BROKER CONSOLIDATIONS EVEN MAKING WAVES SOUTH OF THE BORDERPosted On: May. 25, 1997 12:00 AM CST
MEXICO CITY-The effects of global broker consolidation are being felt in Mexico, where multinational brokers have strengthened their presence in recent years by buying interests in local companies.
In some ways, Aon Corp.'s purchase of Alexander & Alexander Services Inc. and Marsh & McLennan Cos. Inc.'s takeover of Johnson & Higgins are fostering a market response in Mexico similar to one that has emerged in the United States, said Alexis Marquard, international director in Mexico City for Bourchier, Marquard, Zepeda Agente de Seguros S.A. de C.V., one of Mexico's larger retail commercial brokerages. BMZ is Willis Corroon Group P.L.C.'s Mexico representative.
"You're going to have two big brokers with probably 70% of the multinational business, if not more, in Mexico," he said. "What's going to happen to us, the other brokers left, is we are going to have to become niche players looking for mid-size accounts. We must be more service-oriented and take advantage of not being the biggest, but trying to be the most efficient."
In other ways, broker consolidation is expected to imprint uniquely on Mexican employers because of the peculiarities of their emerging insurance market.
"The brokers are very important because they have contacts all over the world," said Nora Del Carmen Leal, risk manager for CIGATAM in Mexico City and the president of Mexico's risk management association, the Instituto Mexicano de Administradores de Riesgos. "But I know some of the big companies in Mexico are trying to reduce their insurance costs by placing everything directly with the insurance companies."
Only during the last decade have Mexican companies been allowed by law to place their coverage direct with most insurers, said Graciela Soto, risk manager for MBS Comnicaciones in Mexico City. Previously, all coverage, except that placed with formerly state-owned insurer Aseguradora Mexicana, had to be placed via licensed brokers.
With a strained economy, some companies have attempted to trim expenses either by cutting out their brokers or by cutting risk managers, she added. Companies need both, Ms. Soto said, unless they have a very large and very sophisticated risk management department.
But even large sophisticated companies will likely benefit from the expertise and leverage of the giant brokers created by the mergers, risk managers say. Even very large employers that do not rely on brokers for placement of retail coverage still use them to access reinsurance markets, they say.
Mexican employers are also beginning to look to brokers more for consulting services, though that is not yet a full blown trend, said Richard Atherton, international director in Mexico City for Alexander & Alexander Mexico Agente de Seguros y Fianzas S.A. de C.V., now part of Aon Group Inc.
"We are still very much oriented to the retail business and obviously reinsurance is an important aspect of our business," Mr. Atherton said. "But consulting is coming. There is no question about it, but it's slow. The Mexican client still feels if he pays a premium he is entitled to all kinds of services and advice. The unbundling is still to come."
Meanwhile, Aon and A&A units have kept their distinct names in Mexico, though they are looking for office space in Mexico City big enough to house both operations, Mr. Atherton said. Although the brokers' offices in other Mexican cities have been combined, each firm owned its own building in Mexico City and neither is large enough to house the combination of both operations. There are also more tax and red tape hassles slowing the office merger process in Mexico City than in other Mexican cities, Mr. Atherton said.
"A lot is happening, and not a lot is happening because of legal constraints," he said.
Foreign ownership of Mexican brokerages previously faced many restrictions, Mr. Atherton said. But a government decree 1993 loosened those restrictions and then "things really started to happen."
Alexander purchased 80% of Mexican broker Asesores Kennedy Agente de Seguros S.A. in July 1993, after having a correspondent relationship with the broker since 1976.
Aon also has its own presence in Mexico, built in part on the former Rollins Hudig Hall's 1994 purchase of Mexican broker Ramos Rosado (BI, July 18, 1994).
Marsh & McLennan also has its own office in Mexico City. Now there is talk in Mexico that J&H Marsh & McLennan Inc. may buy out Mexico's largest commercial broker, Brockman & Schuh Agente de Seguros y de Fianzas S.A. de C.V. Johnson & Higgins already owned 25% of Brockman & Schuh and held an interest in Brockman & Schuh's reinsurance operation, Reinmex.
A spokesman for J&H Marsh & McLennan in New York declined to comment on a potential purchase of Brockman & Schuh and called it mere speculation. A designated spokesman for Brockman & Schuh could not be reached after repeated attempts.
But two sources inside the Mexican brokerage said that while there have been no formal negotiations with J&H Marsh & McLennan, the matter is pending and discussions are expected to begin soon. In addition, they said that J&H only provided Brockman & Schuh with a minority of its business, so the Mexican brokerage could readily survive on its own if its owners do not want to sell.
"I think all these mergers are a good opportunity for us," said BMZ's Mr. Marquard. Yet he is waiting to first see if the new, larger brokerages will cut commissions to win market share. That would be bad for him and other brokers, though it could benefit corporate policyholders, he said.
Yet Mr. Marquard also said he thinks good talent is bound to leave some of the merging brokerages, in which case BMZ could hire some of them for its nine offices throughout Mexico.
There may be other benefits as well for mid-size brokers in Mexico.
"I can think of six or seven of my clients who had J&H and Marsh & McLennan handle different parts of their business and now they have the same broker," he said. "That does not fit the employers' philosophy. They like to have two different brokers. So that is going to be an opportunity for the Sedgwicks and Willises. For us in Mexico it's definitely going to be an opportunity."
At the same time, the larger brokers also see a great opportunity to help international clients and Mexican enterprises, especially with signals of an improving Mexican economy.
"We look at it as a big growth area for us," said Bob Solomon, managing director for international specialty operations in New York for J&H Marsh & McLennan.
"A lot of our major multinational clients from Europe and the U.S. have invested a great deal down there," he said. "The large Mexican conglomerates are interested in new risk management techniques that we have offered. We have been able to pick up one or two of the large conglomerates in Monterrey as clients. We're very excited about Mexico."