New Competition for Marsh, Aon, Willis?

April 18, 2005

In the wake of the investigations targeting the world’s dominant brokers – Marsh & McLennan, Aon, and to a lesser extent Willis – an opportunity has opened for a new entrant in the field.

According to a report from the Wall Street Journal, Robert Clements, who recently resigned as Chairman and as a Director of Arch Capital Group (See IJ Website March 21), is well on the way to forming a large commercial broker that would directly seek business, handled by the “big three.”

No one stands a better chance than Clements of pulling it off. As Jack Bunce, a member of Arch Capital’s Executive Committee and the managing director of Hellman & Friedman LLC, noted on Clements departure: “Bob is a great entrepreneur and business thinker. He was instrumental in putting the key management and capital pieces of Arch together and today Arch is a great company as a result. This is not the first, second, or even third time Bob has accomplished such a feat.” Clements is a former president of MarshMac, and was instrumental in setting up ACE Ltd. in 1985.

As the WSJ indicated, given the current climate of uncertainty and distrust in the commercial brokerage business, large commercial buyers and carriers may well be primed to seek alternatives to the “big three.” According to a report published by Standard & Poor’s in December entitled, “Oligopoly of Insurance Brokers Gives Way to Pressure to Add Value,” Marsh in particular and the others in general are experiencing a “perfect storm.”

S&P examined the current state of the commercial brokerage in light of the ongoing investigations, and reached some alarming conclusions. The three largest brokers, currently control “a 60 percent share of the global [commercial] market” – Marsh 31 percent; Aon 22 percent and Willis 7 percent,” but they are being increasingly threatened. In getting to that position S&P noted that “the brokers created a starkly uncompetitive and distorted market, gaining excessive power in the relationship among the insurer, the customer and the intermediary.” S&P’s Primary Credit Analyst, Thomas Upton, observed: “The distribution tail at times wagged the insurance dog.”

Given that climate, Clements’ projected new company may receive a warm welcome, as it would not be encumbered by the investigations, and would be – if his past start-ups are any guide – well capitalized and staffed with experienced people.

According to the WSJ, the changed business climate was a primary motivation in Clements’ decision to step down from Arch, which he left in the capable hands of Paul Ingrey.

He’s apparently well on the way to bringing his new venture – intriguingly code-named Integro – to reality. Peter Garvey, a former Marsh co-president, has reportedly been selected to head the company.

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