The chief executive of insurance broker Aon has defended the shortlived decision to cut staff salaries by a fifth during the pandemic, a controversial move that came just weeks after the company unveiled its $30bn acquisition of rival Willis Towers Watson.
In an interview with the Financial Times, Greg Case said the decision to reduce pay in April was taken after “sober analysis” of the situation.
“Hope is not a strategy,” he said. “We are committed to protect 50,000 colleagues and their ability to serve clients . . . We are a fact-based organisation. We took fact-driven decisions.”
Aon was alone among the big insurance brokers to have reduced pay during the crisis. The cuts, which affected 60 per cent of staff, were reversed late last month. Aon is repaying employees all the money they had to forgo plus an extra 5 per cent of the lost amount.
“We took action again when it became clear that the most challenging scenarios began to look less probable,” said Mr Case, referring to the decision to restore full pay.
Nevertheless, industry executives say that the unease caused by the decision on pay and the impending acquisition of Willis Towers Watson will make it easier for Aon’s rivals to poach its top fee earners.
Mr Case said that staff had understood the need for the cuts and retention rates were “substantially” higher so far this year than in 2019.
Aon is one of the world’s biggest insurance brokers, assisting companies to organise their cover. It also has big businesses in reinsurance broking — helping insurance companies to reduce their own risks — and investment and retirement consulting.
Mr Case, who has run Aon since 2005, insisted that the pandemic had strengthened the rationale for buying Willis Towers Watson in the insurance broking industry’s biggest deal. The all-share transaction combines the industry’s number two and three, catapulting the new group above current market leader Marsh & McLennan.
“The pandemic underscores the long tail risks that are facing clients today,” said Mr Case. “When we get the pandemic behind us, climate change is back on the fore and cyber threat back on the fore,” he said.
The deal, said Mr Case, would put Aon in a better position to help companies deal with these risks by making it stronger in particular regions and in market segments such as small businesses. It is a “once in a generation opportunity” and would accelerate Aon’s strategy by a decade, Mr Case argued.
Aon has pencilled in $800m of cost savings from the deal. “Willis has been a firm where different management teams have struggled to streamline the expense base,” said Elyse Greenspan, an analyst at Wells Fargo. “Aon’s strong record of expense management bodes well.”
Nevertheless, the acquisition’s scale is likely to attract the attention of competition regulators, especially in the EU. The industry has been consolidating fast, and the Aon deal comes just two years after Marsh & McLennan strengthened its position by swallowing JLT, which was then number four.
Industry sources say that Aon might have to sell all or part of Willis Re, a reinsurance broker owned by Willis Towers Watson, to placate the competition authorities.
Mr Case said that it had been an “active” 120 days since the deal was announced, but it was on track to close in the first half of next year. Shareholders are due to vote on the deal in late August.
Steve McGill, the founder of smaller rival McGill & Partners and himself a former group president of Aon, said the combination of two of the industry’s bigger players offered his firm an opportunity to recruit staff and offer something different to clients.
“Clients have been frustrated by the lack of options they had in the industry . . . once this deal is concluded you have a duopoly of two very strong firms,” Mr McGill told the FT shortly after the deal was announced in March. “There is an opening not to try and replicate what big firms are doing but to go narrow and deep, built on specialty insurance and reinsurance expertise.”