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Aon has reported its financials for the second quarter ended June 30, 2023. The global broking giant saw a total revenue increase of 7% to $3.2 billion, including organic revenue growth of 6%.

Net income attributable to Aon shareholders increased 12% year-on year to $560 million, or $2.71 per share.

Total operating expenses for the group in the second quarter rose 2% to $2.3 billion compared to the same period prior year due primarily to increased expenses associated with organic revenue growth and investments in long-term growth, the company said.

Aon’s commercial risk solutions arm posted a 5% revenue increase to $1.77 billion. Organic revenue growth for this segment was 5%, with strong growth across major geographies driven by strong retention, management of the renewal book, and net new business generation.

Asia-Pacific notably showed double-digit growth driven by the continued strength of core property & casualty business. The US grew modestly, driven by strength in core businesses, partially offset by the impact of external M&A and IPO markets on M&A services, Aon said.

Globally, exposures and pricing were positive, the company said, resulting in a modestly positive market impact.

Reinsurance solutions, meanwhile, saw revenue surge by 13% to $607 million, compared with $537 million the same period last year. The segment reported 9% organic revenue growth, reflecting double-digit growth in facultative placements and investment banking.

Health solutions reported an 8% revenue rise to $447 million, from $414 million in the same period last year. Wealth solutions saw a modest 3% revenue increase to $352 million. 

“Our global team delivered strong operating results in the second quarter, including 6% organic revenue growth and 110 basis points of adjusted operating margin improvement, demonstrating the strength of our Aon United strategy and ongoing progress against our financial goals,” said Aon CEO Greg Case.

“By aligning solution development around risk capital and human capital, we’re accelerating innovation in our core business and more effectively leveraging our Aon business services platform to address growing client demand for analytical tools that will help them make better decisions on risk and people challenges and opportunities.”

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The British Insurance Brokers’ Association (BIBA) has today revealed several new appointments to its main board.

Among the moves made, David Sparkes has been appointed regulation director in a new main board position, reaffirming the key role regulation plays at the top of BIBA’s agenda. Commenting on his appointment, Sparkes said it is “a great honour” to be invited to join the main board and that he looks forward to continuing to support and represent members in his new position.

After two highly successful BIBA Conferences, Emma Chapman has moved into a new role as conference director, joining the main board. Meanwhile, former conference director, Lindsay Campbell remains in the conference team as conference manager on a part-time basis.

Discussing her new role Chapman said: “I am proud to have been invited to join the board. The BIBA Conference is an important event in the insurance calendar and I’m looking forward to building on its success and helping to shape the future of BIBA”.

Broadening access to the BIBA board

In a press release, BIBA noted the association has made provision for other senior managers – including head of commercial, Nicola Maguire and head of insurance, Alastair Blundell – who now have wider remits, to attend certain main board meetings.

In recognition of BIBA’s awareness of the growing importance of Environmental Social and Governance matters, Vannessa Young takes on responsibility for sustainability alongside her compliance and advisory boards management roles. In addition, BIBA announced its intention to recruit two new team members to bolster its regulation and public affairs activities.

Commenting on the changes, BIBA CEO, Graeme Trudgill said: “I see the overarching themes of issues that are relevant to members being encompassed by regulation & legislation, investment in operational support for members and the future. 

“These changes within BIBA will greatly assist members.  I am also delighted to welcome David and Emma to the main Board.  Having new voices will enable us to stay on top of the broad range of matters that impact brokers.”

Global broker Aon has named finance stalwart Stephen Trauber as a new board member for its Global M&A and Transaction Solutions Advisory Board.

An active board member, philanthropist, and financial advisor and investor, Trauber joins several other members on this Aon board:

• John Cullen, former Aon Commercial Risk, Health and Affinity EMEA CEO and current board chair
• Andrew Ballheimer, former Allen & Overy global managing partner
• Claudio Feser, McKinsey & Company senior partner emeritus and senior advisor
• Pam Hendrickson, Riverside vice chair
• Robin Lawther, Student Housing owner and Standard Chartered and Ashurst board member

Trauber is the former vice chairman for Citi, in addition to its global co-head of natural resources and clean energy transition. According to his LinkedIn, he has served on numerous non-profits and charitable boards of directors, in addition to serving as a financial advisor in over $700 billion of transactions, a portfolio that includes many of the most significant M&A deals across the energy sector.

