Insurer mergers create concerns over reduced choice, service disruptionReprints
NEW YORK — Mergers and acquisitions among insurers may present as much of a risk as the risks the underwriters insure.
Property/casualty insurer mergers are an “emerging risk” for risk managers, said Debbie Rodgers, senior vice president of global risk management at Aramark Corp. in Philadelphia.
Insurer solvency questions used to be a key concern for risk managers seeking coverage, but now the sheer volume of M&A activity means that the pool of companies from which to buy coverage is shrinking, she said.
While the number of property/casualty insurer deals last year was smaller than in 2014, Ms. Rodgers said several studies have shown the 2015 deals were “significantly” larger.
An example was Ace Ltd.’s acquisition of Chubb Corp., forming the new Chubb Ltd., in a deal worth $29.7 billion.
Ms. Rodgers, Business Insurance’s 2010 Risk Manager of the Year®, made the comments while moderating a panel on consolidation during Business Insurance’s seventh annual Risk Management Summit in New York last week.
Marti Dickman, vice president of risk management at Advanced Disposal Services Inc. in Pointe Vedra, Florida, said the continued consolidation has definitely changed the insurance marketplace — and not for the better, as far as risk managers are concerned.
The M&A wave has resulted in limited property/casualty insurance capacity and a change in terms and conditions, said Ms. Dickman.
“We’re very concerned about it,” she said. Insurers transitioning during a merger also are not as responsive to clients.
“I’m uncomfortable with it,” said Ms. Dickman.
“Without competition, you don’t have innovation,” said Jack Hampton, a professor of business at St. Peter’s University in Jersey City, New Jersey.
He noted that downsizing in the early 1990s took “a big piece” out of underwriting talent, but said commercial insurance underwriting cannot be mechanized.
Timothy J. Cunningham, a partner at Optis Partners L.L.C. in Chicago, picked up on Mr. Hampton’s concerns about talent.
The insurance industry is an “older” one, Mr. Cunningham said. “The industry has to get younger” to fill the “underwriting moxie” lost as baby boomers retire.
Insurance brokers also are merging, such as Willis Group Holdings P.L.C.’s recent tie-up with Towers Watson & Co. to form Willis Towers Watson P.L.C.
There’s an “enormous amount of activity in broker mergers and acquisitions,” Mr. Cunningham said.
Private equity-backed brokers are growing “some very robust practices,” but there is little private equity interest on the underwriting side of the insurance business, Mr. Cunningham said.
Industry consolidation has resulted in “instability,” with the people who handle risk managers’ accounts changing constantly, Ms. Dickman said.
She said she works to have a “partnership with a team of people” at a broker, and if one person left the team and the replacement fit well with Advanced Disposal, she would not move the account.
Ms. Dickman pointed to the impact of M&A activity among health insurers, which has resulted in fewer choices for buyers.