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Market update: the collapse of the AON-Willis Towers merger

In recent months you may have read about the collapse of the $30 billion merger between insurance giants AON and Willis Towers. The move, which would have created the largest insurance broker in the world, fell through to the surprise of many.

The attempted merger is part of the long-running consolidation of the insurance industry and seemed to be built on firm foundations. The deal between the two was first struck in March 2020, just as the coronavirus pandemic was starting to spread across the world.

If the merger had been successful, AON-Willis would have been in a very powerful position. The two companies have 95,000 employees between them and operate in more than 100 different countries worldwide.

The Department of Justice filed a lawsuit, claiming the merger would reduce competition

While the merger was approved by the European Commission, in a surprise move the US Department of Justice announced its intentions to take legal action to block the move in June 2020.

The reason for their lawsuit was that the creation of a “big two” in insurance broking would reduce competition in the market and lead to worse client experiences.

The Department of Justice stated that the move would significantly reduce competition in the market, which would lead to higher prices, less innovation, and worse services for clients. This was alleged to be particularly the case in areas such as reinsurance brokering, pension and retirement planning, and private retiree multi-carrier healthcare exchanges.

This lawsuit was ultimately successful, leading to the merger being scrapped. According to the Financial Times, this breakdown will cost AON as much as $1 billion in termination fees now owed to Willis Towers. Coincidentally, the latter announced a share repurchase program by the same amount soon after this was announced.

The collapse of the merger may be good news for consumers

As I mentioned earlier, there has been a large amount of consolidation in the insurance brokering sector in recent years.

According to figures from the Financial Times, some of the biggest deals include Marsh’s acquisition of Jardine Lloyd Thompson for £4.3 billion in 2018 and the $18 billion combination of Willis and Towers Watson in 2018.

The Department of Justice’s decision may come as good news for many, as such large companies can cause market distortions due to their ability to dominate a market. This can often lead to higher costs and stricter terms for consumers, while smaller brokers may not be able to realistically compete.

Get in touch

If you want to know more about recent changes in the insurance industry and how they might impact you, we can help. Email insurance@eggarforrester.com or speak to a member of our expert team on 0207 382 7710.

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