Former Aon president McGill sees opportunity as M&As limit choice

Mergers and acquisitions in the insurance market have cut client choice to such an extent that industry veteran and former Aon group president Steve McGill spotted an opportunity for a new kind of venture.

His eponymous business, McGill & Partners is launching this month (May 2019) in partnership with private equity firm Warburg Pincus (WP). It also sports a stellar senior colleague list.

Explaining his thinking to Intelligent Insurer, McGill said cumulative M&As over the years have left clients yearning for something different.

“When you look at the corporate client sector, especially as the accounts became larger or more complex, there was a lack of choice because of the M&A activity that had taken place in the industry over time.

“I think clients were getting frustrated because there wasn’t enough choice in the industry. Carriers were also sensitive to the fact that there was a quite significant concentration risk in terms of business with larger brokers - by the way this is nothing negative about the large brokers, they’re high quality firms - but you then had a large cross section of very good, more traditional retail brokers and wholesale brokers many of them serving the middle market and SME clients.”

McGill said he studied the market opportunity for 22 months, thoughtfully planning it out before embarking on the launch of his “boutique specialist firm”.

The business focuses largely on the actual broking transaction and is designed to better connect carriers with clients through an alternative distribution channel, he explained.

“One of the opportunities I saw, in addition to recognising it would be great to give clients some additional choice, was in the value chain itself.

“John Neal, CEO of Lloyd’s of London, this week [1 May 2019]  launched a prospectus, to give perspectives on the future of Lloyd’s and there’s a recognition that the cost base particularly in London is extremely high. Thirty-five to forty cents of a dollar at premium are going in costs, which includes underwriting expenses and commissions. I felt there was room for a new boutique specialty firm to come in and help capture some of the surplus economics in a way that is beneficial for clients and for the markets.”

Doing things differently is crucial for McGill. “If you started with a blank sheet of paper today and designed the optimum structure for the industry it would not look like the structure that exists.

“I think the market needs to go on a journey to better serve clients, to address some of the cost issues in the industry and the carriers need to add value for the clients and the carriers need to be paid appropriately for the capital they’re putting at risk.”

McGill is keen to shorten the value chain by offering clients an alternative to the traditional process. He explained that first of all, there’s the traditional channel that can go through a corporate client to a full-service retail broker, to a wholesale broker and to Lloyd’s of London, for example.

“We are going to be a boutique specialty firm focused on the transaction, the placement of the business. So quite a lot of the time you will see the value chain shortened where it’ll be the client dealing with us with the placement straight into the market, which brings capital closer to clients. That’s where clients get an alternative route, and an alternative distribution channel. This will also be reinforced by technology, transparency of our approach and will be underpinned by our data and analytics strategies.”

The firm will initially be based in the UK and the US. “Over time we would look to build a presence in key placement centres like Dubai and Singapore.

“Initially we’re looking at areas of specialisation including energy, marine, aviation, P&C, financial lines as well as reinsurance.”

He won’t be drawn on what technology they’re working on but is prepared to say the firm will be “focused on using technology to facilitate the placement of a client’s business in the most efficient way in the marketplace”.

On the subject of tech, he added: “There’s the PPL platform in London, that’s beginning to get traction to enable brokers to place their business electronically. We’re looking at this whole space to say, frankly, ‘how can we reinforce the vision that John Neal has with Lloyd’s to modernise the market?'. Really maximise the use of technology, particularly in the placement process, which is going to drive a huge amount of efficiency in the market place and ultimately benefit clients.”

McGill emphasised that he is “very excited” by what Lloyd’s Neal is looking to do to build a future for Lloyd’s “that is compelling and exciting for the marketplace”.

He added: “What I’m doing in building this new venture is, I believe, only going to amplify and reinforce everything that John Neal and the leadership of Lloyd’s are looking to do with the Lloyd’s platform. So I’m really excited that I’m launching this new business and it’s coinciding with Lloyd’s taking a thoughtful and quite radical view of the future.”

He is also proud to be partnering with WP, which he said had been “incredibly helpful and powerful”, doing the due diligence to validate the business proposition. “In the future [the partnership with WP] will give us a significant amount of financial firepower and intellectual capital to help us succeed,” he added.