Aon's Joe Peiser on Driving Differentiation through Data & Analytics

In this first episode of the Building Potential series, Aon's Global CEO of Commercial Risk, Joe Peiser, joins Archipelago's Founder & Chairman, Hemant Shah, to discuss how current market forces are driving change in the risk management and insurance ecosystem. In their conversation, they explore:

• What's top of mind across the property insurance value-chain following Aon's 19th annual Property Symposium held in January
• How Risk Managers' needs and expectations are changing and their implications for the market in 2024
• Aon's strategy to create additional value for its customers and the increasing role of Data and Analytics to drive differentiation

Watch, listen, or read along to the full episode below:

Hemant Shah: Welcome to Building Potential, a series where we explore the new frontiers, the risk management and insurance ecosystem.

I'm your host, Hemant Shah, Founder and Chairman of Archipelago. And I'm absolutely thrilled to be joining this inaugural episode with Joe Peiser, the Global CEO for Aon Commercial Risk Solutions. Joe, welcome to the show. 

Joseph C. Peiser: Thank you, Hemant. It's a real privilege and I know it's gonna be fun to be here today.

Hemant: I've been looking forward to this conversation. Our conversations are usually always lively and engaging and organic. And it's a rainy day outside in London here.

Joe: A little typical.

Hemant: We'll heat it up in our conversation. So first off, Joe, congratulations again on your promotion to Global CEO of, CRS (Commercial Risk Solutions). That's, quite a new vantage point and you're spending more time here in London, I understand, as a result of your new responsibilities.

Joe: Yes. And thank you, Hemant. I relocated to London in January, and I plan to be here for the foreseeable future.

I think London is a good vantage point to work with both clients globally, and also with insurance companies globally. And it's a little more time-zone-friendly for my friends in Asia. And, also, an easier jumping-off point for travel.

Hemant: And I'm sure you're spending a lot of time on the New York-London shuttle.

Joe: Very much so, very much so. And, you know, just another comment about London, many people say, well, the London market isn't what it was forty or fifty years ago. While that may or may not be true, what is true is it's still the largest single insurance market in our business. And there is a lot of creativity that happens here in London because of the proximity of the people. There's so many people who work in this square mile.

Hemant: Yeah, I think we've all learned that, through COVID and our shared experiences. There's nothing that can substitute for a critical density of human capital to create new innovative solutions. And you could feel it when you just walk on the street here in Leadenhall Market. It's a special place for this global industry.

So you recently came off of your, I think it was your 19th annual Aon Property Symposium. Which is quite a forum to gather your top property clients and the leading property insurance markets every year. 

How was this year and what's top of mind for your customers and your markets for 2024?

Joe: We were very proud about the Property Symposium this year. We felt it was, the best ever.

We had more than 400 clients, come to the symposium. We had more than 400 representatives from insurance companies, joining from all over the world.

Then, we had quite a number of Aon colleagues, including our top leadership. Our CEO, Greg Case, and President, Eric Andersen, were there and joining in the festivities, if you will.

As far as what the theme was coming out of the Property Symposium or during the Property Symposium, it's clear to us that, risk managers are – no surprise – looking for alternative ways to think about risk and think about risk financing, think about risk retention. They're wondering if there are more options that are out there.

It's been a tough road, you know, for many of our clients over the last six years.

Hemant: Yeah. It's been you know, what, 20, 24, 26 quarters of consecutive hardening in the property market.

Joe: That's right. And, you know, most clients aren't saying that those price rises weren't warranted, given the increase in losses. It's really a systemic increase in losses, but nonetheless, it's still painful.

And another point about that six years of price hikes is that risk financing budgets and risk financing strategies have gotten the attention of the top leadership at many of our clients' organizations. Often that's a CFO, could be a CEO, and they're looking at risk financing quite differently because the stakes have gotten higher.

So when stakes get higher, I think it's incumbent upon us as an industry to make sure that we're bringing the best decision-making tools to our clients as they look at risk and they look at risk retention and they look at risk financing and the trade-offs between the two.

CFOs, as well as risk managers, are demanding a more quantitative approach to our business. They understand and appreciate the relationship side of our business, but that needs to be grounded in sound decision-making and sound, quantitative decision-making.

Hemant: So what you're describing is it's the wave of analytic rigor that, in many ways, started with the reinsurance markets, moved upstream to the insurance markets, are now moving further upstream to the risk manager buyer market as they think about how they structure and evaluate their risk management and insurance options.

