By CYRIL TUOHY, managing editor of Risk & Insurance®
It's been a hot and busy summer for commercial insurance brokers looking to expand in the benefits consulting space. In the less than four months since March 23 when President Barack Obama signed federal healthcare reform into law, big-name brokers have been snapping up benefits consultants.
On July 12, Aon Corp., the Chicago-based brokerage behemoth, announced its $4.9 billion merger with Lincolnshire, Ill.-based Hewitt Associates Inc.
Hewitt, a household name in the employee benefits world, generated about $3 billion in revenue in 2009. Aon's merger with Hewitt gives it a more balanced revenue mix between money coming in from brokerage and income from benefits consulting, credit analysts said.
It also gives Aon a steadier foothold in the benefits marketplace versus its archrival Marsh & McLennan Cos., owner of the benefits consultancy Mercer and the advisory firm Oliver Wyman.
The Aon-Hewitt merger, while the biggest announcement so far, wasn't the only deal by any means.
Within three weeks of the Aon-Hewitt announcement on Aug. 3, Itasca Ill.-based Arthur J. Gallagher & Co., the nation's No. 4 broker, announced the purchase of Houston-based Benefits Unlimited Inc.
Benefits Unlimited has been in the market for more than 16 years and has developed a "solid reputation for their experience and industry knowledge," said J. Patrick Gallagher Jr., AJG chairman, president and CEO, in a statement.
Three days later on August 6, the Manassas, a subsidiary of Daytona Beach, Fla.-headquartered Brown & Brown, the nation's No. 9 broker, pounced on Synergy Benefits Inc., a 22-year-old insurance and benefits broker.
Synergy, based in Potomac Falls, Va., with a client base in and around the Washington, D.C., area, generates about $1.2 million in annual revenue, according to Brown & Brown.
Charlie H. Lydecker, regional executive vice president for Brown & Brown, said in a statement that Synergy would add to the brokerage's employee benefits portfolio.
A NEW WORLD
Health reform has ushered in a new world for the benefits industry.
"This was a game changer," said Mike Brewer, president of Lockton Benefit Group. "Our business just got a lot harder, but there are also more opportunities."
Lockton Benefits, a unit of Kansas City, Mo.-based Lockton Group of Cos. LLC, has made a "huge bet" on its ability to respond to the needs of clients looking for guidance in wake of changes to the law.
Benefits buyers are "looking for wisdom not knowledge" and how the healthcare changes will affect their benefits plans, Brewer said, hence the buying and selling activity among some brokers.
The recent merger activity is part of the benefits industry's attempt to cobble as much knowledge and talent as possible as companies in all economic sectors look for help and advice in navigating the big changes expected in the nation's healthcare laws.
Peter Bendor-Samuel, founder and CEO of the consulting firm Everest Group, said in his analysis that "unprecedented M&A activity" in the wake of healthcare reform made sense.
The benefits administration outsourcing market is projected to see deal signings grow by 12 percent to 18 percent in 2010, according to Everest Group.
Changes associated with the healthcare bill will already start taking effect next month, on Sept. 23. Insurers will no longer be able to deny coverage to children with pre-existing conditions. Consumers will also have the right to appeal insurance-company decisions to a third party
August 23, 2010
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