“We are excited to welcome Stephen to our M&A and Transaction Solutions Advisory Board,” Aon M&A and Transaction Solutions global co-CEO Gary Blitz said. “His deep investment banking experience, expertise in the energy sector and commitment to clean energy transition enhances the current scope of our advisory board and brings strong insight that will help Aon further build out solutions to support our clients in this important sector as we help them navigate volatility.”

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Victor, Marsh’s global managing general underwriting business, has appointed Charles Williamson as its CEO, succeeding Brian Hanuschak, who will become the company’s chairman.

The appointments will go into effect on August 1.

As CEO, Williamson will lead operations for all of Victor’s businesses in the US, Canada, UK, Netherlands, Italy, Germany and Australia, delivering solutions to insurance brokers and their customers. He will report to Martin South, president and CEO of Marsh.

New York-based Williamson brings three decades of underwriting experience to Victor, including serving nearly 25 years in various executive roles at AIG. Most recently, he served as co-founder and CEO of Vault, a managing general agency and reciprocal insurance exchange serving a high-net-worth clientele.

“I look forward to leading Victor’s exceptional global team as we continue to build industry-leading underwriting programs and insurance solutions for our distribution partners,” Williamson said.

“Charles is an outstanding leader with deep underwriting, distribution, and product development expertise,” South said.

“Under his leadership, Victor will be well-positioned to support carriers and agents around the world with cutting-edge digital distribution and underwriting platforms.”

Hanuschak will continue to operate in Chevy Chase, Maryland, becoming a strategic advisor to Victor’s leadership team, working closely with Williamson to ensure a smooth transition for both colleagues and clients.

“I would also like to recognize Brian for his exceptional contribution in leading Victor and thank him for his continued support,” South added.

In other Marsh news, the company recently appointed Pat Donnelly as its president of specialty and global placement and Michelle Sartain as president of Marsh US.

Sartain succeeds Donnelly as president of Marsh US and will oversee the insurance brokerage and risk advisory operations across the nation.

Donnelly will lead various specialized areas such as aviation, construction, credit specialties, energy and power, financial and professional lines, marine and cargo, private equities, as well as mergers and acquisitions (PEMA).

Additionally, he will be responsible for Marsh’s global placement capabilities, including all retail and international placement hubs, portfolio solutions, insurer consulting, climate and sustainability, captive solutions, and claims.

Global natural catastrophe losses for the first half of 2023 were amplified by severe convective storms that swept the US and accounted for 70% of global losses for insurers, but understanding the impact of climate change on these events continues to pose challenges, according to an Aon expert.  

The “primary reasons” for rising severe convective storm (SCS) insured loss costs continue to be demographic and socioeconomic factors, and while climate change may well be having an impact, it remains difficult to pin down exactly how it is influencing the wind events, Aon head of catastrophe insight Michal Lörinc told Insurance Business.

“There is ongoing research into how climate change is affecting these [events] as well,” Lörinc said. “It’s still an open question, in my opinion, because climate change definitely changes the behaviour of how severe storms happen in the US and elsewhere – it affects the ingredients in the atmosphere in which serious storms develop, but we cannot definitively say which part of the severe convective storm losses are affected by climate change.”

Global insured losses from natural catastrophes were US$53 billion for H1 2023

Overall, first half global insured losses from natural catastrophes hit US$53 billion (CA$70 billion) in 2023, representing the fourth costliest year on record for insurers, according to Aon’s H1 2023 Global Catastrophe Recap.

Flooding, winter weather, drought, EU windstorm, and wildfire all contributed to global insured losses.

Climate change impact on natural catastrophe insured losses

While linking climate change and SCS events continues to pose a conundrum, Lörinc said that “climate change is definitely causing some perils in some regions to get worse.”

“For example, temperature extremes are mainly affected, heat waves are getting worse, some precipitation extremes are getting worse in some regions – but severe storms are a bit of an unknown in this sense, so there is definitely some impact but you cannot definitively say how much and exactly how,” he said.

