The following is an editorial by Alicja Grzadkowska, senior news editor at Insurance Business. To reach out to Alicja, email her at [email protected]
In March 2020, Aon and Willis Towers Watson announced that they would be merging their operations in a move set to shake up the global broking space, as it narrowed the list of the biggest brokerages around the world from three to two. The implied combined equity value of that deal came in at around $80 billion, with the resulting company prepared to become a technology-enabled global professional services behemoth focused on risk, retirement, and health.
Nonetheless, since the announcement, the deal has encountered several regulatory hurdles that reveal the potential impacts of the merger on the broking industry.
First, New Zealand’s Commerce Commission published a statement of preliminary issues in October 2020 regarding Aon’s application to acquire Willis Towers Watson. The statement pointed to key competition issues that the commission considered important in deciding whether to grant clearance to the proposed acquisition, primarily the transaction’s effect on the New Zealand market. This included the unilateral effects (whether the merged entity will be able to profitably raise prices by itself) and the coordinated effects (whether the proposed acquisition would make coordination more likely).
Later, in December, the commission published its Statement of Issues on the merger, arguing that it was not “currently satisfied that the proposed acquisition would not be likely to substantially lessen competition in the supply of broking and associated services for commercial insurance.”
Similarly, the European Commission (EC) announced in December that Aon’s swoop for WTW was undergoing closer examination under the merger regulation of the European Union. “We have opened an in-depth investigation to assess carefully whether the transaction could lead to negative effects for competition, less choice, and higher prices for European customers in the commercial risk brokerage market,” said Margrethe Vestager, the EC’s executive vice president responsible for competition policy, in a release.
In its initial market probe, the antitrust regulator pointed to several competition concerns in relation to the supply of commercial brokerage services, noting, “In particular, the commission is concerned that the transaction may reduce the competition as regards: brokerage services to large multi-national customers in the risk classes property and casualty, financial and professional services, credit and political risk, cyber, and marine; brokerage services to customers of all sizes for space and aerospace manufacturing risks as well as in a few additional risk classes in specific national markets.”
Additionally, the commission noted that it would be applying closer scrutiny to the provision of reinsurance brokerage services, as well as consulting and administration services.
The EC has until May 10 of this year to decide on the merger, though it did approve Marsh & McLennan Companies’ purchase of JLT in 2019, so not all hope is lost in the Aon-WTW merger yet.
In the meantime, another regulator has stepped out to declare its concerns about the deal. Earlier in February, the Australian Competition & Consumer Commission (ACCC) outlined its preliminary competition concerns over the proposed union involving the insurance broking giants.
In a release, ACCC Commissioner Stephen Ridgeway noted: “We are concerned that the combination of Aon and WTW will remove a significant competitive constraint from the markets for commercial risk broking to large customers or those with more complex and/or high-value insurance premiums; reinsurance broking; and employee benefits broking in Australia.”
A key issue is that the merger might result in price increases or reduced service levels for customers, while also potentially limiting the insurance coverage and pricing that smaller brokers are able to obtain.
As for reinsurance-related impacts, Ridgeway noted, “Reinsurance is vital for the Australian economy as it enables insurers to continue to write new insurance policies. The ACCC is concerned that the proposed merger will reduce insurers’ choice of reinsurance brokers in an already concentrated market.”
The concerns of regulators should not be ignored, since they reveal the very real reverberations that the mega-merger would have on brokerage markets around the world. With hard market pressures impacting a number of insurance lines already, thanks to a series of devastating natural catastrophes, the pandemic, and a prolonged soft market in certain segments, the rises in prices and insurance coverage limitations that could follow the deal, as pointed out by the three regulators so far, should worry brokers.
While there’s not much to be done as regulatory bodies continue to deliberate over the deal, brokerages around the world have to be ready to react should the deal move forward and think critically about how to differentiate themselves in a tightening competitive market, while also considering how to effectively educate their clients on why their insurance pricing and coverage availability could change due to this deal.
As the saying goes, brokers should hope for the best and be prepared for the worst, should the Aon-WTW deal come to fruition.
