The Human Risks in Insurer/Broker M&A

With an uptick in M&A in the insurance industry, it is timely to consider some of the most common of these risks.


Insurers, brokers and all businesses, for that matter, already know there will be people issues to deal with during and post any merger or acquisition. These issues pose real risks for companies, yet they are not always identified or addressed. With an uptick in M&A in the industry, it is timely to consider some of the most common of these risks.

Who Leaves; Who Stays – Turnover Risk  

Even before a deal is completed, some staff members may decide that they do not want to live through the turmoil and change involved in combining companies or they may fear they will not fare well in the combined company. Such staff members begin looking for opportunities elsewhere. Among the staff who decide not to be part of the new entity, there may be some whose leaving would be detrimental for the entity, for example:

  • High performers,
  • Staff with specialized expertise,
  • Staff who have ties that will enable them to bring customers with them to the new employer,
  • Staff who have a strong internal following that will enable them to bring other staff with them to the new employer.

In some cases, these individuals may have non-compete agreements with the one or the other company in the deal, which could lessen the potential impact of their leaving. However, these agreements are not always enforceable. This may be especially true in cases involving a change in corporate ownership or structure.

One way to minimize undesirable turnover in M&A situations is to talk directly with the individuals who will be vital to the new entity. However, seek advice from legal counsel about how any discussions should be handled. There are multiple potential pitfalls in discussing the future with staff, such as: 1) saying something that can be construed as a promise when it might not be possible to keep such a promise, 2) saying something that might be construed as a threat, 3) saying something that is contractually prohibited by terms in the deal. These are just a few examples among many.

 Reductions in Force – HR Administration Risk

Most M&As come with expectation that they will create economies of scale and that overall headcount will be reduced in the new entity. For that to happen, whatever reduction in force voluntary turnover does not produce will have to be made up for by management deciding who to retain and who to let go.  

The first risk in this regard is legal. Decisions about terminations need to be made in keeping with all laws and regulations involved. From starting with adherence to the Warn Act (notification requirements applicable for a certain number of terminations in a given location) through to adherence with the numerous laws and regulations regarding individual termination decisions and their combined impact on various protected classes, there are many things to keep track of. Risk certainly exists in terms of inadvertently (or intentionally) failing to comply with any one or a number of such laws and regulations.

See also: Bringing Transparency to Brokerage Selection

The second set of risks are not legal but rather assessment risks in doing staff reductions. For example, there is always the risk of mistakenly selecting better performers for termination while retaining the less good performers. There is also the risk of terminating too many staff, only to have to incur the cost of recruiting for positions that were recently vacated. Conversely, there is the risk of not reducing enough staff at the beginning, only to have to keep up a steady stream of terminations, which hurts momentum and morale in the new entity.

The ways to avoid some of these risks is to identify them early, address them with ample mitigations and monitor the status of planned mitigations. To do this well requires knowledgeable and skilled HR and other professionals to be involved.   

Culture Wars – Culture Risk

In combining companies, the question of which company and its staff is the “winner” becomes divisive, despite efforts made to avoid the appearance of “winners” and “losers” from the deal. After years of building team spirit and using motivational language about beating the competition, among other actions, companies think they can flip a switch and have staff from two different companies embrace each other. It is not so easy.

Generally, an all-out culture war ensues after a merger or acquisition. The risks that emanate from a culture war include:

  • lack of co-operation among staff, which leads to errors, lost opportunities and extra expense,
  • delays in getting things accomplished as “sides” bicker and negotiate,
  • reputational damage as internal strife leaks into external interactions.

Among the mitigations for this are:

  • the senior team models cooperation and camaraderie for the rest of the organization,
  • expectations about culture are clearly communicated,
  • mixed teams are formed to tackle projects with an objective third party, an HR staffer or consultant included to intervene or point out unproductive behavior,  
  • cooperation is positively reinforced. 

Employment-Related Litigation – Litigation Risk 

As part of due diligence, any existing employment-related lawsuits or regulatory complaints should be disclosed. What these open cases will ultimately result in is an uncertainty. Risk is definitionally uncertainty. There is always the risk that one or more of these, if they exist, will create a loss for the new entity, whether reserved for or not, unless they are contractually transferred elsewhere. 

Perhaps more importantly, new lawsuits or regulatory complaints could arise from the nature of actions taken as part of the merger or acquisition. They could emanate from the way staff terminations are handled or from the way benefits, such as pensions, are treated.  

See also: Why Open Insurance Is the Future

Both old and new litigation or complaints to governmental agencies need to be identified as risks and accounted for within the totality of the deal construction and implementation.

EPLI and transaction insurance are available to help manage this risk.


M&A can add value yet carries a good deal of risk. Shareholders have begun to better understand those risks and to look at how well boards and management teams handle them. Companies must recognize all the manifestations of people risks and be proactive in addressing them.

Donna Galer

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Donna Galer

Donna Galer is a consultant, author and lecturer. 

She has written three books on ERM: Enterprise Risk Management – Straight To The Point, Enterprise Risk Management – Straight To The Value and Enterprise Risk Management – Straight Talk For Nonprofits, with co-author Al Decker. She is an active contributor to the Insurance Thought Leadership website and other industry publications. In addition, she has given presentations at RIMS, CPCU, PCI (now APCIA) and university events.

Currently, she is an independent consultant on ERM, ESG and strategic planning. She was recently a senior adviser at Hanover Stone Solutions. She served as the chairwoman of the Spencer Educational Foundation from 2006-2010. From 1989 to 2006, she was with Zurich Insurance Group, where she held many positions both in the U.S. and in Switzerland, including: EVP corporate development, global head of investor relations, EVP compliance and governance and regional manager for North America. Her last position at Zurich was executive vice president and chief administrative officer for Zurich’s world-wide general insurance business ($36 Billion GWP), with responsibility for strategic planning and other areas. She began her insurance career at Crum & Forster Insurance.  

She has served on numerous industry and academic boards. Among these are: NC State’s Poole School of Business’ Enterprise Risk Management’s Advisory Board, Illinois State University’s Katie School of Insurance, Spencer Educational Foundation. She won “The Editor’s Choice Award” from the Society of Financial Examiners in 2017 for her co-written articles on KRIs/KPIs and related subjects. She was named among the “Top 100 Insurance Women” by Business Insurance in 2000.


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