US insured losses dominate in first half of the year

Overall, more than three quarters (77%) of global insured natural catastrophe losses stemmed from events in the US, according to Aon’s report.

US insured losses tend to dominate in the first half of the year, and whether the US will continue to top loss charts into H2 will likely depend on hurricane season, Lörinc said.

Forecasters at Colorado State University have predicted yet another above average Atlantic hurricane season for 2023, with 18 named storms and nine hurricanes, including four major hurricanes. The revised forecast came with “extreme anomalous warmth” being recorded in the tropical and subtropical Atlantic, which forecasters warned could counteract some vertical wind shear typically driven by El Niño conditions.

On Monday evening, following the Aon report’s publication, a Manatee Bay buoy in the waters off Miami, Florida, reportedly recorded what could be a record high temperate of 101.1 degrees.

Favourable conditions for tropical cyclone development is one of the “main concerns” for forecasters looking into the latter half of this year, according to Lörinc.

Extremely high sea surface temperatures, in addition to record low total ice extent in the Antarctic, were flagged as potentially concerning parameters in Aon’s report.

“The Antarctic Sea ice is at record lows, we’ve seen very high ocean temperatures, we have heat waves going on currently, and these are expected to continue into the coming days,” Lörinc said.

Wildfire season poses concerns

Another big potential concern is wildfire season in the US.

“The wildfire season hasn’t started really yet in the in the US,” Lörinc said. “There’s a lot of activity in Canada, so that’s still ongoing.”

Canada is experiencing a record wildfire season, with more than 10 million hectares burned. However, barring the Tantallon wildfire, expected to have caused $165 million in insured damages according to Insurance Bureau of Canada (IBC) and CatIQ figures, that bore down on the outskirts of Halifax in Nova Scotia the remote locations of blazes have meant that the impact on heavily populated areas and therefore the insurance industry has been limited.

As of the end of H1 2023, total insured losses in Eastern Canada were anticipated to be in the hundreds of millions of Canadian dollars, well below 2016’s record $4.3 billion.

Secondary impacts from air pollution stemming from wildfires in Canada have been felt in the country and across the border in the US.

“This is a concern because conditions leading to wildfires are expected to get worse in the future with the warming world,” Lörinc said.

How are natural catastrophes affecting you and your insureds? Share your experience in the comments below.

The insurance industry has been roundly criticised on buildings insurance costs and “secret” commissions paid to property managing agents and freeholders, and a trail of documents show missed opportunities for watchdogs and government to tackle the problem dating as far back as 2005.

Leaseholder representative anger has been compounded by a July exchange between FCA leaders and MPs that took place at a Treasury Sub-Committee hearing to investigate multi-occupancy building insurance and rip-off commissions.

It took a “terrible tragedy and a letter from [Secretary of State for Levelling Up, Housing and Communities] Michael Gove” for the regulator to take action on the leasehold insurance costs issue, it was put to FCA executive director, consumers and competition Sheldon Mills and FCA director of general insurance and conduct specialists Matthew Brewis, by committee chair Harriet Baldwin MP.

In a preceding September 2022 report, one commission payment was as high as 62%, with “most” brokers found to have agreed commissions of more than 30%. In 39% of cases reviewed by the regulator, more than half of the commission was paid by the broker to property managing agents or freeholders. The FCA further found that there was often little evidence provided to show fair value, particularly where freeholders were pocketing sums. The taking of commissions by third parties is a practice that Gove has vowed to ban, to be replaced with a “more transparent” fee model.

“The thing that has struck me most about this consultation is that these absolutely egregious commissions that have surfaced in your market study have been going on under nose of the FCA for, presumably, the entire lifetime of your organisation,” Baldwin quizzed Mills. “Were you also shocked by what you found out about this market?”

The regulator had been made aware of leaseholder complaints on rising insurance costs “just prior” to ministerial communication received in January 2022, Mills responded. The FCA executive director had been “surprised” to see such high commissions, MPs heard.

