As they discuss their “merger of equals,” John Haley and Dominic Casserley emphasize a willingness to let the chemistry between their two legacy organizations develop naturally, rather than through top-down directives.
Haley, CEO of the newly created Willis Towers Watson, and Casserley, the company’s deputy CEO and president, sat down with Risk & Insurance® at the RIMS convention in San Diego to talk about the progress of their company since the Willis/Towers Watson merger was completed in January.
The merger combined a benefits firm with a global large cap network — Towers Watson — with Willis, which had a strong large cap presence in commercial property/casualty insurance broking globally, but was best known as a middle market player in the United States.
“When Dominic and I were sitting down and talking about this, we thought the real prize is if we can create an environment where we have people working together and where we think of ourselves as an integrated firm,” said Haley, a Rutgers University mathematics major who rose up the ranks from the early roots of the Towers Watson organization in 1977.
Sure, the two leaders talk to their teams about their talent mix and the business opportunities the merger presents.
But since the firms merged in January, Haley and Casserley say they have been happy to let members of the two legacy firms reach out to one another, to start solving customer challenges together under their own steam and see how they gel as teammates.
He reiterated that point in a May 6 WTW earnings call with analysts.
“As I travel to the various offices and see firsthand the collaborative sales efforts and hear about our market success, it’s clear our colleagues are not waiting for a top-down integration mandate or reporting tools to go to market,” Haley said.
“We don’t know exactly what all the new capabilities, the new products and services are going to be,” Casserley said in San Diego in April.
“We do know that we are creating a unique organization, which is truly global and which is integrated as opposed to operating in silos,” said Casserley, a University of Cambridge graduate who before the Towers Watson marriage oversaw the completion of Willis’ acquisition of the large French brokerage Gras Savoye and its 3,900 colleagues at the end of 2015.
Willis bought its first stake in Gras Savoye back in 1995, taking a third of the French firm at that point in time.
The Relevance of Scale
Both men lead firms with a history of making big deals.
Just to name a couple, Towers Watson was formed by the merger of Towers Perrin and Watson Wyatt back in 2010. Haley oversaw that merger.
A big part of the Willis middle market presence in the United States stems from its 2008 acquisition of Hilb, Rogal and Hobbs.
Scale comes into the Willis Towers Watson combination in a couple of ways. Haley sees the fact that Towers Watson and Willis are coming together as two same-sized companies as an advantage.
“It is much easier to create a working environment when you have two roughly equal-sized firms than when you have one that is much larger than the other,” Haley said.
Pre-merger, according to company statements, Willis had more than 18,000 employees. Towers Watson had approximately 15,000.
Scale, as in bigger size, is also a consideration in the investment realm according to Casserley.
Among other responsibilities, Casserley oversees investment and reinsurance for WTW.
“The merger enables an uptick in client service and enables us to make some investments that might have been harder for us to do as separate firms,” Casserley said.
Although both Casserley and Haley have plenty of experience in acquisitions, and this is a busy time for M&A in general, Haley said Willis Towers Watson and its leaders are concentrating on clients and merging their cultures, rather than casting about for more acquisition targets, at least for now.
“For the first 12 to 18 months, it would have to be an exceptional opportunity,” said Haley.
“It would have to be unique and something that if we let it pass we would never have the chance again,” he said.
As it stands, the global reach of Towers Watson and its client list are a grand opportunity for Willis.
“One of the things we know is that if you don’t have the relationships ahead of time it is very difficult not to finish second,” Haley said.
“The merger enables an uptick in client service and enables us to make some investments that might have been harder for us to do as separate firms.” — Dominic Casserley, deputy CEO and president, Willis Towers Watson
On the other side, adding the legacy Willis expertise in property/casualty insurance broking gives legacy Towers Watson team members one more tool to bring into their conversations with clients.
“We have client relationship directors that are responsible for understanding their whole business strategy and for understanding the key people and for bringing together the appropriate subject matter experts. What we are doing now is we are adding one more subject matter expert,” Haley said.
