How the global broker rose again from the wreckage of the failed merger with Aon

By Terry McMullan

The past 10 years have been a rollercoaster ride for international broker Willis Towers Watson, now known simply as WTW.

It started with the 2015 merger that brought together the venerable London-based broker Willis and global actuary Towers Watson in what was called “a merger of equals”. The merger was only achieved after a year-long struggle with the actuary’s shareholders, who demanded and eventually got a better deal.

Then in 2020 came a $US30 billion bid for Willis Towers Watson by global broker Aon. But the US Justice Department decided after an exhaustive process that the resulting giant would be too mega, and the deal was killed off in August 2021.

Despite a $US1 billion compensation payout by Aon, WTW emerged from the failed merger a bit the worse for wear. It had lost specialist staff, the chief executive was set to retire and there was no thorough plan for moving forward as an independent entity. As one US analyst put it, the group was “certainly limping”.

Seeking a new direction, the post-Aon leadership at WTW decided to continue with the sale of its highly regarded Willis Re operation to Gallagher. The sale had first been mounted to ease European regulators’ concerns about the Aon merger, but an internal review at WTW found “divestment is the appropriate path”. It was a bitter-sweet loss to see a respected name vanish from the market, although the $US3.25 billion sale price may have softened the blow for WTW.

One of the many pieces of advice the WTW board received free from analysts and commentators was for the company to cast a wide net to secure its next chief executive. But immediately after the failed merger the board instead chose Carl Hess, a long-serving actuary with deep operational experience. He became Chief Executive on January 1 2022.

Mr Hess has previously headed the company’s Investment, Risk and Reinsurance business, was leader of the North American and Americas group and global head of the Investments business.

He has been with WTW – via its forerunners – since 1989, when he joined actuaries Towers Perrin, which merged with Watson Wyatt in 1989 to become Towers Watson.

Visiting WTW’s Australian operations recently – an annual occasion that had been interrupted for several years by the issues back home – Mr Hess told Insurance News the failed Aon merger forced WTW to work quickly in shifting its focus back to working as an independent entity. For him, the merger mess secured his employment – “I wasn’t going to join Aon” – but brought with it some hefty challenges.

“We had management and board succession to take care of, and to our credit we did that in a fairly rapid period of time. In a matter of a few weeks we announced I’d be taking over, and we turned over all but one member of the board. And we announced a strategy based around simplification and transformation.”

He says the proposition that resulted in the merger of broker Willis and actuary Towers Watson seven years ago remains powerful. “We’re bringing to every client everywhere the firepower of what we had. Willis had a great global brand, a great position in terms of risk mitigation for corporates. Towers Watson had strong human capital capabilities, but a much more limited footprint. I think [the group now] is a good combination [of] distribution and intellectual capital.

“We were coming out of a major event [the collapse of the Aon deal] that had happened really quickly. If you’re going to do things, you just get on with it rather than drag it out and see what happens.

“It was just a matter of taking advantage of the situation we found ourselves in. We had to rebuild, but you don’t have to rebuild exactly the same way.”

The company decided the rebuild should be based “around the client rather than around ourselves. The old structure we had for segments was more designed by the internal requirements than external.”

Mr Hess sees WTW as a research-driven firm that analyses, draws conclusions and then applies them to a client’s individual situation.

“The first thing we do is analyse the risk, not just sell some insurance. It actually is about finding the right solution for an individual client’s situation, bringing to bear a world of experience. It is a worldwide thing because we’re operating in over 100 countries.”

Restocking talent: Mr Hess says WTW attracts a diverse workforce

The group’s operations divisions are being “whittled down”, as Mr Hess describes it, to North America, Europe and international – which includes the Asia Pacific division where Australia and New Zealand fit.

“We’ve also taken the number of sub-regions down, providing more responsibility for fewer people,” he says.

WTW has also reduced the number of actual business segments down to two, “and we arranged them so that it’s really organised around clients”.

“Our Health, Wealth and Career segment is focused on the HR buyer, while our Risk & Broking segment is focused on the risk buyer. And so to my mind, it’s all about the customer. It’s really that simple.”

WTW employs 40,000 people in 140 countries. It has five offices in Australia and three in New Zealand working under Sydney-based Head of Asia Pacific and Head of Corporate Risk & Broking Asia Pacific Simon Weaver.

Mr Hess says WTW has “grown as fast as anybody else” over the past three quarters.

“That’s no mean feat given where we were coming out of the merger. We had a restock to do on talent, which I think we’ve accomplished very successfully, and that’s shown up in good growth across both segments.”

However, the group’s 2024 earnings and operating margin expectations were recently lowered after it tripped-up over interest rate increases and declining capital returns.

That’s not a development likely to faze Mr Hess, who has a very clear view of where he wants to take WTW.

“We are fortunate in that when we raised the flagpole back up, we have an attractive brand and, I think, a highly attractive internal environment so that people actually enjoy being part of the company. We’ve been getting people from competitors [and] from outside the industry coming in.

“We do find that, especially in the risk part of our business, a variety of perspectives is really, really helpful. You could think of it as people with non-traditional backgrounds; we think people with diverse backgrounds help us to understand what the nature of risk is, and how best to analyse it, to mitigate it, and maybe to insure it. We’ll always be in the market for good people.”

And as to the future?

“The future is unknown. That’s stupid and trivial, right? But it’s true. It’s about designing decision-making around not just a single set of potential future circumstances, but with enough variety of those circumstances to say, ‘Okay, this has a decent chance of success against a wide variety of scenarios’.

“So actually planning around contingencies? We’re almost 200 years old, so it’s built into us by this point. Come 2028, come to the party.”