It is less that the testimony could have suggested that the FCA was recently made aware of issues with leaseholder insurance commissions that has caused frustration; rather, parties told Insurance Business that the comments suggested at best a lack of awareness on an issue that has been raised with it for a decade, and at worst feigned ignorance. 

Sir Peter Bottomley MP, Father of the House, told Insurance Business he had been bringing up the “secret” commission issue in Parliament and with the FCA for 10 years. Sir Peter has been in touch with Mills’ office since the July committee hearing, Insurance Business understands.

“The experts, the regulators, the insurance companies all knew of this,” he told Insurance Business. “It was money for old rope for the in-crowd, and it was paying out a fortune unnecessarily for the masses.”

Regulators have been less “blindsided” – as FS Consumer Panel member Johnny Timpson put it when quizzed by the committee – than wearing blinkers, it was alleged by leaseholder advocates. They have argued that a paper trail shows that successive regulators may have scuppered chances to address the issue for nearly two decades.

“The FCA themselves looked at this issue in 2014, and said it was a problem – so for the executive director to say they’d only just heard about it is not credible,” Leasehold Knowledge Partnership chair Martin Boyd said.

The LKP chair described Mills’ comments as “unbelievable”. LKP has written to the regulator to demand a meeting over what it has alleged are factually inaccurate statements.

“The FCA has been appallingly weak on this issue, and they’re still showing a complete unwillingness to act dynamically,” Boyd said.

An FCA spokesperson said: “We have worked quickly to draw up and consult on a package of important reforms that will give leaseholders greater rights and transparency in the multi-occupancy buildings insurance market.

“These rule changes include requiring insurance firms to act in leaseholders’ best interests and banning firms from recommending a policy based on the levels of commission or renumeration. We will act where firms are not following our rules.”

The 2005 FSA investigation

Insurance industry insiders have previously expressed dissatisfaction with the FCA’s handling of the matter and pointed out that successive watchdogs have been made aware of the issue.

“This is a problem that has not just manifested itself in the last one year – this has been around for donkey’s years, this predates the FSA taking over the regulation of general insurance in January 2005,” said Branko Bjelobaba, Branko principal, speaking prior to the committee meeting. The compliance consultant scored the regulator a “three” out of 10 for its performance on secret commissions, citing time taken to tackle the issue.

In 2005, FCA predecessor the Financial Services Authority (FSA) concluded, following a private investigation, the report on which was never made public but was ultimately supplied to LKP with redactions following a freedom of information request, that there was “minimal evidence” of any concern regarding the potential for brokers and property managing agents to be overinflating charges, despite contact from multiple individuals and MPs.

In its report, however, the regulator said it was unable to say “with certainty” that bad practices were not widespread.

LKP chair Boyd has questioned how deep into the issue the FSA dug. When Boyd reached out to ARMA in 2010, a representative set out that it had “no record” of having contributed to the report despite having been cited in it as an approached organisation, according to emails sent to Boyd and seen by Insurance Business.

“On seeing the document, our C.E. [chief executive] saw no reason to refuse permission to publish but, because we have no record of contributing to this report, we have asked the FSA for its source – they have responded that they will speak to the person who did the work in 2005 and get back to us,” an ARMA representative wrote to Boyd in the 2010 email. “It follows that at present the text appears to be either inaccurate or taken out of context, probably similarly for the FPRA.”

Email exchange between Martin Boyd and an ARMA representative (name redacted) from 2010 – supplied by Leasehold Knowledge Partnership

The Property Institute (TPI) CEO Andrew Bulmer was unable to confirm or deny any ARMA involvement when approached by Insurance Business, citing the passage of time. The current chair and vice chair at FPRA were also unable to corroborate participation in the investigation, though they too were not in post at the time.

Despite the issue having been raised by multiple MPs and posing a potential reputational issue for the regulator, according to its own 2005 report, by 2009 no action had been taken on the buildings commissions issue – though a media report shows it continued to be raised with the FSA.

FCA flagged the leasehold commission issue in 2014 – but did not tackle it

In 2013, the FCA was formed and took over oversight of general insurance from the FSA. A year later, the Competition and Markets Authority (CMA) published its 2014 residential property management services market study, in which broker buildings insurance commissions were again flagged, among a ream of other potential harms.

