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Brokers disagree over whether ownership of foreign offices or using a network of correspondent brokers is the best way to service multinational clients.
Those advocating ownership say brokers need control of the foreign offices to deliver seamless services worldwide and to correct any problems that might arise. Those advocating a system of correspondent networks say clients are better served by a network of well-established local brokers.
By and large, multinational risk managers say they have no preference as long as the quality of service at each location meets their needs.
However, the recent blitz of acquisitions among the world's largest brokers has hit correspondent networks especially hard. That is a concern to some risk managers.
The most notable casualty is the UNISON network.
UNISON had 14 member brokers providing reciprocal business to each other until earlier this year, when Marsh & McLennan Cos. Inc. announced it was acquiring Johnson & Higgins, UNISON's largest member.
J&H's departure from the network left remaining UNISON member brokers-most of them European brokerages-to find new global partners to service their multinational accounts.
While the new J&H Marsh & McLennan has since picked up some of the former UNISON members-it plans to acquire Bonnor & Co. A/S of Denmark, for example-other brokers also have jumped on the opportunity to forge ties with the other UNISON members.
Willis Corroon Group P.L.C., for example, acquired a one-third stake in Paris-based Gras-Savoye S.A., with plans to take a majority ownership within 12 years. In addition, Aon Group Inc. recently announced it would acquire Hamburg, Germany-based Jauch & Huebener KGaA.
As a result, some multinational risk managers who were J&H clients and relied on the UNISON network's members to service their foreign subsidiaries' risk management needs now have concerns.
"I'm concerned only because there are some local relationships between the local subsidiaries and the local brokers," said John G. Pinner, assistant treasurer for Mattel Inc.
The El Segundo, Calif.-based toy manufacturer, which has operations in 34 countries, has had a long-standing relationship with J&H and the UNISON network, which handled all of its international exposures.
J&H Marsh & McLennan is its current international broker.
Mr. Pinner said Mattel's German operation, in particular, has a long-term relationship with Jauch & Huebener, formerly with UNISON and now an Aon subsidiary.
"I do not know if we'll stay with them or make them switch to J&H Marsh & Mac's German operation," Mr. Pinner said. "We haven't decided yet."
Scott K. Lange, director of risk management for Redmond, Wash.-based Microsoft Corp. and another former J&H/UNISON client, also is undecided what he will do as a result of UNISON's dissolution.
"I didn't need all this disruption and change," Mr. Lange said. "I'm still dealing with the J&H-M&M integration."
Microsoft's affiliates in Germany, France and Australia are content with their local broker representation, which happens to be or was a part of the UNISON network, Mr. Lange said. "My immediate challenge is to re-establish local service in those countries."
He said he has yet to decide whether to use a single broker and its network worldwide or whether to let the local Microsoft operations decide their own service providers and have multiple entities serving Microsoft.
While Mr. Lange said he is no longer "locked into the broker paradigm" to service his international risk management needs, Mr. Pinner is a bit more optimistic.
"In the total scope of things, we can't let the little things get in the way of the big picture," Mr. Pinner said. "J&H does an absolutely fantastic job for us."
While Mr. Pinner said he does not really have a preference whether his broker uses corresponding relationships or owns the foreign offices, he did admit that in some countries, he is "happy" that the UNISON-member broker will be replaced with a J&H Marsh & McLennan-owned affiliate.
Other former J&H/UNISON multinational clients had few concerns.
"What we believe is (J&H Marsh & McLennan) will have a good international network that will work and fulfill our international needs," said Lee Miller, corporate insurance director for Rubbermaid Inc.
J&H had provided services for the Wooster, Ohio-based rubber and plastics manufacturer's international exposures since the beginning of 1996, and M&M was its international broker prior to that time.
As for his experience and preference on the ownership of foreign offices vs. correspondents, Mr. Miller said, "Both systems worked."
"I have no preference, just as long as it satisfies our needs in the local environment where we're located," he said.