Joe: That's very much so. And, Hemant, I think you know that at Aon, in 2023, we organized our company into two primary divisions. One is our Risk Capital division, which includes insurance and reinsurance, and then the other is our human capital, that includes all the things that we do for clients on the human capital side. I wanna talk with you about our risk capital strategy because I think it's relevant to this conversation about data and analytics.

So we created Aon Risk Capital for two reasons.

Two immediate reasons. One of them is arguably tactical, but very important, and the other is more strategic. So the tactical reason is just as you pointed out. In reinsurance, broking and risk analysis and exposure analysis has been very analytical for quite some time. And that's been growing in the commercial risk side, so the insurance side, but we wanted to accelerate our own capability in that area. So we wanted to really accelerate our development of client-facing analytics that are really decision-making tools for our clients.

And, in reinsurance, Aon had 900 data scientists working on cat models, developing new models, etc.

Hemant: Data science teams. Yeah.

Joe: Exactly. Nine hundred.

In Aon Commercial Risk that I lead, which is our insurance side of the house, we had even though we were three times the size of reinsurance, we had one hundred. So now, we literally have an army of a thousand data scientists who are accelerating our efforts in developing these client-facing decision tools – our client-facing analytics. And we have a very clear map over the next two years of rolling out new client-facing tools for our brokers to lead and our consultants to lead.

And at the Property Symposium, we rolled out our property risk analyzer, which we think is a market-leading tool for helping clients analyze their property risk exposures, both catastrophe exposures and secondary perils, and also layer into the analysis, the market pricing for various options with various retentions and various deductibles, depending on the peril so that a client can make a more informed decision as they're going through the renewal process.

Hemant: So they can be more proactive and empowered to understand their options, the trade-offs, through the lens of the data analytics that Aon traditionally focused on delivery to its reinsurance buying lines, you're migrating that all upstream. You know, we have some mutual customers. I heard good feedback about Property Risk Analyzer. From the Symposium.

Joe: Oh, good. And over the course of the next six months, we will be, refining that Property Risk analyzer so that it is applicable in various geographies around the world. Right now, the first one that we've rolled out is focused on the US, but we know we have many clients in Europe, in Asia, in Australia, etc. So, we'll be refining those tools and rolling them out over the course of the year, for the Property Risk Analyzer.

In addition, we will be rolling out, a Casualty Risk Analyzer, a Cyber Risk Analyzer, a D&O Risk Analyzer. We'll also be rolling out portfolio tools that look at a client's entire risk portfolio, both the risk transfer and the risk retention options, and we're aiming to answer that question – if you had a dollar more to spend on your entire insurance portfolio, where would you get the most value based on your risk tolerance. Conversely, if you had to save a dollar, where should you save it?

A parcel of that, with that will be a risk tolerance tool that we're building to start that conversation with our risk managers and treasurers and CFO clients on what is their tolerance for risk based on their financial strategy.

So we're really excited about what we'll be rolling out over the next two years. And, importantly, these models won't be one-and-done.

So we're in the process of appointing a Head of Property Analytics, a Head of Casualty Analytics, a Head of Financial Lines Analytics, and those people with their teams will be iterating these tools every year and also exploring what's the next thing that we wanna develop to help our clients make better decisions.

So that was a long way around. It's a long way around what I'm saying that that was the first reason for Risk Capital.

The second reason is because we've seen a true sea change in the risk capital marketplace.

Okay. So there's a sea change on the client side where more data and analytics are not only a good thing, but actually table stakes. But on the risk capital side, because the stakes have gotten higher, we're seeing more interest by reinsurers and capital markets in corporate insurance programs.

And you might say, well, why is that? Let's take, you already said that the reinsurance world has been very analytic. Okay? So now, as they look at corporate insurance programs, with analytics, they may find that they can participate behind a captive or some other way on a corporate insurance program. 

Even more interesting is the capital markets. Hemant, when you look at where the capital markets have played in our industry over the last two decades, it's been exclusively in modelable risk. Earthquake, windstorm.

Well, there's more perils today that are modelable. We can now model flood. We can now model wildfire. We can now model hail. We think we're finding a way to model cyber. And as we develop ways to model these perils, we're quite sure that there's gonna be more interest from the capital markets to participate in these modelable risks.

The Capital Markets players aren't looking to become insurance companies. They're not like looking to become the next AIG or the next Zurich, they're looking for opportunistic ways to diversify their own investment portfolios. That's what they've done in earthquake and windstorm, and we think they're gonna start to do it in other perils that have now become modelable.

We have a great example. You know, we just did, as Aon, we did a cap on for a major cyber insurer and we think we can use that technology for large corporates to help those corporates access the capital markets for cyber capacity.

Hemant: I see.