The CMA document cited evidence from an FCA market impact report on wider commercial insurance practices from that same year that showed both insurers and brokers had raised concerns around the risk of leaseholders facing inflated charges.

“Some of the intermediaries and insurers we spoke to expressed concerns that these commission rates exist because the customer buying the insurance product was not the business or individual ultimately bearing the cost of the product,” the FCA’s 2014 reported stated. “This appears to result in some intermediaries and property owners sharing in high commission levels with the inflated costs (and any potential detriment) being borne by the underlying tenant or lessor.”

The CMA recommended “consideration of the appropriate coverage of regulation in this case by the FCA and by government more generally”, having found that it would be “extremely challenging” for leaseholders to determine whether they were paying excessive costs.

Following its thematic review, which led to a fine of over £4 million against small and medium enterprise (SME) specialist broker Bluefin (then owned by AXA) over inadequate systems and controls, the FCA did take some measures to tighten up insurance broking controls more broadly, including work around disclosure. However, as leaseholders were not defined as customers, such advancements had a limited impact for them.

Grenfell Tower fire brings insurance costs under the spotlight

It took the tragic 2017 Grenfell Tower fire, which saw 72 dead and a raft of costly fire remediation and safety measures – including waking watches – in its aftermath, to thrust insurance cost issues back into the public gaze and, in the years to come, the regulatory spotlight.

The regulator engaged in discovery work as insurance premiums soared and insurers shied away from the market in the years that followed the blaze. The FCA’s efforts included collating and analysing correspondence received, in addition to engaging with trade bodies, industry and other agencies and an All-Party Parliamentary Group, Insurance Business understands.

Years on from Grenfell, fire instances were down and combustible cladding had been removed from 85% of at-risk high-rises.

Nevertheless, “dramatically” increasing premiums and a lack of insurers willing to offer cover spurred Gove to call for regulatory action.

In his January 2022 letter to the regulator, Gove demanded “urgent advice” and wrote of concerns that despite remediation changes, premiums continued to increase for many.

“The market lacks transparency and there is not currently useful data to explain the rationale behind the increasing premiums charged by insurers and the conditions associated with the cover,” the minister said. “The role and remuneration of brokers, managing agents and freeholders is also unclear.”

It was following Gove’s demand that the FCA again publicly broached the leasehold insurance topic, against a backdrop of media outcry – including a high-profile Jeremy Clarkson op ed in The Times – and ministerial scrutiny. The regulator produced two reports investigating the market and went on to release a raft of proposals.

“It took the leaseholders three years to get a decision from the lowest tribunal in the land, the first-tier tribunal, and it only happened because of a formidable leaseholder that is retired, that is a magistrate judge and has an accounting background,” said Commonhold Now co-founder Harry Scoffin.

Other leaseholders had been powerless to act, advocates said, with the value of many leasehold properties deteriorating amid soaring charges and insurance costs.

“A lot of leaseholders have not got accounting, or legal, or insurance backgrounds, so it is like trying to find a needle in a haystack,” Scoffin said.

That the FCA has now acted has been welcomed to some degree, and should offer some relief to those affected, though stakeholders have contended that changes do not go far enough, and there are further issues driving up insurance costs that have compounded problems in recent years. That the insurance commission issue itself was an “unexploded bomb”, to quote Baldwin, that was lurking out of the regulator and others’ line of sight is a tough pill that many will not swallow.

With UK businesses still reckoning with the ongoing sting of inflation, it might be expected that brokers looking to sell ancillary insurance products are facing customer resistance. One sector that is firmly rebuffing this expectation is that of legal expenses insurance (LEI), as evidenced by the strong results recently posted by leading LEI provider ARAG.

The group’s 18.5% GWP increase was largely attributed to growth in its before-the-event (BTE) LEI and assistance business, with underwriting director Dave Haynes (pictured) noting that the reason for this boost was simple – “businesses cannot afford not to have it”. Cost-of-living pressures are stinging businesses but they’re also sharpening business leaders’ focus on the risks that could feasibly put them out of business if unprotected.

