Have you ever opened a bank account? Of course you have. You signed a form, handed over some money, and toddled off.
Have you ever rented a car? Of course you have.
Was it a while back, when you could drive with one foot on the dashboard, a drink in one hand, and hurtle forward as fast as the vehicle would go until you hit something? And did you then hand the car back, fork over 12 bucks, and wander off?
It’s different now.
On what happened to be the last day of the British tax year, I tried to open a new checking account.
I already had one, of course. But my bank of 47 years’ standing had failed to treat me with suitable respect, i.e., any respect. I decided it was finally time to make a switch.
Everyday people trying to do everyday things are now seen solely as security threats.
The new bank needed to investigate my suitability, a mysterious process requiring a delay of three weeks.
This was Barclays — the same bank that once refused to allow me to open a checking account in the Caymans. I had work coming from there and wanted to facilitate my clients’ payment procedures.
After abandoning Barclays, I went to rent a car. A process that, compared to opening up a checking account, promised to be a piece of cake. And it would have been … providing that I could produce a government tax bill, a telephone bill from a supplier I don’t use, my Social Security number, a driver’s license, a now-cancelled form that once accompanied the driver’s license, and a passport.
The car rental fee for the two days would be £36 ($50). Yet the sum of £700 ($1,100) would be taken from my checking account in advance of the rental. I asked why, and was told that the insurance company demanded it, £700 being the deductible.
I could buy a perfectly good used car for that much, drive it off a cliff when I was done and come out $50 ahead.
I asked for the name of the insurance company, but nobody in the office seemed to know which one it was.
That’s because they were lying, of course. The insurer was being framed. Had I known its name, I might have been able to make contact, and expose the rental merchants for the swine that they are.
Thus, two banks and a car rental company had — within hours — treated me as if I were the worst kind of villain imaginable, for trying to engage in basic business transactions with them.
Ah, you say, but what if I were a terrorist or a communist? Terrorists, however, don’t rent cars. They steal them.
Everyday people trying to do everyday things are now seen solely as security threats.
I am not now and nor have I ever been a terrorist. Although after the car rental agency visit, I did briefly consider becoming one. It would be the perfect crime.
Why would a terrorist blow up a car rental agency?
I turned my attention to the internet, to read that 11.5 million documents, known as the Panama Papers, had revealed trillions of dollars’ worth of hot money buried offshore. This was the tip of an iceberg of illegal cash washing through the world’s banks.
Few if any of those cheating would be punished, apparently.
The innocent, customers and insurers alike, are treated to merciless abuse, while cheats are welcomed with open arms. Spot the chumps.
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.
Helping Investment Advisers Hurdle New “Customer First” Government Regulation
This spring, the Department of Labor (DOL) rolled out a set of rule changes likely to raise issues for advisers managing their customers’ retirement investment accounts. In an already challenging compliance environment, the new regulation will push financial advisory firms to adapt their business models to adhere to a higher standard while staying profitable.
The new proposal mandates a fiduciary standard that requires advisers to place a client’s best interests before their own when recommending investments, rather than adhering to a more lenient suitability standard. In addition to increasing compliance costs, this standard also ups the liability risk for advisers.
The rule changes will also disrupt the traditional broker-dealer model by pressuring firms to do away with commissions and move instead to fee-based compensation. Fee-based models remove the incentive to recommend high-cost investments to clients when less expensive, comparable options exist.
“Broker-dealers currently follow a sales distribution model, and the concern driving this shift in compensation structure is that IRAs have been suffering because of the commission factor,” said Richard Haran, who oversees the Financial Institutions book of business for Liberty International Underwriters. “Overall, the fiduciary standard is more difficult to comply with than a suitability standard, and the fee-based model could make it harder to do so in an economical way. Broker dealers may have to change the way they do business.”
As a consequence of the new DOL regulation, the Securities and Exchange Commission (SEC) will be forced to respond with its own fiduciary standard which will tighten up their regulations to even the playing field and create consistency for customers seeking investment management.
Because the SEC relies on securities law while the DOL takes guidance from ERISA, there will undoubtedly be nuances between the two new standards, creating compliance confusion for both Registered Investment Advisors (RIAs)and broker-dealers.
To ensure they adhere to the new structure, “we could see more broker-dealers become RIAs or get dually registered, since advisers already follow a fee-based compensation model,” Haran said. “The result is that there will be likely more RIAs after the regulation passes.”
But RIAs have their own set of challenges awaiting them. The SEC announced it would beef up oversight of investment advisors with more frequent examinations, which historically were few and far between.
“Examiners will focus on individual investments deemed very risky,” said Melanie Rivera, Financial Institutions Underwriter for LIU. “They’ll also be looking more closely at cyber security, as RIAs control private customer information like Social Security numbers and account numbers.”
Demand for Cover
In the face of regulatory uncertainty and increased scrutiny from the SEC, investment managers will need to be sure they have coverage to safeguard them from any oversight or failure to comply exactly with the new standards.
In collaboration with claims experts, underwriters, legal counsel and outside brokers, Liberty International Underwriters revamped older forms for investment adviser professional liability and condensed them into a single form that addresses emerging compliance needs.
The new form for investment management solutions pulls together seven coverages:
- Investment Adviser E&O, including a cyber sub-limit
- Investment Advisers D&O
- Mutual Funds D&O and E&O
- Hedge Fund D&O and E&O
- Employment Practices Liability
- Fiduciary Liability
- Service Providers D&O
“A comprehensive solution, like the revamped form provides, will help advisers navigate the new regulatory environment,” Rivera said. “It’s a one-stop shop, allowing clients to bind coverage more efficiently and provide peace of mind.”
Ahead of the Curve
The new form demonstrates how LIU’s best-in class expertise lends itself to the collaborative and innovative approach necessary to anticipate trends and address emerging needs in the marketplace.
“Seeing the pending regulation, we worked internally to assess what the effect would be on our adviser clients, and how we could respond to make the transition as easy as possible,” Haran said. “We believe the new form will not only meet the increased demand for coverage, but actually creates a better product with the introduction of cyber sublimits, which are built into the investment adviser E&O policy.”
The combined form also considers another potential need: cost of correction coverage. Complying with a fiduciary standard could increase the need for this type of cover, which is not currently offered on a consistent basis. LIU’s form will offer cost of correction coverage on a sublimited basis by endorsement.
“We’ve tried to cross product lines and not stay siloed,” Haran said. “Our clients are facing new risks, in a new regulatory environment, and they need a tailored approach. LIU’s history of collaboration and innovation demonstrates that we can provide unique solutions to meet their needs.”
For more information about Liberty International Underwriters’ products for investment managers, visit www.LIU-USA.com.
Liberty International Underwriters is the marketing name for the broker-distributed specialty lines business operations of Liberty Mutual Insurance. Certain coverage may be provided by a surplus lines insurer. Surplus lines insurers do not generally participate in state guaranty funds and insureds are therefore not protected by such funds. This literature is a summary only and does not include all terms, conditions, or exclusions of the coverage described. Please refer to the actual policy issued for complete details of coverage and exclusions.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Liberty International Underwriters. The editorial staff of Risk & Insurance had no role in its preparation.