Over the next three weeks, we’ll hear from Aon colleagues on how economic challenges are impacting all solutions, clients and colleagues in a special edition weekly takeover of the “On Aon” podcast.
This week, Aon’s President, Eric Andersen, and Aon’s Head of Investor Relations and ESG, Leslie Follmer, sit down with host and Aon’s North America CEO, Jennifer Bell, for a conversation about the challenges that organizations are facing given increased economic volatility.
Additional Resources:
Making Better Decisions in Uncertain Times: Aon’s 2022 Executive Risk Survey
Increasing Inflation: Key Considerations for Employers Looking to Provide Better Support
The Impact of Inflation on Employee Benefits and Considerations for Businesses
Inflation is Influencing Business Risk Management — Take Steps to Mitigate its Impact
Tweetables:
Voiceover:
Welcome to a special edition takeover series of “On Aon,” a podcast featuring conversations between colleagues on, well, Aon. Over the next three weeks, we’ll hear from Aon colleagues on how economic challenges are impacting all solutions, clients and colleagues.
This week, we hear from Eric Andersen and Leslie Follmer about the challenges that organizations are facing given increased economic volatility. And now, this week’s host, Jennifer Bell.
Jennifer Bell:
Hi On Aon listeners, I'm Jennifer Bell. I'm the CEO of North America, and I've held the position for over a year now, and I've been with Aon since 1991. So, as we recently heard in our last On Aon Podcast, the impact of unprecedented inflation is being felt across the global economy, and the world of employee benefits is not immune, contributing to the rising healthcare costs. We thought it would be important to take a step back and focus more on these economic issues and how they are impacting all of our solutions. So, we are excited to be launching the first in a three-part series, what we are calling an On Aon Takeover.
Joining me to launch this series are Leslie Follmer, Aon's head of investor relations in ESG. And Eric Andersen, Aon's president. We thought it was critical to focus on the very specific challenges organizations are facing given increased economic volatility. So, today's is the first in the series where we will set the stage to address what all organizations are facing and what they're thinking about. And we will continue the series with dedicated sessions on risk and for HR professionals. So, I'm excited to dive into these topics. So Leslie and Eric, thank you so much for being here.
Leslie Follmer:
Hi Jennifer, thank you. It's great to be here. And while I am not an economist, I spend a lot of time watching the market and overall economic indicators. I'm really excited to be here today talking about that with you.
Eric Andersen:
Me too, Jen, I'm really excited to be here. The topic of inflation, it's such a real-world topic in terms of its impact on our clients, on our colleagues, on business decisions. So, you couldn't have picked a better topic to kick off with.
Jennifer Bell:
I agree, Eric, And we all know this is an incredibly important topic for our clients. And there is a lot of commotion and stress given the increasing volatility in the markets. So, how can we simplify this for our audience, and what does it all mean? So, let's start with a couple of quick-fire questions, and I'm going to come to you, Leslie, if that's okay. But why was 2022, why did it feel sovolatile? And can you briefly discuss what volatility in the market means and what economic indicators are important?
Leslie Follmer:
Yeah, absolutely, Jen, and like I said, something I've spent some time looking at and thinking about, definitely I don't have all the answers. It's a complicated set of factors. And not only are we looking at trends and things like GDP and equity markets, inflation, interest rates, employment, but also thinking a lot about expectations for the future. And I think on all those factors, the implications are different depending on who you are or what kind of company you are, and where you are geographically if you're a multinational, or if you're just operating in one place. And then how the metrics and factors come together and impact what you're doing day-to-day.
Jennifer Bell:
We're seeing it every day, aren't we, Leslie? And it just went fast. The cost of everything, food, gas, airline tickets, everything every day needs. And that has to be impacting everybody. So, do we expect to continue to see the high inflation persist, and what does this mean for organizations?
Leslie Follmer:
Maybe if I step back, Jen, I can just go to some of the big economic factors that I see that are contributing to inflation and kind of all tied together. There's a lot here, I'll try to do it in a straightforward way. I think first, you've got what's happening in equity market values and GDP growth expectations. And so, equity markets as of the middle of October, the major indices are down 15 to 30 percent on the year. Although given the run up we've seen over the past decade, that's probably down to late 2020, early 2021 levels. And I think what that really reflects is more uncertainty and lower growth expectations from investors. And then in particular, you've seen the valuations of tech and other high growth stocks get hit the hardest.
