised some observers, but insurance executives say more such deals are on the horizon.
Louis G. Paglia, senior vp and treasurer at TIG Holdings Group in New York, said the consolidation is "another manifestation" of the pressures large brokers face on productivity and profitability.
"We don't expect to have a big impact from that transaction, but I can certainly see the economics of why they did it," he said.
David McDonald, senior vp and chief underwriting officer at Royal Insurance USA in Charlotte, N.C., said that based on brokerage and insurer consolidations over the past two or three years, "My sense is there's going to be more. I don't think it's stopped by any means."
"Certainly with respect to the Marsh & McLennan and J&H merger, I think it took everyone by surprise," he added. "They have been strong competitors for many, many years. My sense is, long term, the ultimate client is going to benefit by virtue of bringing those two organizations together," he said.
"For the Royal, we enjoy a very fine relationship with both organizations," added Mr. McDonald. "My sense is at the end of the day, we will continue to benefit."
He noted the brokers have been in touch with Royal. The next step, he said, is expected to be a face-to-face meeting, though no date has been set yet.
Robert M. Steinberg, chairman and chief executive officer of Reliance Insurance Group in New York, commented: "The brokers have been merging for a very long time, and we view consolidation, whether it's on the carriers' side or the broker side, as being positive long term for the business.
"Hopefully, as the brokers consolidate they will become more efficient providers of services and therefore hopefully as carriers become more efficient, the whole process becomes more efficient, and therefore in the end the customer benefits," said Mr. Steinberg, who added that he thinks these consolidations are inevitable and will continue.
No formal meetings have yet taken place between Reliance and J&H and M&M. "Until they work through some internal reorganization, they won't be contacting the market," said Mr. Steinberg, who said he believes this stage is still about a month away. "We've had very, very strong relationships with both Marsh & Mac and J&H, and we see that continuing," he added.
Mr. Steinberg said previous consolidations among major brokers "had very little impact on us. Our business with the alphabet brokers has continued to grow over the years and so for some reason or another, it seems to be working for us, so we would view this Marsh & Mac & J&H merger the same way."
John Kearney, chief underwriting officer at the Simsbury, Conn.-based Executive Risk Group, said, "These are two very fine organizations that, I believe, have a nice complement of business and cultures.
"I see it as a good development for Executive Risk, and I'm not sure that there's any real impact in the marketplace. It's still a very substantial market even with the consolidation that's occurred, and I'm sure there's still more than enough competition, so the dynamics of the buyer/seller distribution, I don't think, are really impacted. I'm sure it's not the end of consolidation, though, in the business," Mr. Kearney said.
As to the J&H and M&M merger, he said: "I have not actually been given much information from the companies. I've asked a couple of questions, but I don't think they have many answers at this point, quite frankly."
Past acquisitions have had little impact on Executive Risk, he said. "There's been very little change from our perspective," he said, noting he deals with many people who handle accounts for the brokers.
Most headcount reductions, however, occur "behind the scenes" in back-room operations, he said. "Our back room may see more of an impact than we do on the underwriting side," he said. But "the number of actual reductions in headcount that we've seen. . .is fairly minimal."