It’s always fun to think how major M&A can actually be a catalyst that accelerates disruption in a sector.
Take reinsurance broking, a sector that in recent days has been dragged into M&A focus by the announcement that giant Aon will acquire not quite so giant Willis Towers Watson.
The result will be a dominant player in reinsurance intermediation, if the regulators don’t force the shedding of some of this area of Aon’s operations.
Aon seems sure it’s going to get the nod to operate as the largest reinsurance broker in the space.
But this kind of consolidation that leads to domination can also drive customers to think about ways to reduce the stranglehold that a single dominant player can have on their businesses.
Making this a point in time that cedents might begin to more seriously consider how they can take more of their destiny into their own hands and look to directly and efficiently place their reinsurance programs with much less assistance from the intermediaries of this world.
It’s possible to place business through electronic marketplaces and platforms now, which can not only reduce brokerage costs but also result in a better optimised placement.
Could the fear of leaving so much of your destiny in the hands of an increasingly large behemoth drive cedents to consider such routes to capital even more seriously?
It’s happened before, in other supply and demand driven markets where intermediaries controlled the flow of business.
In reinsurance the flow of risk itself doesn’t always need an intermediary anymore.
Perhaps this particular reinsurance broker M&A transaction will drive greater awareness of that fact and continue the shift towards the unbundled re/insurance market I’ve been writing about for some years now.
Aon is already expert at service provision around the placement of risks and as ready as any intermediary to unbundle the brokerage costs and perhaps make even more through pricing the vast range of services it offers for clients.
At the end of the day, brokerage remains an old fashioned way to charge for the significant expertise that goes into a reinsurance placement.
As technology platforms and advances make the placement of risks to capital far more efficient and effective through marketplaces than a human could ever hope to achieve, it makes sense for the unbundling you accelerate.
Aon buying Willis Towers Watson could drive this change forward much faster, as it raises the awareness of just how much control dominant players have over the flows of risk and capital in this market.
Will be interesting to see how things develop over the next months as the M&A moves towards execution and the regulators way in.
Steve Evans 