The information drought accompanying this April’s announcement that Aviva had completed the £453 million acquisition of AIG Life left us knowing little more than when the deal was originally announced last September.
At the time of writing the only news is that AIG Life’s 1.4 million group risk members will not immediately experience any change to cover or points of contact.
Steve Ellis, head of employment benefit consulting at Prosperis, says: “Aviva just says it’s business as normal, and no-one seems to know if the acquired schemes will be badged in its own name or in AIG’s. Because the two differ so much on pricing, it’s possible that they could peacefully co-exist in separate niches, like Axa
Health and PHC have done on the PMI side.
“But my money would be on the AIG brand disappearing, which is what has happened with past deals. For example, Friends Provident got sucked into the Aviva brand and Ellipse into the AIG one. Why run two separate platforms when you can achieve economies of scale by integrating?”
Integrating systems is, however, rarely straightforward. Just because most group risk providers use Northdoor or Majesco doesn’t guarantee a perfect fit.
Jamie Macgregor, CEO of Celent, says: “Even when both parties in a merger are with the same technology provider, most implementations are highly tailored to one company, so consolidation can be complex and costly due to different customisations and extensions. Generally, the technology savings aren’t massive in themselves, although there may be synergies in procurement, system knowledge, and skills.
“Group risk insurers tend not to combine technologies for several years until they eventually see a clear need, which can be when systems become obsolete. Group risk is a fairly stable proposition, so change tends to come mainly in the distribution space rather than in the underlying technology.”
Insights into Aviva or AIG Life’s plans are predictably thwarted by the unwillingness of either party to comment. And how integration challenges have been faced during past M&A are no clearer, as a result of widespread insurer silence generally.
Only Unum was prepared to comment, but it restricted its input to the challenges faced when acquiring the renewal rights of Cigna’s dental business in July 2023, a wholly different kettle of fish to combining group risk operations.
Sufficient competition
But the consensus view from expert commentators is that while the Aviva/AIG Life deal will doubtless throw up some teething problems and reduce choice, it should still leave enough group risk players to provide sufficient competition.
Because the market is highly aggressive, with intense competition on price, cover terms and added-value services, the remaining half dozen providers is probably enough to enable intermediaries to continue to give their best advice.
Katharine Moxham, spokesperson for Group Risk Development (Grid), says: “There is less switching than before as employers don’t want to start again with embedding added-value features into policies and protocols. And, although fewer providers could arguably inhibit innovation, when a company does come up with something very different intermediaries can be put off by not being able to compare it with similar offerings for value or being able to switch elsewhere if needed.”
M&A and withdrawals are nothing new in group risk, and have been at least partially offset by new entrants. 2009 saw both Ellipse – subsequently acquired by AIG Life in 2018 – entering and Zurich re-entering. And Foresters Friendly Society, although technically already an existing player, announced significant expansion plans last year whilst joining Grid.
During all this activity the market has still managed decent levels of growth. Although there is a feeling that things could begin to get problematical if a further provider departed.
Steve Herbert, independent wellbeing consultant and communications coach, says: “To remain credible and competitive, the industry should avoid any further shrinkage in provider numbers, and hopefully the loss of AIG will encourage a new entrant to take its place.”
Immediate implications
If AIG Life’s brand does eventually get absorbed by Aviva’s, its absence is likely to be missed most in the SME space, where it was particularly competitive on all group risk products, but valued primarily as a source of life cover.
Steve Ellis says: “I think the smaller SME prices will go up as a result of its departure and, because it allowed quarterly updates of data, it was very useful for companies who wanted certainty of pricing. Quite a lot of our life business has gone from AIG to MetLife, but MetLife is more selective and shies away from adverse risks.”
Some have voiced concerns that Aviva’s service standards, which it has successfully turned around, could be put to the test if it’s distracted, and the fact that AIG’s added-value benefits are very different from Aviva’s could also bring challenges.
Kevin O’Neill, head of workplace health at Barnett Waddingham, says: “I suspect that clients who have chosen AIG and embedded their Smart Health services into their employee benefits proposition won’t be too happy if they have to move to another service provider with a less valued proposition. Not that Aviva’s is bad.”
Additionally, issues may later arise with legacy terms and conditions. Employers won’t be able to shop around if, after a few years, Aviva is the sole provider of a particular feature and has shed some relevant technical expertise.
Mark Waters, market development leader, UK, at Mercer Marsh Benefits, says: “Before being acquired by Aviva, Friends Life was particularly generous on spouse /partner life assurance, meaning you didn’t have to have a trust. Aviva has maintained some of the schemes without the trust facility, but no other provider does so. So, you can be stuck or have to set up a trust, which is time consuming.”
More immediately, suspicions that ‘business as normal’ won’t last long have been causing intermediaries plenty of head scratching around rate review time – greater clarity would be welcomed with open arms.
Don’t forget the people
M&A within any industry has its risks, and those affecting people tend to be amongst the most commonly underestimated. Mercer retention surveys show that 20 per cent of critical talent typically leaves in the first three months after a deal and that 40 per cent has typically left by the end of two years.
Julian Bell, senior M&A engagement lead at Mercer, says: “Critical talent doesn’t just mean your C-suite, so ignore the talent further down at your peril as it may be key for intellectual property. Be aware also that when a key individual leaves they can take an entire department with them. So it’s important to put time and effort into retaining talent.
“47 per cent of transactions fail to meet their financial targets due to people-related risks, and it’s not just
a case of throwing money at the issue. There are complex reasons why people stay, which can include company culture, promotion prospects, career development and personal development.”
Previous Group Risk M&A and withdrawals
• 2003 – Swiss Life withdrew from the UK market
• 2003 – Sun Life Financial of Canada acquired by Unum
• 2009 – Aegon withdrew from new business
2010 – Alico (American Life Insurance Company) acquired by MetLife from AIG
2011 – AXA SunLife (very small book) amalgamated with Bupa and Friends Provident to become Friends Life
• 2015 – Friends Life acquired by Aviva
• 2017 – Optimal Protection withdrew from market
• 2019 – Omnilife withdrew from marke