In April, Aon CEO Gregory Case celebrated his first year on the job as the successor to Patrick Ryan, Aon's near-legendary executive chairman who grew the company into a huge brokerage powerhouse. Case spent 17 years at McKinsey & Co., the top-flight management consulting firm, where he headed the insurance and financial services practices. Now, a year later, the risk community has undergone huge changes, and Aon remains positioned even more strongly in the marketplace. Editor-in-Chief Jack Roberts spoke with Case in his Chicago office just after Case celebrated his first-year anniversary at the firm.
Jack Roberts: What was your analysis of Aon's success before you took the job.
Gregory Case: A year ago I looked at Aon and saw a company that had been brought together by a lot of acquisitions. I saw a company that frankly was pretty young. Some could say that Aon is more of a teenager. Our acquisitions really happened in the mid-'90s. Even the word Aon is less than 20 years old. In the '90s, you start seeing the acquisitions at Aon. I saw that Pat Ryan had a wonderful vision. It was an inspired vision. And against the inspired vision that Pat had, and that he frankly executed as well as he could, he pulled together an unbelievable set of assets. I saw it as a young company put together with a set of acquisitions, with tremendous assets and with unbelievable opportunity. That's why I came.
Roberts: And then after you arrived?
Case: Now I also saw it as a company, having been inside of Aon a bit as part of my previous life, with assets that were distinctive and capacity to help a client that was unparalleled. I also saw the industry coming through a set of changes that I thought would be incredibly beneficial for the industry. I thought it would serve those companies best that had the most value to add. I saw all the issues around transparency as opportunities, not as risks. I sat here a year ago thinking that this was an unbelievable opportunity born out of multiple factors.
Roberts: What were those factors?
Case: Factor one is the strength and assets of Aon. Factor two is the transition of the industry at the time. Factor three is frankly how well that Aon was coming out of the transition. Aon is incredibly well-viewed coming out of the whole set of regulatory challenges because of Aon's history and Aon's values--what Aon didn't do that others did, in terms of how we serve clients.
Roberts: What is Aon's business proposition?
Case: One of the wonderful things about our position is that what we are focused on is client value. Of course you're going to be an advocate in the context of that. Of course you're going to provide transparency. Of course you're going to provide the best value for price. So I have had hundreds of clients who ask me about how you are going to replace your contingent commissions? Are you going to raise price? I say forget contingent commissions. They are gone. They're not part of what we do.
Roberts: What do you mean by client value?
Case: When you think about the price you pay . . . and it's going to be highly transparent . . . and you think about the value you get, there is a ratio there, value-to-price. Our commitment to our clients is that when you work with Aon, value-to-price, that ratio will increase over time. That means if we don't provide greater value, our price must come down. If we provide greater value, our price is going to do what it's going to do.
Roberts: How does Aon increase value in this ratio?
Case: I'll give you a metric for client value. We are being very explicit about what we mean by this. Have we helped clients improve their operating performance? There is not a lot of ambiguity there. Yes or no. And/or have we helped strengthen their balance sheet? Have we improved operating performance? Have their income statements improved? Yes or no. If we have met that test, then that's value added. Have we helped them quantify volatility in ways they haven't before? Have we helped them decrease their total cost of risk? Have we helped them provide coverage they wouldn't have obtained otherwise? Have we helped them understand noninsurable risks in a value-added way? There are a whole series of things that we can help them do that will improve performance.
Roberts: Have you had to change the operations at Aon to provide this kind of client value?
Case: We're the largest middle-market broker in the world. We have done a number of things to coordinate our position around middle market and how we provide distinctive value to our middle-market clients. We are also serving a large chunk of the global, large corporate marketplace. In the global large corporate (marketplace), we have coordinated how we mobilize our resources. Before it was much more ad hoc, if you will, in terms of how people pulled together Aon around their clients. It's much more systematic now, much more coordinated around how we think about the best of Aon and provide the best of Aon more consistently. We have modified the organization. We have modified how we apply resources. We have modified how we talk about execution against the global, large corporate group, as an example. If you look at our results for the last four or five quarters, we've been very fortunate.
Roberts: How about the compensation structure, which can be critical to a broker?
Case: When I first arrived, a number of people talked to me about Aon compensation and that I needed to focus on Aon compensation. There is no chance we're going to focus on Aon compensation because that's about splitting the same pie. In the strategic sense, we're taking a number of steps to do two things. Compensation should be much more performance-focused. And it must be more equity-grounded. In my first 30 days, we changed the compensation structure of the top 15 senior people in the company. They had been paid based on their overall individual performance. That was split 50-50, with 50 percent based on their individual performance and 50 percent based on the performance of the corporation. We realize that in order to serve the clients better, we had to structure compensation as a whole, not just individually. We had to do it both individually and together. Our colleagues have been incredibly receptive. It's been quite effective in the marketplace since we have done that.