Joe: So Risk Capital is aimed at providing our clients with an agnostic approach to risk capital.

So what we've done at Aon is we eliminated the internal hurdles to access that capital. So now my team of brokers in commercial risk are working hand in hand with our team of brokers in reinsurance and our team of capital experts and Aon Securities to look at all of the potential risk-taking capital for our clients. So we can look our client in the eye and say, "We will get you the best value in the marketplace, whether that's insurance, reinsurance, parametric, a cat bond, captive reinsurance, what have you? Because that is the true strategic opportunity that we see and why we created Risk Capital."

Hemant: No, that really resonates. So, not data analytics tactically important to power your customers to be more informed on their options. But more strategically, risk is risk, capital is capital, how do you scale the ability for the capital markets to deploy capacity to the growing needs of the business community that has a significant amount of exposure that needs to be hedged, and it's growing over time.

Joe: Oh, no doubt. And you see some of these larger global corporate companies, they are, you know, becoming of the size of a small insurance company with the risks that they have, the insurance that they purchase. So they're starting to buy like and think like insurance companies. 

And the two strategies – the data analytics and the risk capital strategy – go hand in hand because we believe that analytics will unlock that capital.

Hemant: So technology probably has a role to play as well, and how do you deliver that insight consistently, repeatedly, effectively, efficiently, in scale to a large, you know, thousands – you have, what, 35,000 corporate customers?

Joe: Absolutely. And, you know, to get at that. You know, Aon back in the third quarter of 2023 took a sizable charge. It was announced on our earnings, and it was about a billion dollars. And that is intended and being used to upgrade our entire technology.

It's an investment in this strategy that we have. So, we're investing in the data analytic tools that I mentioned, but in addition, we're investing in an end-to-end technology ecosystem to benefit our employees and our clients. Because let's face it, right? The client demands and client needs have only gotten more significant over time. And we need to make sure that we're delivering those needs and delivering the high-quality service.

Part of that process, Hemant, is we're developing a digital placement platform. That will be global, and that will cover all lines of insurance business so that we will have real-time market intelligence for all of those 35,000 clients, based on whatever product line they're interested in, whatever geography they're in, whatever market segment that they're in. And that will be a game changer. And that will, in turn, feed our data analytics for decision-making. So it's kind of a virtuous circle.

Hemant: Well, this is very exciting because for you know, you and I go, you know, way back in this, in this market. So much of the conversation about innovation, data analytics, modeling, technology has really oscillated back between the insurers and the reinsurers to see this wave of innovation and ambition to embed data-driven decision-making into the front end of the – which is actually the fundamental part of the market – the customer.

And you'll empower the customer to make better decisions. Empower them with more choices. And empower your colleagues with more capability to deliver that insight and execute on those opportunities in scale. It's a very exciting frontier.

Joe: Well, it's it's going to become table stakes, before too long.

I think that, when we look at all the risks that our clients, and organizations around the world are facing and how external volatility is just higher and higher, and it becomes more of a front-and-center issue for the C-suite at these organizations, they're going to demand this kind of analysis and these kinds of tools.

Hemant: Yeah, because, you know, as we, as you and I explored last year, we provided executive commentary on an Advisen Survey of top risk managers in the property space. And one of the key observations you and I both commented on is that the risk managers are not only reacting and adapting to current market, they're looking to get more proactive, not only for the risk and insurance process but from a corporate governance process, an operational risk management standpoint. How do they make better decisions as enterprises to manage, mitigate the risk, transfer it, hedge it, improve the profile, increase the resiliency? And this needs to be informed by data analytics and tools, and I'm sure this was a big topic of conversation in Florida.

Joe: It so much is. It's so true.

You know, now that risks have gotten more complex, and insurance, the insurance marketplace has gotten more complex, and therefore insurance programs have gotten more complex, what you're seeing is, as we discussed, clients and risk managers needing to be the first line underwriter of their own risks because they're retaining a lot of that risk. Gone are the days. Gone are the days when the company could just go buy a policy, put it in a drawer, and wait for, you know, if something happens or doesn't happen.

Now, because of the size of the risks that they face, they need to retain a fair amount of that to make economic sense. So we counsel our clients that think of themselves as a frontline underwriter. And what are the risks that they're retaining, and then what are the risks that they're choosing to sell to the risk marketplace?

Hemant: As opposed to waiting for that feedback to come from the market to inform them, they should have a proactive view. I've heard some leading risk managers that we both know refer to that as a shift from a mindset where we buy insurance to one where we need to know when to sell risk.

Joe: Exactly, right.

Hemant: Which is a pretty profound shift. And sounds like you're seeing that across your customer base.

