The Analysis: The Wizard of Aon

How Gregory Case turned around struggling insurer Aon Corp. and lifted its stock to an all-time high

Watch the Video…

When Gregory Case, a longtime McKinsey & Co. consultant, told friends he was joining beleaguered insurer Aon Corp. as chief executive officer in the spring of 2005, some said he was crazy. The company was under attack by regulators, who claimed it was involved in fraud and anticompetitive practices. It agreed to shell out $190 million to make peace with its critics and swore off some $200 million a year in questionable revenue. And nervous investors had cut Aon's stock price by more than a third, to below $22 a share, partly because they fretted about management disarray in the wake of plans by company founder Patrick Ryan to step aside as CEO.

Now, Aon has resolved its regulatory headaches. Staffers, under Case's direction, have more than made up the lost revenues at the now $7.5 billion-a-year outfit, turning it into the nation's biggest insurance broker. And investors have responded warmly, boosting the stock to an all-time high last fall above $51 a share. Even after the free-fall in financial stocks, Chicago-based Aon's shares now trade at about $46. With enthusiastic "buy" recommendations, some analysts talk glowingly of "the Case effect," a combination of expense cuts, revenue gains, and hefty investment spending that should keep margins widening. "He took this job in the really dark days of the industry because he saw something in the company, he saw the potential," says Citigroup () Global Markets analyst Keith Walsh. "Now we're seeing it in the numbers."

Case, 45, pulled off the turnaround at Aon in classic consultant style. First, he calmed jittery clients, meeting with scores of them early on to offer reassurances that Aon's legal problems were behind it, thanks to settlements with state attorneys general in New York and Illinois. The company had been accused of accepting "secret payments"—so-called contingent commissions—from insurance companies after steering business to them, and it agreed to forgo such business. Some of its clients, allegedly duped by the arrangements, shared in the settlements.

Duplication Was Hurting the Bottom Line

After shoring up the revenue base, Case set to work weeding out long-standing inefficiencies. Aon was the product of over 400 acquisitions, and Case found lots of overlap in areas such as human resources, real estate, and information technology. Cutting that, in a campaign to trim some 5,700 jobs, would save a bundle. Indeed, Aon was spending about one-third of every expense dollar on staffers who didn't deal with clients— essentially back-office folks— and Case aimed to drive that figure closer to 20 cents of every dollar.

Some of the duplications he found were hurting sales. Aon, for instance, had 27 sales management systems. Clients weren't pitched on Aon's full range of services, as staffers labored under computer systems that didn't communicate with one another, and managers didn't have a grip on what clients were getting. One client, a St. Louis-based maker of retail store fixtures, used Aon for about four years as its broker on employee benefit services, for instance. It had never been pitched on property-casualty services, a piece of business it gladly routed to the company once a salesman called. One of Case's first major changes was to put the company onto a single Net-based system from salesforce.com (), where managers now keep a close, more informed eye on prospects.

Case also sold off operations that didn't fit with the company's core mission as he redefined it. He raised some $2.6 billion in late 2008 by selling Combined Insurance Co. of America and Sterling Life Insurance. Lower-margin underwriting operations, he says, don't fit with the core mission of brokerage and consulting. Aon, which employed about 47,000 people when he joined, is now down to about 36,000.

Bigger Payoffs Down the Road

The restructurings that Case has put in place should deliver hundreds of millions of dollars to the bottom line over time, even as severance costs and other charges have put a short-term crimp on the company's finances. A downsizing in 2005, for instance, cost about $353 million before taxes, but it saved the company $225 million in 2007 and $270 million in 2008. An effort announced in 2007 is expected to cost $360 million and should deliver savings of $50 million to $70 million this year and $175 million to $200 million next year, analyst Walsh says.

The reshaping may shave results this year but should pay off big in coming years. Walsh expects net income at Case's company to dip slightly, from $864 million in 2007 to $846 million this year, as revenues edge up about 3%, to about $7.70 billion. Next year, however, should see a hefty payoff, he expects, with net gains rising about 11%, to $949 million, even if revenues climb just 2.5%, to $7.89 billion. For Case, such numbers are sweet vindication and a stark repudiation of the doubters who wondered why he was leaving the consultant's world for the far tougher realm of management.

Joseph Weber is BusinessWeek's chief of correspondents, based in Chicago.