Roberts: What do you mean by being more client-focused, and how do you make sure that happens?
Case: For us it means that we are delivering all of Aon in a consistent way and in a compelling way to a client. An RFP comes through the door. It could be reacted to by the team, or it could be reacted to by Aon. Historically, it's been handled by an individual broker. We have said for companies with complex risks, that is no longer acceptable. That will not happen at Aon. How have we done that? There is a Center of Excellence on the fourth floor of Chicago, a Center of Excellence in London, and every single RFP comes through those centers of excellence. The RFP usually involves issues of the complexity of the risk, but every one of these comes through a center. There is no such thing (as) you handle the RFP by yourself and hope it comes out for best. Even more important, we aim to engage with our clients beyond RFPs. We have a game plan for every one of those clients.
Roberts: And how do you make sure the change happens?
Case: This is a report I get. It comes out every week. In this report, everything has been tracked. This is what's going on at Aon this week. This is clients we lost. These are the unsuccessful RFPs. Here are the open opportunities. Here are the new deals. It looks at our competitors for every single one of those items. I get this every week. Structurally have we changed? Yes. But does this accountability change behavior? Now I know every RFP we have lost and won. We want to bring the best of Aon. We feel an intense need to bring the best of our company on behalf of our clients. And that means the overall company. We recognize that we are going to do it through incredibly accomplished brokers who are going to be the face of Aon. Does this change behavior? Yes. Just look at our win/loss rates. If you listen to our analyst reports, we talk about flow and balance of trade. We track everything over a certain size in terms of what's in the flow. How many opportunities are in flux during the quarter? How many were resolved? And of those resolved, how many did we win and how many were lost? And we track at the item level within the context of the company level. And we track our win rates.
Roberts: How is growth as a result of these changes?
Case: Our fourth-quarter growth rate was 10 percent organic. That's better than it has been historically. It's been flat historically. We won't maintain 10 percent, but we're a fourth-quarter company. Marsh tends to be a first-quarter company. A huge amount of what we do is in the fourth quarter. It is what it is. Our goal is to serve clients distinctively, and we think if we do that, growth will take care of itself.
Roberts: Can you talk more about client value in an industry that, in the past, may have focused on the insurance transaction?
Case: This is where people don't understand Aon. One of the proudest moments I had in my year was when I sat in our boardroom, which was packed full of people--about 60 people were in the room. These were all of our claims representatives. They were in Katrina. We brought them all up here from the Southeast for a day to talk about how we were doing and what we were going to do. All of these colleagues had pulled up stakes from all around the country, moved temporarily to the region and essentially were helping clients every single day on behalf of resolving their claims. It was all about advice. I talked to these guys, and I wanted to understand what these clients were saying. One employee of ours, who lost her home, went to Houston, recreated the claims files for her clients and started processing the claims files right away. We have clients on tape who will talk about the worst days of their lives and then what we did on their behalf beyond their carrier. We see claims as a tremendously important investment on behalf of clients. I understand that it costs us margin, but it also means we can deliver greater value. We also understand that clients that have never had to use it don't appreciate it. Claims isn't about margin for us, it's about value.
Roberts: What else?
Case: We have a global business unit that is not well-known. We have 1,500 people in our global business unit who do nothing but service global complex risks. So if you're a company in Detroit and you have a subsidiary in Germany, we have someone from the global business unit that serves that company. We are the only ones who have technology that ties this all together. It's called global account management. This is a piece of technology that allows a risk manager to sit in Detroit and see the 5,000 policies they have around the world. We are the only ones who have that, everywhere else it is written. What we do on behalf of our clients in terms of claims is that we help them, first of all, in dispute resolution. We help them get paid. And we help them incorporate the claims information and data into their future risk needs.
Roberts: In this new environment, pricing can be difficult?
The acid test for us is value-to-price. The ratio of value to price must go up over time. That is our commitment. If you put the whole package together, that is how we have evolved. You cannot discern what the value-to-price is if you can't identify price or articulate the value. That's why we love transparency. Transparency for us has been a tremendous positive. It allows clients to understand what they have been paying, in which there was significant consternation if not outrage. That benefited us. We got the ability to talk to clients in ways that we had never been able to talk to them before. And they have been able to gauge value-to-price with us. And we have done incredibly well, but by almost any objective measure. Now we plan to build on that platform.
is editor-in-chief of Risk & Insurance®.
August 1, 2006
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