The Aon and Willis Towers Watson (WTW) merger will “substantially decrease competitors” in the supply of industrial danger, reinsurance and staff member benefits broking, the Australian Competition & & Consumer Commission is concerned.The Australian Competition & & Consumer Commission (ACCC) is not the first to raise substantial concerns about the merger, as similar problems had actually been raised by the New Zealand Commerce Commission.
Aon and Willis Towers Watson (WTW) responded to the New Zealand issues, pointing out a wide variety of factors that their merger ought to not be thought about anti-competitive in the industrial insurance coverage and reinsurance market.
However concerns appear widely held, provided a second country has now also raised these concerns.
The merger, which we ought to really mention is the acquisition of WTW by Aon, is also under examination in Europe, with the European Commission also investigating the proposed mix of Aon and WTW.
The clock on that EC evaluation of the merger offer has now been halted, while the European Commission (EC) waits for more data from the brokers to support their case to proceed.
The Australian concerns from the ACCC are detailed and all connect to the reality Aon and WTW are 2 of the huge 3 brokers, after Marsh/ Guy Carpenter, so their coming together minimizes option and competition in the insurance and reinsurance marketplace.
” We are concerned that the mix of Aon and WTW will get rid of a considerable competitive constraint from the markets for commercial threat broking to large customers or those with more complex and/or high-value insurance premiums; reinsurance broking; and worker advantages broking in Australia,” discussed ACCC Commissioner Stephen Ridgeway.
The concerns include that rate boosts or lowered service levels might be seen, for large and complicated industrial insurance consumers.
While smaller sized brokers may find the playing-field even less level, restricting insurance protection and pricing they can provide.
The ACCC is particularly worried in certain specific niches of business threat insurance coverage and is considering whether the effects of the merger could be especially pronounced in some lines of organization, such as professional and financial, cyber, marine insurance and insurance coverage for construction projects.
In reinsurance, there are issues about how the merger of Aon and WTW might affect the supply of reinsurance broking and advisory services, particularly for “the supply of reinsurance which covers all current and future policies composed by the main insurance company for specific threats.”
” Reinsurance is important for the Australian economy as it allows insurance companies to continue to compose brand-new insurance policies. The ACCC is worried that the proposed merger will decrease insurers option of reinsurance brokers in an already concentrated market. This could lead to cost increases or minimized service levels for clients, including the ability to access enough reinsurance capability,” Ridgeway explained.
The reduction of significant provider from three to 2 and so the reduction in option offered, is likewise highlighted as worrying on the benefits and consultancy side, specifically for clients needing an international service in these locations.
Theres also an issue that other brokers might collaborate their efforts, further lowering true choice and price competitiveness.
” Reducing the number of brokers in these currently focused markets, increases the capacity for the staying brokers to align their pricing and techniques,” Ridgeway said.
The ACCC has requested submissions from celebrations to suggest on the merger and air any issues they may have. This process is anticipated to run for some more months before a decisions is made, with May 27th 2021 the suggested date for the announcement of a last decision.
With Aon and WTW still wishing to close the merger in the first-half, that remains possible. But as the noise increases and analysis of the offer intensifies the chances of a delay likely increase.
The ACCC makes a crucial statement in its documentation of problems related to the Aon and WTW merger, saying that, “Large customers lack alternatives to the 3 major brokers and the bargaining power of large clients is low, provided their inability to bypass brokers and (as talked about above) smaller sized brokers are not efficient in servicing large clients to the very same level as Aon, WTW and Marsh.”
Adding that, “The ACCCs examination has suggested that tender or agreement renewal processes are most likely to be less competitive after the proposed merger because of the absence of viable options. In addition to brokerage cost increases, clients have actually raised concerns that service and quality of the offering will decline, including everyday maintenance (consisting of claims and crisis management). These issues are potentially considerable: the ACCCs investigation has actually indicated that brokers are likely to contend more on quality of service than on brokerage cost.”
The ACCC likewise keeps in mind that market participants see Aon, WTW and Marsh as “the only reinsurance brokers with the knowledge, data, analytical, and modelling capabilities and global reach to meet the requirements of insurers in Australia. Other reinsurance brokers (either in Australia or overseas) were not deemed appropriate options.”
Information is also raised as a competitive concern, possibly offering advantage in terms of insights and prices. Of course it is only down to the elegance and scale of the big 3 brokers that they have this.
While a few of these concerns may appear damning of the merger, it is necessary to keep in mind that to be considered anti-competitive the Aon and WTW deal should be considered to provide the merged business an unfair level of rates power.
As we described in the past, the concern for competitors authorities is whether the scale and market penetration of a combined Aon and Willis Towers Watson will provide pricing power?
The response to this is nuanced, with rates power potentially apparent in some sectors, however not in all.
While options do exist and customers might go more direct if they desired, or use innovation to assist them deliver their threats. How feasible that actually is remains to be seen.
As an aside, it is maybe likewise notable that Warren Buffets Berkshire Hathaway purchased a considerable stake in Marsh & & McLennan in current weeks.
Does Warren suspect that the MMC share rate will show to be the winner out of all of this, maybe thinking this merger wont proceed? Something to chew on.
Also check out:
— If Aon/ WTW causes divestitures, AJG viewed as “finest fit” for Willis Re: KBW.
— EC investigates Aon/ WTW deal, points out competition “concerns”.
— Aon & & WTW point out alt. capital, disintermediation & & marketplaces in defence of merger.
— Aon & & Willis Towers Watson expose management of combined company.
— Willis Re divestment seen essential for Aon– WTW merger to complete.
— Aon + WTW to “extend proven design of catastrophe bonds”– CEOs Case & & Haley.– Aon & Willis Towers Watson to combine.
” Reinsurance is vital for the Australian economy as it makes it possible for insurance companies to continue to compose brand-new insurance policies. The ACCC is concerned that the proposed merger will decrease insurance companies option of reinsurance brokers in an already focused market. Adding that, “The ACCCs examination has actually indicated that tender or agreement renewal procedures are most likely to be less competitive after the proposed merger due to the fact that of the absence of feasible alternatives. In addition to brokerage expense increases, customers have actually raised concerns that service and quality of the offering will decline, consisting of day-to-day maintenance (consisting of claims and crisis management). These concerns are possibly considerable: the ACCCs investigation has actually shown that brokers are likely to compete more on quality of service than on brokerage cost.”