While it is the largest, UNISON by no means is the only brokerage network to fall victim of consolidation.
ExcelNet, formed by Indianapolis-based Acordia Inc. and London-based Bain Hogg Group P.L.C., was a little more than a year old when Aon acquired Bain Hogg and two other ExcelNet partners: Boels & Begault of Brussels, Belgium, and Dale Parizeau of Montreal. M&M acquired the network's remaining member, Paris-based Cie. Europeene de Courtage d'Assurances et de Reassurances.
Despite the fate of its first attempt to form a brokerage network, Acordia still thinks affiliating with select foreign brokers is the best way to serve its multinational clients.
"We're taking the position at the moment that we'll continue to seek out the best local brokers to work with us as needed," said Robert C. Nevins, executive vp at Acordia. "The management of Acordia all have personal relationships around the world."
Of Acordia's $305 million in 1996 revenues, international business represented only 2%.
In addition to Acordia, Lockton Cos., which reported $82.1 million in 1996 gross revenues and ranks as the 12th-largest broker of U.S. business, also believes in servicing multinational clients through arrangements with foreign brokers as oppose to owning foreign subsidiaries.
"We have considered certain strategic ventures; however, at this time, we are firmly of the opinion that we can more than satisfy the needs of our existing and prospective clients through the use of our worldwide partnership," said Tim Higgins, senior vp-international for the Prairie Village, Kan.-based broker, which services more than 100 multinational accounts all over the world.
Late last month, Lockton announced it had completed an agreement with Nelson Hurst P.L.C., which recently was acquired by Johannesburg, South Africa-based broker Forbes Group Ltd., to provide local insurance services to Lockton's international clients in Asia-Pacific, Latin America and the United Kingdom. Lockton serves other internation-al clients through its 2year-old cooperation agreement with the Luxembourg-based broker network FDG S.A.
While Acordia and Lockton seek to expand their foreign affiliations, J&H Marsh & McLennan is of the firm belief that brokers need to have direct ownership, rather than just an agreement with foreign brokers.
"If you don't have full financial control and don't have full professional control, and if the client looks to the broker to oversee that the delivery of service is the same quality around the world, it seems to me that a broker literally has to have life-and-death control over those services," said John T. Sinnott, a vice chairman of the world's largest broker.
"If something goes wrong, one has to have the ability to directly
correct the situation," he said.
Mr. Sinnott pointed out that when M&M began offering global services in the 1970s, it performed them through correspondent relationships or by acquiring minority equity interests in foreign brokers. However, as the economy became more global in the 1980s, M&M changed its position.
"We're in a professional service business where certain standards of professional levels are required," he said. "We didn't see how you could do that in our business, unless all the leaders were full partners, both financial and professional, of M&M."
Willis Corroon takes a slightly different approach from most brokers.
"Our attitude is to have an equity stake with a clear route to 51% ownership, rather than a corresponding relationship," said John Reeve, executive chairman of Willis Corroon Group P.L.C. in London. "Our approach is somewhat different. . .it is not our attitude that we have to own 100%."
Willis Faber P.L.C. was a member of the UNISON network until 1990, when it merged with Corroon & Black Corp. Since then, Willis Corroon Group has been building up its international network by opening new international offices and acquiring stakes in major independent brokers rather than relying on associations with other brokers.
A majority ownership is very important, Mr. Reeve stressed. When a majority rather than minority interest exists, "the local management's attitude is different, because they regard themselves as part of the group," he said.
In addition to its interest in Gras Savoye, Willis Corroon late last month announced it will have a 30% stake in the soon-to-be-formed German broker Jaspers Wuppesahl Industrie Assekuranz GmbH & Co. KG. The new company will emerge from a union of Jaspers Industrie Assekuranz GmbH & Co. KG and Wuppesahl & Co. and will be based in Frankfurt. The agreement contains provisions for Willis to eventually raise its interest to a majority holding (BI, Sept. 29).