And then you've also seen a real slowdown in M&A and IPO activity, again, representing uncertainty, and volatility and interest rates. And I think one of the biggest impacts to the market is coming from GDP growth expectations. And so, what you've seen is as you look back on the year, we've gone from an economy of really strong growth around the world last year, to a market where this year you've actually got those growth expectations slowing down a lot. And as we've gone through the year, those growth expectations for this year and next have slowed down more for the U.S., the Europe and UK in particular. And I think one of the reasons that all the growth is slowing down is because central banks around the world are seeing that inflation that you mentioned and raising interest rates to help combat inflation.
Although as what we've seen in the U.S. with the CPI index, inflation is up, and so far I think there hasn't been as much success taming it as we would've liked. So, therefore, given that inflation again at four-decade highs, what you're seeing is interest rates are up, but for central bankers, they're not seeing the impact that they'd like to reduce inflation. And so, in the U.S., you've seen the Fed raise interest rates five times already this year. That's been the most rapid pace of rate increases since the early 1980s. And I think what you've seen then is that, as interest rates have risen faster in the U.S. than in other places, the dollar is actually strengthening. So, the dollar is up 20 percent this year against the index of other major currencies.
Jennifer Bell:
Great. Thank you, Leslie. Thanks for that insight. And Eric, I'm going to come to you because listening to what Leslie had to say, and I know you talked to many organizations and clients, how have most of these organizations reacted to the rising inflation, and what are some of the steps Aon is taking as a company?
Eric Andersen:
Sure. And by the way, Leslie, that was fantastic. I really appreciate you pulling all that into one or two paragraphs. I think you encapsulated all the different economic factors that are out there, that our clients have on their minds. They're trying to balance all the different impacts, and how it affects them and their decisions. And like us, it's the same. Because ultimately expenses kind of hit you first, and revenue kind of comes in over the course of 12 months as you earn it through the year. But cost of tickets, cost of people, cost of everything, it has a much more of immediate impact on most businesses. And so, they're all trying to figure out how to manage the impact of inflation, but also do it in a way that maintains their long-term perspective on innovating new products, investing in new capabilities and new teams, so that they maintain that cutting edge competitiveness that they all need to do, but at the same time trying to manage the short term. So, Leslie, that was a great way to explain it, I really appreciate it.
Leslie Follmer:
Thanks.
Eric Andersen:
So, what are businesses doing, right? We're talking to a lot of our clients who are trying to think through how to manage these various puts and takes. And I think the first thing people do is they reduce their discretionary spending. They try and hold back what they don't have to spend in order to maintain their revenue line and their competitiveness in the marketplace. And they also think through how do they reduce administrative costs? They really take a hard look at their business model, trying to make sure that everything that they're doing adds direct value to their clients or their colleagues, very similar to what we're doing. And continue to constantly challenge ourself on how do we get better, and how do we make sure that all the work that we're doing, and I love the way Greg Case talks about it, we're either helping a client or we're helping a colleague help a client. That's the lens by which you look through all of your expenses and all the things that you've been doing inside the firm.
You also try and make sure you're preserving capital and cash flow, and how do you make sure that you're being disciplined around collections? And really very kind of in the weeds things you do, very disciplined things to make sure that the business is operating. That sort of peak efficiency. That's kind of the first thing I think you look at. And then also you take the things that most people are starting to read about I think, which is how do you make sure you're traveling with purpose? How do you make it only necessary travel? And I think a new one, which I think is pretty exciting, is how do you use technology? And we all learned in COVID, we actually can do a lot of things remote.
And now that we're back to more of a hybrid model, how do you keep some of the things we learned and use them? How do we do what would be global meetings where you're pulling our teams together or where you're traveling with clients, can you do it virtually versus spending a week or two away? You get more time and productivity, you also save costs and how you do that, and that efficiency can play back for the client. So, it's not just ourselves, but the client gains value, gains time, and also spends less as well in the process.
But I do think when we think about it in our own firm, we really challenge ourselves because there's so much happening in our business. We want to make sure we are invested for the future. And so how do you make sure you manage the short-term pressure of inflation and how it affects the business itself, but also keep an eye on the horizon knowing that a lot of the big things we want to have an impact on require continued investment, and talent, and tools and we want to make sure we're making that trade off in the most appropriate way that we can.
Jennifer Bell:
I mean, all great points. And I would say it's very timely, Eric. I mean, we just sent out a note from Kevin Johnson who's our North America COO talking about how're using technology to improve the colleague and client experience. And it's really a policy checking and then intake and delivery system that's actually going to save many hours of our colleagues' time, and it'll be a better... Our clients will get their policies quicker, faster, and which is going to be great for them. And then also we just rolled out how we're taking some of the administrative burden off of our colleagues' desks so they can spend more time with clients. So, very timely, and thank you for that. And so Leslie, I'm going to come back to you. We've been hearing about the R word, what we call recession. And so, what is a recession, and are we in one now? And what economic indicators are we looking at? So, we've heard inflation, when does it go into recession? What is your thoughts on that?
