By MATTHEW BRODSKY, senior editor/Web editor of Risk & Insurance®
Maybe many risk managers don't care. Maybe the chief financial officers and chief risk officers think putting their data out there, in aggregated form, for brokers to share isn't dangerous. Maybe they don't have the patience or the time to challenge insurance brokers on this, or maybe they just don't understand the risks of it.
This much is clear. The two top insurance brokers--Aon and Marsh--now have technology solutions and business units geared for this practice: Aon GRIP Solutions and the MarshConnect platform. They take a lot of the data collected from client accounts and from prospective client submissions and they share them with insurance companies, so that these insurance companies can then better market and sell to corporate insurance buyers. The brokers feel better meanwhile because they earn consulting fees, perhaps in the eight-digit range.
Also, this much is clear. Some corporate insurance buyers--perhaps just a handful, perhaps just the most ornery--have a problem with this.
They argue that the brokers are "selling" their data without their permission. Or as one such contrarian risk manager of a Fortune 50 company put it, these systems act as "leavening" agents, reducing all accounts to a lowest common denominator. His beef--he devotes a lot of time and money to becoming a great risk, and by lumping his quality data in with the rest, the mediocre corporate insurance buyers will benefit.
Some large insurance carriers have problems with these systems too.
These insurers, the argument goes, don't want to buy the data because they already know where they are in the market place and know how to price to underwriting profit. Meanwhile, they know that their competitors are undercharging toward top-line growth, but underwriting losses, and this broker data represents those losses. Good luck, however, getting one of these large carriers to talk about this topic, either on or off the record.
Aon and Marsh are more than willing to talk however. For starters, they dispute that they are "selling" client data.
"We're sharing our performance data with carriers via the MarshConnect platform," was how Bob Howe, director of Marsh's market consulting group, put it.
Stephen Cross, CEO of Aon Global Risk Consulting and Aon GRIP Solutions, said that what his unit offers is much more than selling data. They work with carriers to understand their risk appetites and then help them know which Aon clients match that appetite. This allows carriers to understand what clients need as well, and whether existing products fit the bill.
"There are huge gaps between what the insurance market provides and what our corporate clients need," Cross said.
The idea to build the Aon GRIP system came to Aon in 2008, and the firm invested "nine digits" to get the system and its consulting strategy based on it up and running. Now, the system has in excess of $50 billion in premium and 1.1 million trades recorded in it, Cross estimated, which could equate to upward of $30 trillion to $40 trillion in insured value from the insurance programs of 50,000 clients.
About 18 months ago, Aon offered Aon GRIP Solutions to carriers. More than 20 carriers now are clients, and Aon has a pipeline of others they're in talks with.
"Initially, there is a degree of skepticism," Cross said about carrier reaction to Aon GRIP Solutions. But then after a presentation and the chance to ask questions, the insurers realize a couple things: They find out it's way beyond a pipeline or a submission process system. And they learn that they do not have nearly as accurate an understanding of their own presence in the market as they thought, Cross said. Carriers' reactions then become very positive.
With the MarshConnect system, which rolled out in February 2009, according to Howe, more than 40 carriers are already participating--"with a pretty favorable response."
Again, we're talking about the thousands and thousands of submissions being captured in the system, allowing carriers to see how they are performing in different geographies, product groups, client sectors and beyond
Howe, like Cross, mentioned how carriers often discover that they aren't performing as well as they thought or are perceived differently than they hoped. He's had company heads tell him where they're best in the marketplace, only to find in the data that, say, the insurer had only quoted the last 2 of 30 submissions that Marsh sent to them for that space.
"Maybe you need to rethink what your business plan is," Howe said.
If he has gotten any negative feedback from carriers, Howe said, it's that MarshConnect doesn't share enough client data.
As for the data currently being shared, both Cross and Howe reported favorable responses from those clients. A "very limited number" of Marsh clients have asked to have their data removed from the pool. Cross at Aon records a handful of clients that have asked to have their data taken out, nine clients that have asked to not have their names used in the system, and a few more that have asked to discuss the issue further with Aon.
Both brokerages insist that they have procedures in place to quickly remove data if clients ask to opt out of the system, and that they are transparent with clients in written policies and contract agreements about how they use their data. The data, too, is aggregated and meets data privacy laws.
Cross added that Aon has "absolute compliance all over this," having spoken with the European Commission, FSA and U.S. regulatory bodies to ensure it.
"I just don't feel that any of the data in Aon GRIP could come out in a particular way that could be damaging to a company," Cross said.
What's more, clients will benefit from the analytics systems directly, said Marsh and Aon, when brokers use dashboards to benchmark clients against their peers and help them put together a more cost-effective and tailored insurance program. Clients will also experience the overall direct benefit of the increased efficiency and competition in the marketplace driven by analytics, both Howe and Cross stressed.
"At the end of the day, I think our work with the carriers is helping to facilitate a building of a better marketplace for our clients," Howe said.
WHISPER DOWN THE LANE, OR FOLLOW THE LEADERS?
One issue that Aon and Marsh might not be able to comply away could be accusations of conflict of interests. The old question of: Whom do they serve, their clients or the insurance companies? It's the same question that comes up with contingent commissions and other payouts brokers receive from insurers for bringing them business. Here, it's clear, too, that they serve both.
But there's no conflict, the brokers said. For one, Marsh's Howe said, clients still are ultimately making the decision about which insurance companies participate on their programs.
"Markets know that they have to be competitive and they have to be the best pricing and the best product in order to win," he said.
Cross pointed to the fact that Aon GRIP Solutions is a different unit within Aon than the group that does the retail brokering--and that the separation is "like the Chinese wall" in large financial services firms where on one hand analysts rate stocks and on the other advisors tell investors to buy those same stocks.
Of course, some would argue that the Chinese walls in those financial services firms haven't worked all that well.
It could be Aon and Marsh's competitors whispering such things. Like some risk managers and purported carriers, other brokerages can also be heard complaining about the big brokers' powerful analytics consulting businesses.
They say things, off the record, like how they'll have their own benchmarking tool coming out soon but will never, ever sell their clients' data to carriers. Or as another of the larger brokers said, they do not "have any efforts in place to sell client information to anybody."
Yet a bemused Cross noted that competitors that had been criticizing what Aon does are now trying to copy them.
By the way, No. 3 broker Willis is soon to be following suit, with its Willplace system, which is in pilot program stage in the United States at the moment. The system will provide advanced reporting capabilities to insurance carriers based on aggregated client data.
"Willis does not breach client confidentiality, and only provides aggregate data, not client-specific data to carriers," company spokesperson Colleen McCarthy wrote to us in an email.
Wielding client data, it appears that the big brokers are on to the wave of the future.
"To make a good return, we feel like we have to do something totally different and revolutionize how the insurance industry has been trading over the last 300 years," Cross said.
July 1, 2011
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