There's something up at Marsh even though the financials don't show it, and it's far more than just its aggressive new advertising campaign, "The Upside of Risk." Long the world's largest insurance broker, Marsh gave up that title to rival Aon last year. And since the Spitzer investigation of market manipulation using contingent brokerage fees, Marsh and its parent MMC Corp. have often found themselves on the defensive.
Now that's changing. The most obvious sign is the new, slick commercial branding campaign. MMC Corp.'s CEO Michael G. Cherkasky has been quoted as saying the firm is spending millions on the effort, and Marsh marketing executives say its spending on new advertising is more than 10 times its investment in recent years.
The ads and the marketing campaign are probably aimed just as much at middle-market prospects as they are on the traditional Marsh brokerage clients, the largest companies with the biggest, most complex and most expensive risks.
At the center of a series of strategic changes at Marsh, engineered by Chairman and CEO Brian Storms, is a huge investment of talent and resources in a broad-based effort to penetrate the middle market, part of a comprehensive segmentation strategy.
Storms brought on board last fall Mark Feuer, who headed up a series of successful initiatives by Merrill Lynch to dramatically increase its middle-market business.
The pressing issue for Marsh for nearly the past three years has been the precipitous drop in revenue in the brokerage and risk-consulting businesses. Overnight, Marsh lost $845 million in contingent-commission revenue in a settlement with then New York Attorney General Eliot Spitzer. At the same time, Marsh's competitors, capitalizing on its vulnerability, went after its core market with a vengeance.
The timing probably couldn't have been worse for Marsh as the industry began to enter into its current soft phase of the inevitable insurance business cycle. Premium prices for commercial insurance have dropped across the board, putting further pressure on potential commission income and fee revenues.
In this environment, Storms has made what can only be called vast changes, the most obvious of which are probably the personnel changes. MMC Corp. cut its costs by $375 million in a major restructuring. At the Marsh operations, the reductions were not just at the lowest levels. Big changes were implemented at all levels.
The heads of Marsh's 10 largest offices were all replaced during the past year. More than a year ago, Marsh examined the profitability of every account and dropped some unprofitable relationships. Layers of management were eliminated. Even brokers with longtime client relationships were asked to leave.
Or they were recruited by Marsh's traditional rivals, Aon and Willis. Meanwhile, former Marsh CEO Roger Egan has attracted scores of Marsh executives to join his $300 million startup Integro, which had targeted Marsh's core business as its market.
More of the same, Storms points out, would not cut it in this environment. In fact, he likes to compare the current transformation under way at Marsh to the huge change that IBM went through under former CEO Louis Gerstner during the 1990s.
Transformation doesn't come easy, as Storms readily admitted in a recent interview. With most of the strategic pieces now in place, or about to fall into place, the focus, Storms says, is on implementation.
That's probably the most true in the middle-market initiative--a market from which Marsh pumped about $750 million in annual revenue when it clearly wasn't a major focus of the firm. (Marsh defines the market as companies with revenues from $50 million to $750 million.)
BEATING A PATH
In this environment, Storms sees the middle market as the path to future growth for Marsh. It is not enough to just defend its market share among the largest risks anymore. And even if it could grow the Fortune 500 market, this field doesn't offer nearly as much potential because the process of buying insurance has become almost commoditized among the biggest companies.
In contrast, it's open season on the middle market. That market isn't dominated by a few key players like Marsh's traditional base. Greenwich Associates, the Connecticut-based market-research firm, points out that the largest commercial insurance brokerage firm operating in the middle market probably only holds a market share of less than 5 percent. More than 75 percent of the middle-market accounts are handled by smaller, regional and local brokerage firms--firms without the vast global network that Marsh has in place, its acknowledged expertise in scores of industries, the substantial resources in insurance placement, the risk management consulting experience and the newest kinds of risk strategies. And, as Greenwich research shows, at any given time about 20 percent of middle-market accounts are up for grabs, maybe more.
What was missing at Marsh had been a way to sell to that market profitably while at the same time harnessing Marsh's expertise and blue-chip resources at a competitive price.
Enter Mark Feuer from Merrill Lynch. The fast-talking Feuer is a near-evangelist when it comes to the opportunities for Marsh in the middle market.
"The middle market is a fragmented market, and I love fragmented markets," Feuer says. "When fragmentation exists, you can deliver real value to a client. Fragmented markets are where opportunities exist."
Feuer, meaning "fire" in German, began his work at Marsh with a comprehensive analysis of the middle-market buyer--usually the owner or chief financial officer of the company. What he found is that these buyers are very different from the typical risk manager at a large Fortune 200 company. The way to sell to these buyers is different too. Buyers in this marketplace, for example, have absolutely no tolerance for the kind of service lapses that risk management accounts too often seem willing to accept. To sell to the middle market, brokers must also understand the client's business. Feuer says that Marsh's resources, particularly its industry practice groups and expertise, give Marsh a big advantage if that expertise can be made available to middle-market clients.
"This is a true segmentation strategy," Feuer says. Marsh segments the market by size and by industry.
The second part of the strategy is to create those middle-market products that draw on Marsh's extensive resources, such as benchmarking data and financial products that might not have been available to the typical middle-market client before. To do that, Feuer and his staff have been working to create a new Marsh technology platform for the middle market that is set to roll out in the next few months.
"My job is to give my colleagues a robust platform of products. These are products that they can sell, products that are differentiated by the market and the industry," Feuer says.
The third part of the strategy, according to Feuer, is to create a separate middle-market sales and distribution culture that's focused on recruiting growth-minded brokers and support staff. Part of that strategy has been to develop a compensation system for the middle market that rewarded performance for sales to that market, not just sales to Marsh's traditional clients.
"For the middle market, we needed to change our buying styles and our servicing strategy," says Feuer. "The middle market requires industry experience, an international network, sophisticated brokering and insurance services ... (and) a dedicated middle-market sales team with an appropriate sales culture for the middle marketplace."
And finally, Feuer says, for the effort to succeed, there ought to be accountability and an understanding of where the market is going. Clients have to see that Marsh is providing the products and services that they require.
"What's needed is a commitment to the market, a substantial investment (in people and resources), a true understanding of the market and accountability. Accountability is critical," Feuer says.
Storms expects to see the results of the firm's investments in pursuing the middle market by the end of 2007, although he's looking to 2008 to be the year when Marsh really begins to reassert itself. And there are early signs that some of his efforts are beginning to pay off. In the first quarter of 2007, although brokerage revenues were flat at best, revenues in Europe, the Middle East and Africa increased 8 percent. They jumped 17 percent in the Asia-Pacific markets.
"Our international business has been growing every month since July of 2006," Storms says.
"We were not very good at articulating our value propositions," Storms says. "We had to put more focus on results, and that means getting the optimal solution for a particular client whenever the need arises."
JACK ROBERTS is editor in chief of Risk & Insurance®.
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August 1, 2007
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