CPCU Report: Urge to Merge Wages War Throughout the Industry

“Make no mistake about it—we are at war right now,” John Amore, CEO of Zurich U.S. Specialties, told a roomful of 600+ attendees during the general session of the 52nd Annual Golden Gate Chapter CPCU All Industry Day, held Nov. 13 in San Francisco. Titled “Honey, I Shrunk the Industry,” the session reviewed the shrinking industry and its impact on the insurance company, agent/broker industries and the risk management community.

“It’s a war for talent,” said J. Patrick Gallagher Jr., president and CEO of Arthur J. Gallagher and Co. “For us, the real issue of consolidation has been partnership and talent…peel back the figures and look at culture, because culture is the driving issue of success across all major consolidation.”

“Insurance companies need to step up to the plate, get their training programs on track and attract the best talent to their business,” Amore said.

Tina Dobleman, director of global risk management at Levi Strauss & Co., agreed with both Gallagher’s and Amore’s points that there are going to be considerable demands on talent. “Consolidation has a very significant impact on our industry, and the impacts are going to translate into a lot of opportunities,” she said. “For us, we need to make sure that given all of this consolidation there remains enough competition in the business.”

According to A.M. Best Co., roughly 1,100 property/casualty groups operate in the U.S. today, and this number is expected to decline by 25 percent (or 800 players) in five years and to be cut in half (to 550) in 10 years. Nevertheless, the panelists argued that there are still too many players in the field.

“Over the past decade there has been an acceleration in consolidation,” said Nancy Carini, vice president of Conning & Co. With 23 of the 1998 transactions in Conning’s M&A database exceeding one billion dollars, it was a “banner year for mergers and acquisitions,” according to Carini, but that trend has since slowed, with only 14 billion-dollar deals in 1999.

Looking at the current year’s consolidation numbers, the number of total M&A transactions in the industry dropped from 244 in the first half of 1999 to 161 in the first half of 2000. And the aggregate transaction values also diminished. The first half of 1999 saw transaction values of $30,899 compared with $11,332 in the first half of 2000.

One factor that Zurich’s Amore believes will accelerate or “fuel” the consolidation fires is the passing of financial services legislation. “This has removed many of the barriers that existed in the past,” he said. “So I would expect to see a lot of change as we head into unchartered waters.”

Technology is also playing a big role in the consolidation game. And although the industry has been slow to respond to technology in the past, the pace seems to be picking up quite rapidly.

“Companies have to be able to understand and be able to respond to the changes in technology,” Amore said. “I think we’re starting to see many of the companies outside of personal lines—in commercial lines of the business—coming on more quickly now with the ability to transact and interact with exchanges so that real costs are being taken out of the business.”

So as the big get bigger, how are the agents reacting? “[They] aren’t happy about this,” said moderator Peter van Aartrijk Jr. The fact is that 91 percent of agents think of the consolidation trend as negative, “but I think it will be a positive in the long run,” van Aartrijk concluded.

Topics Talent Training Development