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Aon-WTW merger will 'lessen competition' in broking sector: ACCC

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The country’s competition watchdog has “preliminary concerns” that the proposed union of Aon and Willis Towers Watson could lead to a less competitive commercial insurance broking sector in Australia, with the market dominated by the merged entity and Marsh.

In a statement released today, the Australian Competition and Consumer Commission (ACCC) says complex or high-value commercial insurance customers may be hit with price increases or reduced service levels as a result of the merger.

According to the ACCC, which launched a probe last October into the impact of the proposed merger, Aon, WTW and Marsh are the only three major brokers capable of providing commercial risk broking to large customers, reinsurance broking and employee benefits services in Australia.

ACCC Commissioner Stephen Ridgeway says the regulator is “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”.

The concerns extend also to reinsurance broking and employee benefits broking, he said.

“Reinsurance is vital for the Australian economy as it enables insurers to continue to write new insurance policies,” Mr Ridgeway said. “The ACCC is concerned that the proposed merger will reduce insurers’ choice of reinsurance brokers in an already concentrated market.

“This could lead to price increases or reduced service levels for customers, including the ability to access sufficient reinsurance capacity.”

The ACCC is concerned also that smaller brokers will be impacted by the impending tie-up between the broking giants. It says the move may limit the insurance coverage and pricing that other brokers are able to obtain for their customers.

The ACCC fears the merger may also increase the risk of “coordinated effects” in the markets where Aon and WTW compete.

“Reducing the number of brokers in these already concentrated markets, increases the potential for the remaining brokers to align their pricing and strategies,” Mr Ridgeway said.

The ACCC has published a Statement of Issues, seeking feedback from stakeholders on a range of concerns it has about the proposed merger.

It listed three issues of concern. They are supply of commercial insurance risk broking and advisory services, supply of reinsurance broking and advisory services and supply of employee benefits broking and consultancy services.

ACCC says the Statement of Issues is not a final decision about the proposed merger. It is a statement outlining the regulator’s preliminary views and identifies further lines of inquiry.

Regulators in other jurisdictions are also reviewing the merger - which is slated for completion in the first-half of this year - including its potential impact on competition. Shareholders in Aon and WTW have already approved the all-stock deal, which was valued at $US29.9 billion ($38.6 billion) when Aon made the takeover offer in March last year.

Closing date for submissions is March 12. The ACCC has set May 27 as the proposed date to announce its final view.

Click here for the ACCC’s Statement of Issues.