“We are not asking them to do something new or fundamentally different from what they’ve done before.”
“The grand prize is having our folks work together across lines and work cooperatively with clients to identify and solve those problems.” — John Haley, CEO, Willis Towers Watson
Casserley stressed that the fact that Willis can now take advantage of Towers Watson’s large cap relationships doesn’t mean that Willis is turning away from its strength or its relationships in the middle market.
“This is not a pivot,” Casserley said.
The merger also allows the benefits-focused legacy Towers Watson employees to bring yet another tool to their clients, the insurance expertise of the legacy Willis employees.
“We don’t know what the solutions we come up with will be,” Haley said.
“But we do know that the human side and the risk side are related. We think they are not only related today but they are going to be increasingly related in the future.
“The grand prize is having our folks work together across lines and work cooperatively with clients to identify and solve those problems.”
Casserley said how the Willis Towers Watson colleagues find those solutions as part of a new, integrated platform is an exciting unknown.
“It may well be applying property and casualty techniques to a benefits problem and vice versa,” he said.
“Or it might be applying an actuarial analysis to a property/casualty risk in a way that hasn’t been done before. You won’t know that until you see the teams literally intertwined,” he said.
Brokers: A Buyer’s Market for Captives
Today’s market offers captive insurance companies a particularly advantageous time to upgrade their investment portfolios. However, they must be willing to give up unrewarding practices in favor of more ambitious opportunities.
“Simply put, it’s a buyer’s market,” said Boston-based Josh Stirling, managing director and senior vice president, U.S. insurance, Sanford C. Bernstein & Co. “If you’re a captive owner, it’s probably a good time to buy more reinsurance or buy down your deductible or self-insured retention.”
In this environment, Stirling said, captive buyers are seeing more competition from reinsurers and primary companies that want to help them manage their risks, offering them favorable coverage at lower prices.
“With pressure from carriers and reinsurers to compete for business, this provides captive buyers and their brokers substantial leverage to negotiate for better value with their risk-taking partners,” Stirling said.
“If you’re a captive owner, it’s probably a good time to buy more reinsurance or buy down your deductible or self-insured retention.” — Josh Stirling, managing director and senior vice president, U.S. insurance, Sanford C. Bernstein & Co.
“This will lead to more opportunities for brokers to create value by partnering with carriers and reinsurers to design new coverages to better protect captives,” he said.
Added Gary Greene, Franklin, Tenn.-based Raymond James & Associates senior vice president-investments and managing director: “Captives of all sizes need to have an asset strategy, and ‘parking’ cash in the bank is not an asset strategy.
“Captive owners tend to hyper-focus on their liabilities and miss the opportunities with their assets. In doing so, they run the risk that their assets are misaligned and may increase overall risk.”
Greene noted that, overall, he believed prospects for captive growth remain favorable.
But given that interest rates have remained subdued since 2008, many captives have experienced an interest income shortfall from their actuarial forecast, Greene said.
“As these shortfalls have persisted,” Greene said, “captives found themselves recognizing the importance of developing an appropriate asset investment strategy that complements their liabilities.”
Captive owners generally remain cautious about accepting investment risk, yet they find the option of sitting in cash unpalatable, Greene said.
“So we see captives moving cash away from bank accounts and into low-to-moderate-risk investments,” he said. “Things like government and corporate bonds, with some captives venturing into diversified equities portfolios.”
Tim DePriest, Glendale, Calif.-based managing director for Arthur J. Gallagher & Co., noted that a captive should have in place an appropriate level of excess insurance to protect the group should a large catastrophic loss occur, or if over the course of the year the aggregate dollar amount of losses exhausts the premium that has been collected.
“Transparency is very important in running a captive effectively,” DePriest said. “Members should be privy to the inner workings of the captive, such as service costs and the revenue that is derived by the administrator or broker, as well as regulatory requirements.
“Members are essentially ‘owners’ of the captive and therefore should understand their investment.”
