PwC plans overhaul of consulting business

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0:17Good morning from the Financial Times. Today is Wednesday, April 15th, and this is your FT News Briefing. A big four firm wants to shake up its global structure and insurers are turning to catastrophe bonds to cover AI data centers. But first, an update on the Strait of Hormuz. I'm Sonia Hudson, and here's the news you need to start your day.

0:52The U.S. naval blockade of the Strait of Hormuz is entering its third day, and many ships are altering course. But tracking data shows that some vessels have made it through the critical waterway, including one sanctioned Shadow Fleet tanker carrying cargo from an Iranian port. But any ships that crossed through seem to have either turned around or stalled right outside the street, which is where the U.S. Navy is enforcing its blockade. The U.S. military said no ships had passed through in the first day of the blockade. Oil prices actually fell yesterday. Brent dropped just under$95 a barrel. That's because investors are hopeful that the U.S.

1:37and Iran will resume peace talks before their ceasefire expires next week. President Donald Trump yesterday said negotiations could pick back up in Pakistan in the next two days. Meanwhile, the International Monetary Fund is warning that if oil prices stay high, global growth could slow to its weakest pace since the COVID pandemic.

2:04PwC is planning to overhaul its global consulting business. The big four firm wants to eliminate the sometimes fragmented way its national firms work together. People familiar with the plan say this is more urgent now that artificial intelligence threatens to disrupt the industry. I'm joined by the FT's U.S. accounting editor, Stephen Foley. He broke this story. Hey, Stephen. Good morning. So how is PwC set up now and why does its leadership want to change that? Well, like the other big four accounting firms, it's set up as a kind of federation. It's almost like the United Nations. You have all of these locally owned partnerships that all just agree to work together under the PwC umbrella.

2:50The central organization under the chairman, Mohamed Kande, doesn't have the kind of power that a corporate CEO might have. And it's a historical artifact, frankly, of the fact that the accounting business is regulated on a very local basis. Every country has different accounting regulations. But of course, now these big four firms do much, much more than traditional tax and audit work. They have very, very large multi-billion dollar consulting businesses. And that in many people's minds causes some disjointedness in the way they're able to provide services to clients across the world. And they're looking to try and integrate things to make it easier.

3:29And how does PwC compare with its rivals in this regard? Well, all the firms have been taking strides to try and knit their organizations together to better compete with the globally integrated consulting firms. Deloitte has merged many, many, many of its local member firms into big organizations. EY has a very strong central leadership that can impose standards across the globe. And PwC is looking for as much of a piece of that as they can. Yeah. So what are the changes that PwC is pursuing? Now, it's not actually as radical as some of the options out there that some of those other firms that I mentioned have done.

4:09But what it is trying to do is to try and standardize the product offering across the consulting landscape. So making sure that the same services are provided in the same way to clients wherever they are in the globe. And how is the backdrop of, you know, this rise in artificial intelligence playing into the drive to make these changes? There's lots of concern about how AI is going to change the jobs across the consulting landscape, about how it's going to interact with clients. So there are lots of organizations who are reorganizing right now in order to better deliver AI. And the hope that PwC has here is that some of their AI products that have been developed in the U.S.

4:52and other places can be rolled out globally much more seamlessly under this new structure. Is there any pushback internally to these moves at PwC? Yeah, Mohamed Kande has to, I mean, frankly, he's got a job as hard as running the United Nations. He's got to get every country member on board, try and cajole some of the reluctant countries into giving up what perhaps is a little bit of control of their own operations. It's not an easy process. And I'm sure he'd be looking across at a company like Accenture, for example, who has a traditional corporate structure and wishing that he could just wave his magic wand and impose a new structure like the CEOs of those rival companies.

5:33So given that PwC is not the only firm that's doing this, what impact do you think that integration will have on the industry as a whole? Well, the hope is that it's going to be better for clients. The PwC UK member firm on Tuesday, for example, announced that it was merging parts of its own consulting operation together. So that when a client comes to them with a cybersecurity issue, for example, it can bring in strategists, it can bring in the expertise, and it can implement new solutions across a company. So the hope is that clients themselves are going to get a better service out of this. But of course, we're seeing stepped up competition across the landscape.

6:14So in five years, I think we'll see a very different kind of consulting landscape. Stephen Foley is the FT's U.S. accounting editor. Thanks, Stephen. Thanks so much.

6:28Data centers have become so expensive for insurers to cover that they're turning to catastrophe bonds to offload some of the risk. Basically, it's because there's not enough coverage available for all of the data centers being built. Here to tell us more about this workaround is the FT's insurance correspondent, Lee Harris. Hi, Lee. Hi, Sonia. So what are catastrophe bonds or cat bonds as they are sometimes known? So these are a way for insurers to tap alternative sources of capital when they're pretty full on the amount of risk they can take on a given catastrophe or peril. So they've done this extensively in Florida, where insurers have kind of filled up their capacity to cover the billions of dollars of potential losses from a massive hurricane.

7:18And now they're looking at doing the same thing with data centers. They're saying, hey, we can insure these massive tens of billions of dollar projects up to a point, but we're not sure that we can give full coverage for the potential losses that a single data center could incur. And so they're turning to bond market investors to take on some of that risk. And how does this work for the people who buy these bonds? So investors in cap bonds get paid a yield, and often that's pretty high to compensate them for the relatively high levels of risk, continuously until the bond is triggered. The bond could be triggered by a large claim such as a natural disaster hitting a data center or even a large power outage or water supply outage.

8:11And at that point, they could lose some or all of their money. Okay. So the insurers issue the cap bonds, get a whole bunch more money from the bondholders to potentially pay out any claims. and then they sell the insurance policy to, in this case, the data center owner. Why are insurers looking into this now for data centers? Insurers are basically hitting the limits of the size of the policies that they can sell to data centers and to investors in data centers because these projects are so massive and so valuable that insurers are concerned they can't provide full coverage for a payout that could range into the tens of billions of dollars.

8:58So they're looking to diversify the capital that they're bringing in to help supply additional capacity to backstop potential losses. Now, Lee, you mentioned earlier that these bonds are risky to invest in, But what kind of risks do they hold for the insurance companies? You know, what are the consequences of basically building insurance policies for an entire industry on cat bonds? Well, I think the insurers would say they're turning to the cat bond market to offload some of the tail risks, the kind of worst case scenario losses that these facilities could face. And they would also say, hey, we're familiar with insuring property, big infrastructure projects.

9:44This is our bread and butter. I think where they might face a little more skepticism is the data center build out is so huge in terms of value. And it also does present some unique risks like cooling these massive facilities, keeping the GPUs, the chips inside them cool, ensuring that they can run 99.999 % of the time continuously and without interruption. Those are new and distinctive business risks that they're just wrapping their heads around how to insure. Lee Harris is the FT's insurance correspondent. Thanks, Lee. Thanks, Sonia.

10:30Before we go, you might want to think twice before asking chat GPT or Claude to diagnose you. AI chatbots misdiagnose in over 80 % of early medical cases, especially when they only have some of your health information. That's according to a study published in a peer-reviewed journal this week. The findings show the danger of relying on AI alone to identify health problems. While chatbots can figure out what you likely have once they know the full details of your symptoms, they are less reliable at the earlier, more uncertain stages of a diagnosis. You can read more on all these stories for free when you click the links in our show notes.

11:15This has been your daily FT News briefing. Check back tomorrow for the latest business news.

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