Why the U.S. competition regulator wants to stop the Aon-Willis merger

Almost all large firms in the United States buy their property and casualty insurance through either Marsh, Aon or Willis Towers Watson, the latter two of the ‘Big Three’ having market share of more than 40% in property and liability insurance, the U.S. Department of Justice says.

This is among the reasons the DOJ announced June 16 it wants to block Aon plc’s proposed acquisition of Willis Towers Watson plc, a deal approved in August, 2020 by shareholders of both commercial brokerages.

The proposed friendly merger was originally announced in March of 2020.

Marsh, Aon and Willis respectively are the top three on A.M. Best Company’s list of the world’s biggest commercial property and casualty insurance brokerages.

In its recent filing with the U.S. District Court for the District of Columbia, the federal justice department is asking for a declaration that Aon’s proposed acquisition of the shares of Willis Towers Watson would be unlawful and violate Section 7 of the Clayton Act. That U.S. federal law which prohibits mergers and acquisitions where the effect “may be substantially to lessen competition, or to tend to create a monopoly.”

Aon said June 16 the DOJ’s civil lawsuit reflects a lack of understanding of Aon’s business, the clients Aon serves, and the marketplaces in which Aon operates.

It was not clear how a combined entity could have monopoly power in P&C. The DOJ did not give examples of specific lines of insurance or specific services that are currently only offered by Willis Towers Watson and Aon and are not offered by other large commercial brokerages such as Marsh, Gallagher or NFP.

Willis Towers Watson and Aon cannot actually operate together until the deal closes, Aon CEO Greg Case said Feb. 5 during a conference call discussing Aon’s 2020 financial results.

The U.S. justice department said in its court filing that Marsh, Aon and Willis Towers Watson “dominate competition for insurance broking for the largest companies in the United States, almost all of which are customers of at least one of them.”

Among large customers in the U.S., Aon and Willis have a combined market share of at least 40% for broking property damage risk, third-party liability risk and financial risk, which together account for the majority of most large customers’ commercial risk insurance expenditures, the DOJ said in its court filing.

The DOJ quoted from a Willis Towers Watson strategy presentation which stated: “Marsh and Aon dominate the large account space” and, along with Marsh and Aon, WTW is “one of the only brokers positioned to serve and win in [the] large account space.”

To alleviate anti-trust concerns, WTW announced May 12 it agreed to sell several major operations to Gallagher for US$3.57 billion. If it closes, that deal would include some of WTW’s P&C brokerage business from predominantly middle-market and large-account clients located in select markets such as San Francisco, Houston and Bermuda, across niches such as construction and energy. It would also include all of WTW’s reinsurance brokerage operations plus certain retail brokerage operations in Germany, Netherlands, Spain and France, as well as cyber, space and aerospace products in Britain.

Feature image via iStock.com/SeanPavonePhoto