Leslie Follmer:
And this is another one where economists define a really technical definition of recession, which is two consecutive quarters of decreasing GDP, which actually did happen in 2022. But the economists that get to decide also look at consumer demand, and economic outlook, and unemployment numbers. And so, I think there's kind of your people feel that there's a slowdown versus that sort of technical recession. And I think where we really are is this period of more uncertainty. And so, we've really, again, switched in the business cycle from a phase where it was all growth and everything coming up really strong, to a place where things are a lot more uncertain, some trends are more mixed. And I think as just exactly as you both have been saying, we're reacting to that and we're seeing our clients take steps to make sure that they're positioned to really seize the opportunities that happen when the business cycle pivots.
Jennifer Bell:
And Eric, what are your thoughts on this and how is Aon mobilizing internally to be agile and prepared as well as getting ready to help clients do the same?
Eric Andersen:
Sure. And maybe before I answer that, since it's a Takeover podcast, I can go back to the other question because I... I want to pick up on a point you made, which I thought was great on how we're driving efficiency in some of the new tools. I'm based out of our New York office, and I ran into two of our solution line colleagues who were with one of our enterprise clients, who were actually doing a global marketing meeting out of our immersion room. And so they were, I would tell, saved two weeks of travel around London, Europe, Bermuda, the places they would normally go with teams of five or ten people as they go around the various countries where the capital is located. They were doing it from the immersion room in a half a day, and so they picked up time. The client really enjoyed the experience. It was really using technology. It's different than a tool that actually saves hours as you were saying, but the impact's the same on wear and tear, and people's ability to be more productive. So, it was just great.
Leslie Follmer:
Before you close that thought, can I just add too, thinking about ESG momentarily. Not putting everyone on planes around the world is another humongous positive for us as we'd look to continue to manage the emissions footprint that we generate.
Eric Andersen:
Absolutely, absolutely.
Jennifer Bell:
And Leslie, just to add to that, from an efficiency, we're emailing certificates now to clients instead of snail mailing them. And so for your ESG, you can add that to your list. So, it's all, we learned a lot of great things around that. So, what else-
Eric Andersen:
Back to the R question.
Jennifer Bell:
Yes, that's fine.
Eric Andersen:
Listen, I think it's very different from the last time that the global economy went into a recession in 2008, 2009, interest rates, inflation are kind of the drivers at the moment. And so, listen, as I said earlier, we are spending a lot of time with clients who are thinking through how does inflation affect their business, how do interest rates affect their business? And how can we help them think through what those options are? To either reduce volatility on the risk side, think about it from a talent perspective, from a retirement or health perspective to bringing the whole team together. And Jen, I think kudos to you and your team. You've done such a nice job bringing all of Aon together.
And so, the conversations we're having with clients are just more fruitful. We're able to bring all that capability together because the client's thinking about things from a people perspective, from a health, a wellness or risk perspective, and we're able to have the whole team together with different areas of expertise. But when you put that mix into a conference room with a client, we really are providing real value. I think Leslie said it really well early, these factors affect businesses differently based on what they're doing and how they do it. And so, we have to be nimble with them to be able to provide the kind of advice that they're looking for on how they navigate these waters.
Jennifer Bell:
And you know, Eric, we had this retail symposium just a few weeks ago, and it was really interesting. We had an Aon United, we had CHROs sitting in a room with risk managers. And while we are organized across the solution lines and we're coming together like you just mentioned, they are too. And so, it was really, I asked the question to the audience, how many of the risk managers are now sitting in the people discussions at your organizations and vice versa? And half the room raised their hands. So, it's becoming more and more relevant as we go forward.
Eric Andersen:
Jen, we did this, our Aon United model, we started five, six years ago. We started culturally trying to think through and talk to each other and get familiar with all the different capabilities of the firm. When you look at the economic times of today and you sort of go forward the next 12, 18 months, our model is built to be able to help clients think through these issues as they crash together. So, really executing on what we have set up. And by the way, having done all the work to get us here over the last several years, it's not easy to replicate. And so, our ability to do that for our clients, I think gives us real competitive advantage.
Jennifer Bell:
Agreed. And we are heag from our clients about these challenging times that we've been talking about. Maybe you could share some examples of some of the solutions we have of how we're helping our clients implement them.