DePriest also offered some advice on domiciles.
“Vermont and Bermuda in particular are attractive because of their favorable regulatory and tax environment,” he said.
“While other states in the U.S. are exploring ways to make themselves more attractive for captives, they do not see captive programs as a growth area.”
Sanford C. Bernstein’s Stirling said that one area for captives to explore in today’s market is working closely with brokers to take advantage of new sources of capital.
“For example,” Stirling said, “captives might consider going to the alternative markets and issuing a CAT bond, such as that issued by New York’s MTA after Hurricane Sandy, and captives with long-tailed reserves might look to partner with alternative managers offering reserve financings that allow the captive owner to profit from the alternative manager’s lower cost of capital.”
Stirling emphasized that, with the market in such a changing environment, it’s a very important time for someone who runs a large captive with a lot of money at risk, to optimize their product to take advantage of the low cost of capital that’s coming into the industry.
Bespoke Cyber Coverage
Raymond James’ Greene said that, “As our world expands, companies are being exposed to new kinds of risk that the commercial market doesn’t have the history to price efficiently.”
He cited cyber risk as a prime example.
“Cyber risk insurance is tremendously expensive to purchase, so very few companies, captives among them, are fully covered,” Greene said. “New technological developments are changing the way we live. Driverless cars, 3D printing, nanotechnology all promise an exciting future, but they also alter the environment for risk.
“But a captive insurance company can be a great vehicle to finance cyber risk,” Greene added. “Since the captive is a private insurance company insuring risk only for the parent company, the captive can structure a bespoke coverage that specifically fits the parent company and charge an appropriate premium based upon the company’s actual risk mitigation policies.”
“As our world expands, companies are being exposed to new kinds of risk that the commercial market doesn’t have the history to price efficiently.” — Gary Greene, senior vice president-investments and managing director, Raymond James & Associates.
Additionally, if the parent does a good job managing the risk, they can potentially see return of those premiums back to the parent, Greene said.
He also noted that there is one major hurdle on the near-term horizon that will significantly change the way many captives operate.
That hurdle, said Greene, has a date: Oct. 14, 2016.
“As we have seen, captives have a propensity to avoid investment risk by maintaining very high levels of cash-type investments,” he said. “A favorite cash alternative investment has been money market funds. Captives have long used these funds because of their perceived stability and safety.”
But on Oct. 14, new regulations will go into effect that will significantly change the way money market funds operate, and in turn how many captives handle their investments, Greene said.
“These changes include requiring money market funds’ values to float like any other mutual fund,” he said.
“Additionally, money market funds may impose redemption fees or so-called ‘liquidity gates’ that could be triggered if the liquidity levels of a specific fund fell to specified levels.
“Developing a strategy to deal with these events is going to be a challenge for many captives.” &
Advocacy: The Impact of Continuous Triage
In the world of workers’ compensation, timing is everything. Many studies have shown that the earlier a workplace incident or injury is acted upon, the more successful the results*. However, there is further evidence indicating there is even more of an impact seen when a claim is not only filed promptly, but also effective triage is conducted and management of the claim takes place consistently through closure.
Typically, every program incorporates a form of early intervention. But then what? While it is common knowledge that early claims reporting and medical treatment are the most critical parts of a claim, if left alone after management, an injured worker could – and often does – fall through the cracks.
All Claims Paths are Not Created Equal
Even with early intervention and the best intentions of the adjuster, things can still go wrong. What if we could follow one injury down two paths, resulting in two entirely different outcomes? This case study illustrates the difference between two claims management processes – one of proactive, continuous claims triage and one of inactivity after initial intervention – and the impact, or lack thereof, it can have on the outcome of a claim. By addressing all indicators, effective triage can drastically change the trajectory of a claim.
