Willis Group Holdings Chief Executive Joseph Plumeri may be stepping down at the end of the year, but he wants to make clear that he is not walking off into the sunset. While he doesn't know what his next move will be, Plumeri said one thing he will continue to do is advocate the importance of the insurance industry especially with regard to "climate change-related events."
"If there is anything that has changed since I joined Willis 12 years ago, it is that black swans are no longer so black," Plumeri said, using the term for massive, hard-to-predict events that bring severe consequences. "Once-in-a-century events are happening far more frequently, as we saw with [Hurricane] Sandy. The insurance industry has not done enough to blow the trumpet of how important it is in protecting businesses during these events."
Plumeri, 69, will conclude his tenure as chairman and CEO of Willis on Dec. 31, but he will remain with the company as non-executive chairman of the brokerage's board until July. He will be succeeded by Dominic Casserley, 54, a senior partner with McKinsey & Co. Steve Hearn, 46, who currently serves as chairman and CEO of Willis Global, the company's global reinsurance, placement and specialty operations, will become deputy CEO. He will also maintain his position at Willis Global.
After spending 32 years at Citigroup, Plumeri joined Willis in 2000. At Citigroup, he served as CEO of Citibank North America and led the integration of the consumer businesses at Citicorp and Travelers Group. His other roles included time as chairman and CEO of Travelers Primerica Financial Services, vice chairman of Travelers Group and president and managing partner of Shearson Lehman Bros.
Plumeri said joining Willis from outside the insurance sector helped him to "get the importance of the industry." A longtime admonisher of climate change risks, Plumeri said changes in the environment are likely to increase the frequency of natural disasters that could set off major disruptions to the global economy.
He pointed to hurricanes Sandy and Irene, which caused billions of dollars of damage in the Northeast. "We can argue why climate change is happening. But I can say these aren't the kinds of things were seeing this often 12 years ago when I joined Willis," he said.
Plumeri said business interruption insurance has become almost essential as more companies spread their operations across multiple countries. But business interruption insurance, he added, is often not enough for companies to avoid suffering significant losses. He said the key is to combine business interruption coverage with risk mitigation strategies that encompass the company's entire operation.
"As businesses continue to outsource their suppliers to cut costs, many aren't considering where those plants are located," Plumeri said. "They're not considering that a factory may be in a tornado or hurricane zone."
He said top executives should evaluate where they want their business to be in five or 10 years and determine whether the proper measures are in place to reach those goals. "As these black swan events become more prominent, businesses really need to be working resiliency into their overall strategy," he said. A growing number of companies have created executive-level risk committees that assess potential problems the company could face.
Plumeri said these black swan events also pose an opportunity for insurers to highlight the benefits they can offer clients. The math is clear, he said. Companies should not be focused on finding the cheapest coverage they can as a way to cut costs amid a down economy. He said they should work to ensure the coverage they do have fits their specific needs. "Let's say it takes an additional $100,000 to buy coverage that protects a given company's $20 million in assets, that's a good multiple in my mind."
If the industry does a better job of making an argument for its place in the business world, Plumeri said it has the potential to attract a surge in capital as investors begin to view it as a strong alternative to financial services institutions. "I don't think we have seen the golden age of insurance yet," he said.
At Willis, Plumeri oversaw the company's initial public offering in 2001 and has helped the company to continue growing. In 2008, he spearheaded Willis $2.1 billion acquisition of Hilb Rogal & Hobbs, one of the largest insurance brokerage deals of the past decade.
Willis Group ranks third in Best's Review's annual ranking of the top 10 global insurance brokers with 2011 revenue of $3.45 billion.
He has also focused on the culture of the insurance industry. He pressed for greater transparency, client service and innovation among insurers, including an effort to do away with contingent commissions, the controversial year-end bonuses insurance companies pay brokers for increasing premium volume. And in 2004, he oversaw the publication of the brokerage's Client Bill of Rights.
It hasn't all been positive for Willis under Plumeri's leadership. The brokerage has taken hits to its bottom line in recent quarters. Last month, the company reported third-quarter earnings of of $26 million, which is a 56.7% drop from the prior-year quarter. Investment income, and fees and commissions, were both down from the prior year, while expenses rose slightly.
Willis reported net income of $39 million in the fourth quarter of 2011, down from $98 million for the same period a year earlier. At the time, Plumeri said those results were "not acceptable".
Still, Plumeri said that when he looks back at his time Willis, he thinks "we did OK."