Eric Andersen:
So, there's a whole bunch. Well, one of the fun parts about my role is I actually get to hear great stories across the globe, where we're using human capital and D&O together to help the boards think about their ESG component, and how they're trying to manage and create their organization's workforce of the future and how they're doing it. And also reducing their risk, which our D&O capability can help them work through as they sort of lay that risk off into the insurance market. Although one of my favorites on so many different levels, is this insurance link security or CAT bond we did for a large technology firm on the West Coast. What's different about it is, we used our reinsurance capability, and we used our healthcare capability, and the innovation was really around separating what was triggering the bond, which would've been an earthquake, and the use of the proceeds, which was historically designed to rebuild the building.
It was a property insurance type concept is how it got created 20 years ago. But using it to actually provide this firm's colleagues a one-time benefit to help them get through what would be a disruption in their life. And so, pulling health, enterprise client, reinsurance, the geographic footprint, putting it all together and innovating is such a wonderful outcome for that client. And I think it was such a great learning experience for the firm. And it ties into this war for talent that's going on, where firms are really trying to innovate around how do they provide more engagement capability or more benefits to their colleagues to build the loyalty that they're looking for. And our human capital team does this really well. And the ability to use that skillset to be able to introduce the broader suite of Aon capabilities has really been... We've got dozens of examples, not just in North America, it's happening in Europe, things are going on in Latin America and Asia that are really creative and innovative. And so, it's really been I think, a great success so far.
Jennifer Bell:
I think so too. And I'll just add one more. We recently had what we called Blitz Day, and it was really bringing all of our colleagues together around clients, and how do we identify areas of growth and help solve for our clients? And I heard this story. We put together what we called the economic downturn playbook, but really it's a list of solutions that were actually pulled together based on themes, protecting the balance sheet, downturn in the economy, protecting our clients in helping them with their people issues, as you mentioned Eric. And the story I heard was one of our colleagues called the CFO and said, "Hey, we have 22 different solutions at least to help you navigate through this volatility that you're experiencing." And the colleague says, "How about if we discuss a few?" And the CFO said, "How about bringing all your subject matter experts on all 22 items, and to meet with me. I need them now." And so, I think it's really cool that we are organized around our clients to help them through these volatile times. So, it's really, really terrific.
Eric Andersen:
And I really think our colleagues are enjoying it.
Leslie Follmer:
They are.
Eric Andersen:
They're enjoying getting to meet each other. They're learning. They're seeing names they'd only heard of or read through, but really seeing them work with clients and what they do for them, and they're kind of iterating in the room with each other in a way that is creating some real innovation for us.
Jennifer Bell:
Absolutely. So, thank you so much Leslie and Eric. This has been a really great session. Really appreciate the insights that both of you have given us around what's going on in the world today, and how do we help our clients in what's going on with Aon. And we usually use this section to get to know our speakers better, but as this is a takeover, Eric, as you mentioned, I'd like to switch it up a bit and end with two questions. Leslie, what are you most excited about as we head into the end of 2022?
Leslie Follmer:
So, first, I can't believe we're already at the end of 2022, but I am really looking forward to the World Cup of soccer next month, even though I don't think the U.S. is going to do very well.
Jennifer Bell:
And Eric, how about you?
Eric Andersen:
Yeah, listen, thanks for having me first of all, I really enjoyed it. And as you probably know, because we've worked together a long time, I am firmly in the camp of being an extrovert, and I am really enjoying more in-person connectivity with our colleagues here and around the world. I draw energy from our team, and so I'm really excited to see more of them as we go down through the rest of the calendar.
Jennifer Bell:
Same here. And Leslie and Eric, just one-word answer. What word would you use to inspire clients as they think about these challenging economic times as we are facing?
Leslie Follmer:
I'd go with opportunity.
Eric Andersen:
I can't do anything in one word as you know, so I'll use two, how about that?
Jennifer Bell:
Okay.
Eric Andersen:
Be confident.
Jennifer Bell:
Excellent. And I'll add mine, which is partner. Team, you are not in this alone. So, we will wrap this Takeover series up with a deep conversation with our health, human capital, and wealth leaders to talk about the HR perspective. Thank you for listening today.
Voiceover:
This has been the first episode in a special edition takeover series of the “On Aon” podcast around economic challenges. Thank you for listening. If you enjoyed this week’s episode, tune in next week for another new episode. To learn more about Aon, its colleagues, solutions and news, check out our show notes, and visit our website at Aon dot com.