Joe: Absolutely. We're seeing that. We're seeing that.

Hemant: Well, that's, now more than ever, that's important. I mean, given trends in exposure, trends in climate, trends in volatility, we need more resiliency built into the system if you can enable more capital to be deployed to more proactive, informed consumers of risk management insight that can only lead to a more resilient market and a more resilient built environment and more resilient economy, which is the ultimate prize here. The protection gap is significant, not just in the developing world, but in the developed world, and it's growing.

Joe: Oh, yeah. I just came back from a week-long trip in Asia. And one thing that certainly seems to be the case is that there's a lot of under-insurance in that continent.

And I think that the marketplace needs to start to get ready for when data and analytics start to drive those companies, those organizations, to sell more of their risk to the marketplace.

You made me think, when you talk about exposures and all the great work that you've done in our industry, Archipelago, and developing ways for our clients to really understand their own exposures and how important that is. That was a very big topic at our Property Symposium as well. Because even though the marketplace and property this year is a bit calmer than it was last year.

Hemant: It's a relative. That's right.

Joe: High bar.

But there is an understanding that there are still issues in the market. There's issues regarding valuations. There's issues regarding secondary perils versus cat perils.

And having a great handle on one's exposure data – and not just values, but also all of the aspects of that, those exposures and those schedules of properties – is more important than ever.

Hemant: It's a key ingredient. It's just a key ingredient of unlocking this potential. Thank you for calling that out.

So, as we wrap up, Joe, I was reminded of an interview you conducted recently. I think it's just a few weeks ago, where one of your outlooks for 2024 was more competition in RFPs in the risk management community.

You care to comment more on that and how that fits with your strategy for the year?

Joe: Sure. I expect that to happen. I expect there to be, significant competition in the insurance broker marketplace in 2024. We've already said, our clients and our competitors' clients have faced six years of price hikes in property.

They've also faced price hikes in other lines of business. And, there's no doubt that they're tired of that kind of swings in their pricing. And, they need to look at alternatives. They want to look at alternatives, and I think we're ready.

You know, we're ready to face that competition. We don't take it lightly. We have a lot of great competitors in our space. But I do think that now that we're well past COVID and people are largely back to the office. I think we are already starting to see an uptick in both, defensive requests for proposals there, as well as offensive requests for proposals.

Hemant: Well, I can only imagine that this strategy is also gonna be very helpful with that type of dynamic as well.

Joe: We think so. We think so. And with my global role, I get to see commonalities among clients, and I get to see how vibrant our global commercial insurance marketplaces are. And, frankly, Aon stands ready to access that global insurance marketplace, for all of our clients.

Hemant: Well, clearly, with this strategy, Joe, you are truly building potential in the risk management and insurance ecosystem. I'm very excited to see that and to chat with you about it.

Have you any additional guidance and advice for the risk management community on what to look forward to in 2024, from your vantage point at Aon?

Joe: Well, I would say as far as the marketplace goes for our clients, it will be one of relative stability, compared to previous years, but still one where many of our clients will be experiencing some increasing costs.

We're seeing issues in the US umbrella because of the relentless social inflation and nuclear verdict. So that's something that I would just highlight to the listeners, that US umbrella and auto liability may be challenging in 2024.

And I would just say, lean in as risk managers and buyers of insurance. Lean into all of the different tools that are available. Not just from Aon, but, out there in the marketplace. There are a lot of great decision-making tools that are out there. We happen to think ours are the best, but we know that there are many out there. 

And a great proactive approach to risk management and to risk financing is really what's needed today and what will make the difference to companies who are looking for ways for themselves to be more competitive.

You know, Hemant, I just wanna add. I've been in this business for a long time, and I have never seen an awareness of the volatility that organizations face, the external volatility that they face. I've never seen that awareness so sharp, as I do today. I personally think that that was driven by the pandemic, which was an event that, a catastrophic event that came out of nowhere and affected every organization on the planet.

And while we were all at home dealing with COVID, what were we reading about? We were reading about, wildfires in Australia, wildfires in California, and wildfires in Canada. We were reading about ransomware events. We were reading about typhoons. We were reading about floods in Europe.

Hemant: Severe convective storms.

Joe: Just a drumbeat of external issues. So I think that that awareness is now there and it's a time for our industry to really step up and make a difference in the world economy.

Hemant: That's a great call to action, Joe. Again, congratulations on your global role. I'm excited by the impact you're clearly driving into the ecosystem, and it's been an absolute pleasure chatting with you. It's great to be your partner as well.

Joe: Thank you, Hemant, it's been my privilege. So thank you.

Hemant: Thank you, Joe.