Glenn Thomas, managing director of Howden Employee Benefits and Wellbeing has seen both sides of the acquisition experience in his quarter century in the employee benefits consultancy sector. As one of the founders of Jelf Group and CEO of Jelf Employee Benefits he was key to its integration into Mercer after its acquisition by Marsh & McLennan. Then a year ago he oversaw Punter Southall Health and Protection’s (PSHP) transition into Howden, an acquisition that gave the firm immediate scale and presence in this growing sector.
Thomas was signed up by Howden founder David Howden, CEO of the firm’s parent, Hyperion Insurance Group, in March 2018, charged with the target of building a scale employee benefits consultancy.
Back then, less than two years ago, employee benefits had eight staff and turnover of £1.5m in the UK. Today the headcount approaches 200 people and turnover stands at over £20m, a significant proportion of which came from PSHP.
With this and so much other acquisition activity across the sector, what is attracting investors – general insurance brokers in particular, but also private equity investors, to employee benefits?
“It is because the macro trends mean we should see bigger growth in the employee benefits market. The ageing population and the switch to DC pensions, the increase in chronic health conditions and the impact on services, personalisation and this whole desire to improve the employee experience, whether that is for engagement, health and wellbeing, rising healthcare costs around the world, all of these things contribute to employee benefits delivering generally higher levels of sustainable organic growth than GI,” says Thomas.
“And that is driving not only the desire for GI brokers to enter the EB market but also the valuations. You see private equity buying EB businesses for this reason. And that’s happening around the world, not just in the UK. The UK is an expensive place to buy businesses. But layered on top you have the desire for general insurance brokers in particular wanting to get into employee benefits,” he adds.
Thomas has been given a simple target. “The aspiration is to become the leading independent employee benefits business, excluding actuarial firms,” he says, adding that seeing the potential to achieve this is what persuaded him to take the job.
“It was the single biggest opportunity to create a significant employee benefits business, not only in the UK, but internationally, from a very low base. Why? This international reach is increasingly important.
“All the research that I and others have done suggests that somewhere between 35 and 40 per cent of the benefits spend in all the mature economies is now multinational clients. So to not be a multinational international business is cutting yourself off from a growing part of the market.
“If you look at our international focus, it is not the jumbo clients. But it is the real growth in the tech firms that are in Tel Aviv and London, the legal firms that are in five or six centres, the asset managers with small groups of people in a number of areas. The whole nature of international clients has changed and the global clients are very much geared up to deliver to the jumbo clients, but that next tier is not well served. I believe we have got more owned EB locations in more territories than any other firm outside the big three,” he says, adding that new locations have recently been added in Norway, Colombia, Abu Dhabi, across the middle east and in Turkey.
Howden’s desire not to step on the toes of its US broker partners means it will never challenge for business on the other side of the pond.
“We are not in the US and we will not be. We have so many US broking relationships with this firm that we benefit hugely from not being a competitor and we can service our clients in the US by working with one of our partners. If we opened a US location, like JLT did a number of years ago, we could see our specialty business fall away very quickly. US brokers are huge, names that we are not familiar with in the UK. They are massive but many of them are only in the US and Canada.
“Something like 40 per cent of the insurance in the world is purchased within the US so they don’t necessarily need to be international. Many of those businesses use us to place their specialty business. So we are a non-US multi-national business,” he says.
“The other feature is this specialism. Having worked in employee benefits all my life, one of my criticisms of EBCs is they don’t truly understand the client. They do understand HR and benefits. But they don’t dig deep enough into how businesses function, compared to a good quality general insurance or professional indemnity broker,” says Thomas.
“If you talk about mental health, the agenda is changing so that whereas historically health and wellbeing was more of an HR issue, focusing around engagement and retention, increasingly it is recognised by the CEO and the FD as being a business risk that impacts negatively on them if they do not address it. Having that deeper understanding of the business means that we can interact with our colleagues on the general side to get insights and data to build bespoke solutions around health and wellbeing,” says Thomas.
Founded by David Howden 25 years ago and now with over 5,000 staff, the organisation has nothing to do with Howdens the joinery firm. Howden’s relatively low brand awareness, relative to its size, may have been held back by the speed of its growth says Thomas.
“It is a challenge. We have got the largest insurance broker based outside the US, since JLT went into Mercer, we’re the biggest introducer of direct business to Lloyds, a significant retail insurance broker and the biggest managing general agent (MGA) in the world, but people are not as aware of the name as they might be,” says Thomas.
Along with PSHP, Howden acquired the Red Arc Assured and Risk Policy Administration businesses. In 2017, Howden acquired Sterling Knight, a leading employee benefit specialist broker headquartered in Singapore, as well as the employee benefits broker ACP in Turkey.
“In South East Asia the name is well known,” says Thomas. “Even from an EB perspective, Howden would be seen as a big name out there. That’s because we acquired a business there in 2011 that had offices in all the key areas in the region.”
Thomas sees data analytics as a key area of differentiation for the firm through its tech, analytics and wellbeing Psyon team brought across with the acquisition of Punter Southall Health & Protection.
“Historically the team have taken data from all of the sources open to HR. We are starting now to work with professional indemnity teams who will also have information about the way the business operates, claims experience, the cost of this to the company in liabilities. So we are able to go that bit deeper from a business risk perspective. This is why we are seeing a continued growth in a fusion of general insurance businesses and employee benefits, to give a more holistic proposition,” says Thomas.
Howden has a small, very fast growing pensions team, but doesn’t see mileage in buying up a pensions business in the UK, as many firms are yet to fully make the transition from pre-RDR business models or replace lost DB consulting business.
“We have a small pensions business which was focused on our asset management clients. I would like to develop that into financial wellbeing and education. When you look at the old days, for most companies contract-based consulting is certainly less complex than pension consulting used to be. So it’s all about how to reward and engage your employees, and financial education plays a huge part in that. But we won’t be getting involved in wealth management or financial advice. It is a higher risk area and tends to have a lower margin. There are plenty of good firms out there doing that,” he says.
As a result of all the other mergers and acquisitions that have gone on across the employee benefits sector, Thomas argues many people working within firms are not where they truly want to be.
“There are a lot of people working for organisations they never intended to work for. So there are a lot of people uncomfortable where they are, not engaged. The consolidation in the market has fuelled that. When you layer on top some of the overall political climate throughout Brexit, there was a lot of negativity. Now we have greater clarity around Brexit which has lifted the mood. And people are starting to ask where are the opportunities,” he says.
“It is difficult for any business that is acquired by one of the big global consultancies to retain what it was that made them a success, and we have seen plenty of examples of that whether that is the JLT acquisition, where they have lost a considerable number of people internationally, who don’t want to be part of a US conglomerate.
“There are some people who very much enjoy that environment and I enjoyed parts of it. But if you are entrepreneurial and you want a more open, enjoyable working environment, it is difficult to find that in a big global consultancy.”
And as an international business, how is Brexit impacting Howden?
“Internationally we already have licenses in other countries. We have a Luxembourg license already. In the UK it comes down more to the impact on clients.
“We aren’t seeing a fall in head count. But we have seen some inertia around decision-making. Throughout last year the retention rates for insurers were better than they had been and in part that was down to the fact that HR and the management of businesses were so bound up with Brexit planning and uncertainty that they were not making changes or new investments in their benefits.”
So does he believe the Brexit paralysis has peaked, even though harder decisions must be made between now and the end of the year?
“I believe so. I am more positive about the future. I think the fact there is a clear majority means we have at least five years certainty of government. And the size of the majority means the government can act in a more moderate way.”