While working at a factory, David, a 40-year-old employee, experienced sudden shoulder pain while lifting a heavy box. He reported the incident to his supervisor, who contacted their 24/7 triage call center to report the incident. After speaking with a triage nurse, the nurse recommended he go to an occupational medicine clinic for further evaluation, based on his self-reported symptoms of significant swelling, a lack of range of motion and a pain level described as greater than “8.”
The physician diagnosed David with a shoulder sprain and prescribed two weeks of rest, ice and prescription strength ibuprofen. He restricted David from any lifting over his head.
By all accounts, early intervention was working. Utilizing 24/7 nurse triage, there was no lag time between the incident and care. David received timely medical attention and had a treatment plan in place within one day.
A critical factor in any program is a return to work date, yet David was not given a return to work date from the physician at the occupational medicine clinic; therefore, no date was entered in the system.
One small, crucial detail needs just as much attention as when an incident is initially reported. What happens the third week of a claim is just as important as what happens on the day the injury occurs. Involvement with a claim must take place through claim closure and not just at initial triage.
The Same Old Story
After three weeks of physical therapy, no further medical interventions and a lack of communication from his adjuster, David returned to his physician complaining of continued pain. The physician encouraged him to continue physical therapy to improve his mobility and added an opioid prescription to help with his pain.
At home, with no return to work in sight, David became depressed and continued to experience pain in his shoulder. He scheduled an appointment with the physician months later, stating physical therapy was not helping. Since David’s pain had not subsided, the physician ordered an MRI, which came back negative, and wrote David a prescription for medication to manage his depression. The physician referred him to an orthopedic specialist and wrote him a new prescription for additional opioids to address his pain…
Costly medical interventions continued to accrue for the employer and the surmounting risk of the claim continued to go unmanaged. His claim was much more severe than anyone knew.
What if his injury had been managed?
A Model Example
Using a claims system that incorporated a predictive modeling rules engine, the adjuster was immediately prompted to retrieve a return to work date from the physician. Therefore, David’s file was flagged and submitted for a further level of nurse triage intervention and validation. A nurse contacted the physician and verified that there was no return to work date listed on the medical file because the physician’s initial assessment restricted David to no lifting.
As a result of these triage validations, further interventions were needed and a telephonic case manager was assigned to help coordinate care and pursue a proactive return to work plan. Working with the physical therapist and treating physician resulted in a change in David’s medication and a modified physical therapy regimen.
After a few weeks, David reported an improvement in his mobility and his pain level was a “3,” thus prompting the case manager’s request for a re-evaluation. After his assessment, the physician lifted the restriction, allowing David to lift 10 pounds overhead. With this revision, David was able to return to work at modified duty right away. Within six weeks he returned to full duty.
With access to all of the David’s data and a rules engine to keep adjusters on top of the claim, the medical interventions that were needed for his recovery were validated, therefore effectively managing his recovery by continuing to triage his claim. By coordinating care plans with the physician and the physical therapist, and involving a case manager early on, the active management of David’s claim enabled him to remain engaged in his recovery. There was no lapse in communication, treatment or activity.
After 24/7 nurse triage is conducted and an injured worker receives initial care, CorVel’s claims system, CareMC, conducts continuous triage of all data points collected at claim inception and throughout the life of a claim utilizing its integrated rules engine. Predictive indicators send alerts to prompt the adjuster to take action when needed until the claim is closed – not just at the beginning of the claim.
This predictive modeling tool flags potentially complex claims with the risk for high exposure, marking claims that need intervention so that CorVel can assign appropriate resources to mitigate risk.
Claims triage is constant – that is the necessary model. Even on an adjuster’s best day, humans aren’t perfect. A rules engine helps flag things that people can miss. A combination of predictive systems and human intervention ensures claims management is never stagnant – that there is no lapse in communication, activity or treatment. With an advocacy team in the form of an adjuster empowered by a powerful rules engine and a case manager looking out for the best care, injured employees remain engaged in their recovery. By perpetuating patient advocacy, continuous triage reduces claim severity and improves claim outcomes, returning injured workers to the workforce and reducing payors’ risk.