2016 Power Broker

Power Brokers of Negotiation

In a record year for M&As, the 2016 Power Brokers excelled at marrying risk management cultures and firming up carrier relationships.
By: | February 22, 2016 • 7 min read

Spurred on by low interest rates and an appetite for scale, business leaders in 2015 sought to create market heft through mergers and acquisitions.

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Winners of the 2016 Risk & Insurance® Power Broker® award were right there with them; marrying risk management cultures, ironing out coverage gaps and redundancies, and getting the insurance carriers to behave on price.

Alex Michon, a Sacramento, Calif.-based senior vice president with Aon, is a 2016 Power Broker® in the health care category. In a health care system merger that came out of the gate as a fire drill and then dragged on for months, Michon was reminded of a key M&A consideration: the human cost in acquisitions is often underestimated.

That’s something commercial insurance brokers need to keep in mind if they are going to build productive relationships and achieve the goals of both the buyer and the seller. Many times the risk manager for the acquired company is losing his or her job. Yet they still have to perform at the top of their game to bring off the deal.

“I think the human cost is usually under-represented in terms of the stress that these people are going through,” Michon said.

In these cases the broker can be a friend to the risk manager, who might not be first in the thoughts of finance executives or other company leadership. The risk manager might be driving in to work every day, knowing that a merger is underway and be unable to tell colleagues about it; even though hundreds of jobs may soon be on the chopping block.

“We are one of the few people who can openly talk to them,” Michon said.

In most cases, Michon said, the risk manager will perform admirably, giving the brokers and carriers all the information they need to be able to write the risk of the combined companies.

But Michon has seen cases where risk managers became so concerned with their futures that they put most of their energy into job hunting.

That tension can also impact dialogues with brokers who are working on a target company account, according to Arthur J. Gallagher’s Amy Sinclair, a 2016 Power Broker® in the pharmaceutical category and a veteran of many merger deals.

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“Employees of the target company are concerned about redundancy at the acquisition partner,” Sinclair said.

“There is a good chance they may no longer have a job once the transaction closes,” she said.

Smaller brokerages that don’t have a lot of experience with M&As may dig in their heels a little bit.

“Generally speaking, brokers for the target and acquisition partner work well together,” Sinclair said.

“Regardless of what side of the transaction you are on, you still want to provide the best service to your client. It is not in anyone’s best interest to withhold information or to be uncooperative,” she said.

Carrier Relationships

The broker’s burden of relationship maintenance in the case of an acquisition also extends to those that underwrite the risks — the carriers. There is a lot of work to be done to convince the carrier that the risk they know won’t change when one company acquires another.

Herman Brito Jr., assistant vice president, Marsh

Herman Brito Jr., assistant vice president, Marsh

Marsh’s Herman Brito Jr.,  a 2016 Power Broker® in the marine category who places cargo and inland marine policies, played a part in two blockbuster deals in 2015; the acquisition by General Electric of the French electric railcar maker Alstom and the marriage of global food giants Kraft and Heinz.

Marsh was new to the Heinz account when the Kraft merger loomed. Pre-merger, Brito convinced Heinz to ditch its captive for global cargo exposures and transfer the risk to AIG. Even though Marsh wound up with both accounts, the rules of broker-client confidentiality meant that Brito couldn’t call his colleagues in Chicago — where Kraft is based — and check up on Kraft’s loss history.

Brito is a big fan of AIG’s multinational placements, calling them “best in class.” His challenge was to make sure that Kraft benefitted from the same aggressive terms he was getting for Heinz post-merger. As the cargo broker, Brito knew that the carriers had bigger concerns about things such as combined property exposures than what he was placing.

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“Not only am I asking you to make it clear and concise for Heinz/Kraft, let’s make it easy on ourselves by implementing a mergers and acquisitions clause and a multi-year rate agreement,” Brito told the underwriters.

“It took a tremendous effort to change the structure that was in place in August 2014, and to obtain the coverages implemented in May 2015, but when claims occurred they started to see the benefits in certain coverages and why we pursued those,” Brito said.

“I think the human cost is usually under-represented in terms of the stress that these people are going through.” — Alex Michon, senior vice president, Aon

The General Electric/Alstom merger was another kettle of fish.

“GE’s acquisition of  Alstom was the hardest acquisition I have ever done,” Brito said.

The reason?

General Electric has a highly centralized risk management department, four risk managers handling the entire global program. Alstom had up to 30 risk managers, many of them with local authority.

Another difference was that General Electric has a huge retention and Alstom had more of a “trading dollars” philosophy, spending so much on premium against so much in expected losses.

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Brito needed to convince the carrier that when GE bought Alstom, the cargo risk management programs would become one. Initially, the insurer wasn’t buying it. But eventually Brito convinced the underwriters that once the companies were married, Alstom’s standards would come up to GE’s.

Part of Brito’s job was to make sure he was available at any hour of the day to answer questions from Alstom risk managers around the globe and help them buy into the GE program.

“If you demonstrate that you are willing to have conference calls at a time that is most convenient in India, people are more willing to do what you are asking them to do,” Brito said.

The GE/Alstom deal closed in November of 2015. Brito was still spending a lot of time on it when we spoke to him in January.

Odd Couples

Marrying risk management cultures in a merger is a must; having the tools and the drive to convince carriers to take on the combined risk is crucial; and so is conducting enough due diligence to manage risk and provide adequate employee benefits when two very different company cultures get together.

Consider the challenges faced by Eric Wittenmyer, a 2016 Power Broker® in the health care category.

Eric Wittenmyer, senior vice president, Aon

Eric Wittenmyer, senior vice president, Aon

Wittenmyer, a senior vice president with Aon based in Chicago, was tasked with ironing out employee benefits for a large hospital system merger involving thousands of employees. One of the organizations classified hundreds of their employees as executives, eligible for a special category of benefits. The other organization counted slightly more than a dozen executives in a similar category.

“What we did was a tremendous amount of benchmarking, and an awful lot of cost modeling,” Wittenmyer said. That science determined that the hospital with the smaller group of employees classified as executives was closer to the norm.

Then came the art. That was figuring out how different employees perceived the value of certain ancillary benefits, such as life insurance and disability benefits.

Once that was determined, the in-house benefits team, with Wittenmyer’s guidance, offered one-time cash payments to employees who felt they were having a guaranteed benefit taken away, while still offering them access to an employer supported program; just not one in which the employer paid for the whole nut.

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“So once we had done all of the plan design work, we had to manage significant transitional coordination issues,” Wittenmyer said.

Because coverage of certain benefits for the merged entities was taking effect on a staggered schedule, with some benefits being in place Jan. 1, for example, and others March 1, Wittenmyer had to earn the trust of underwriters who were being asked to stay on certain programs for a few months — some of them involving high potential life insurance pay-outs — without the corresponding premium income.

In the end, Wittenmyer was able to convince the carriers to work with him, with no price increases, because of the attractive size of the merged accounts.

“I think everything was as transparent as it could be and the vendors understood that,” Wittenmyer said.

See the complete list of 2016 Power Broker® winners.

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.

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That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.

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Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]