June 30, 2021 by Greg Meckbach
Some Fortune 1,000 commercial clients really have a choice of essentially three brokers – Aon, Marsh or Willis – if they are looking for a complete insurance package, a consultant for the insurance industry suggests.
In a recent court filing, the United States Department of Justice identified five distinct markets in which the DoJ claims a merger of Aon plc and Willis Towers Watson plc would “substantially lessen competition.” One of those markets is property, casualty, and financial risk broking for large customers.
That market includes Fortune 1,000- type corporations, said Nick Frank, partner and leader of the North American insurance practice for consulting firm Simon-Kucher. One example of a Fortune 1,000 corporation would be a large automotive manufacturer, Frank said in a recent interview. That client would have factories, offices, and equipment worldwide.
“No commercial brokerage, other than Aon, Marsh and Willis, has the wherewithal to piece together what might be a large set of policies for a Fortune 1,000-type client of this nature,” Frank said in a recent interview. “The insurance package is a very complex set of contracts cobbled together.”
Frank was commenting on the DoJ’s June 16 announcement that its anti-trust division is asking a U.S. court to block Aon plc’s proposed acquisition of Willis Towers Watson plc. The U.S. district court has yet to issue a ruling.
The proposed friendly deal was approved 10 months ago by shareholders of Aon and Willis Towers Watson. But the US$30-billion deal is still subject to regulatory approval in multiple jurisdictions (among them the U.S. and the European Union), as well as by a Republic of Ireland court. Aon and Willis Towers Watson are headquartered in Dublin with major executive offices in London, England and traded on the New York Stock Exchange.
In its recent court filing, the U.S. competition regulator claimed that brokerages other than Aon, Marsh and Willis do not offer large customers the same quality and combination of services (for example, an extensive global networks of offices and sophisticated data and analytics) that the Big Three currently deliver.
For its part, Aon said earlier this month that the DoJ complaint reflects a lack of understanding of Aon’s business, the clients Aon serves, and the marketplaces in which Aon operates.
So what about the dozens of other brokers who also place insurance for large corporate customers?
“The issue is not so much a matter of the coverage that Aon, Marsh and Willis can place,” said Frank, who is based in Atlanta and helps insurers implement technology, refine customer segmentation, and optimize pricing. “It is more the analytical ability to figure out the coverage in real depth.
“You can get insurance from [brokers other than Aon, Marsh and Willis] but that is not the measure under U.S. law of whether something is monopolistic. Instead, under U.S. anti-trust law, the measure is the Herfindahl–Hirschman Index. It is so easy to say, ‘There are other places you can go to place your insurance,’ but that is not the measure.”
Marsh, Aon and Willis Towers Watson does not form a complete 100% monopoly, said Frank.
“There are alternatives but they are few and may be less capable due to not having the size and breadth of the big 3 (Or big 2 post merger).”
The Herfindahl–Hirschman Index is a formula that takes into account the relative size distribution of the firms in a given market, the DoJ explains.
“It approaches zero when a market is occupied by a large number of firms of relatively equal size and reaches its maximum of 10,000 points when a market is controlled by a single firm,” says the DoJ.
Feature photo courtesy of iStock.com/ioanna_alexa