It’s not an expensive insurance coverage, he said, but it is a critical one particularly given the cost and time currently involved in fighting a legal dispute. And over the course of the last 17 years, ARAG has seen the discourse around BTE services change significantly, moving from being an after-thought for brokers to being an essential part of their toolkit.

The development of legal expenses insurance

Touching on how this evolution has occurred, Haynes emphasised the importance of increased education about what LEI is and how it protects UK businesses. ARAG is committed to constantly training and educating its brokers around LEI in order to empower them to have informed conversations with their clients. And with that training, brokers feel more confident selling the coverage, which has been a key driver of why it has developed into such a readily accepted product.

“As a result, we’ve seen that more businesses see the real value in buying legal insurance and we’ve seen an uptick in interest,” he said. “We rely heavily on our brokers and intermediaries to sell the coverage and to promote this as a real value add for any business. From my perspective, every business should buy this. It’s a no-brainer because it’s not just about the protection itself, you get access to a wide range of online legal documents, legal advice, access to tax helplines and counselling and a whole array of other services. So, legal insurance is essentially about buying peace of mind.”

The tribunal backlog – an update

Integral to ARAG’s education of the wider market has been its continual updates on the ongoing tribunal backlog, with the latest data from HMCTS revealing that there are currently over half a million cases in the employment tribunal system. There were delays in the court system even pre-COVID, he said, but it got worse during the crisis and it’s still clocking up further.

“It’s now being suggested that it can be up to a year before you can even get to a preliminary hearing,” he said. “That’s causing problems for individuals who are seeking to exercise their legal rights if they feel they’ve been unfairly dismissed or unfairly selected for redundancy or facing another employment problem. That length of time is itself a barrier to these individuals accessing justice. But also from an employer’s perspective, it means this dispute is hanging over them for that period of time. It’s not great on either side of the fence.”

Finding the best path through a legal dispute

While ARAG provides legal insurance for both individuals and businesses, he said, the bulk of what the group does is focused on defending employers – both big and small – with respect to employment problems. Where the provider lends significant value to businesses is in offering advice and support to help them navigate employment disputes without necessarily having to join the tribunal ‘queue’.

“We look to find people the best path through a dispute,” he said. “Very often when an employee is being advised by a lawyer or a union that they may have to wait up to 12 months before they’ll actually get before the tribunal, then they do want to just move on. They want to get a new job and they don’t want a dispute with a former employer hanging over them. And the employer wants to move on as well. In those cases, that often lends itself to more negotiation and early settlements.”

LEI – about more than just coverage

A core part of what ARAG does is provide expert legal advice, which is particularly relevant to small businesses which might not otherwise be able to afford that kind of support. In addition to this legal help and assistance, ARAG does provide representation in court, he said, but that tends to be a last resort as it’s usually faster and more effective to find alternative resolutions.

“We work with our clients to provide legal advice at the outset, advising what their rights are, letting them know the timeframes involved, and giving them insight into where they stand legally,” he said. “Important to note is that costs aren’t usually recoverable. So, even if the employer goes to the tribunal and is successful, they still have to fund their own costs.

“That is why legal insurance is so valuable because to go to tribunal for a two-or-three day hearing, with the prep needed for that, can cost several thousand. So, even an employer who’s in the right and has done nothing wrong could still be on the hook for a lot of money. We take a pragmatic approach on a case-by-case basis as to whether an employer might be better off trying to come to a settlement with an employee.”

Of course, some employers want to take the tribunal route, he said, because they worry that if they’re seen to pay off non-deserving employees then it will set an unhealthy precedent. On the other side of the fence, some employees can demand their day in court and don’t mind how long it will take to get that. In those cases, there’s nothing to do but settle in for the long haul and wait for the due process to take its course. On balance, however, ARAG sees more cases settled than going to tribunal.

“I think getting employers that legal advice upfront, right at the outset, is very helpful,” he said. “It’s reassuring for them to know we can advise on their rights, on the process, and what the outcome will typically be based on what they’ve told us. At least then, the employer is reassured that they do have some support and that their legal fees are already taken care of. That goes back to legal insurance really being all about peace of mind.”