How Mergers are Shaking Up Insurance Brokerage Market

The insurance industry, specifically broking, has seen massive consolidation in the past one year. This has happened because of slow market growth, intermediaries charging higher fees and insurance technology (insurtech) companies offering their own brokerage services.

Last year, Marsh & McLennan Companies acquired Jardine Lloyd Thompson (JLT). Now, Aon plc and Willis Towers Watson (WTW) are merging to form the world’s largest insurance brokerage company.

The all-stock deal is likely be completed by the first half of 2021.

The merger will strengthen Aon’s market in the U.S., the U.K. and Europe, and expand its product capabilities.

This mega merger has created an atmosphere of consolidation in the insurance industry. Traditional brokers are also expected to look for opportunities to combine with insurtech companies for digitalization and service simplification.

Also, since the insurance brokerage industry is complex, firms will face merger execution and integration risks, which may lead to attrition of existing clients.

However, perhaps the biggest effect of this ongoing consolidation will be the creation of a duopoly in insurance brokering market.

At the start of 2019, there were four big players in the market. After the two mergers (MMC-JLT and Aon-WTW), there will be only two big global players left, leaving an either-or situation for corporate clients. This will reduce the buyer’s power and overall competitiveness in the insurance market.

But the effects of the Aon-WTW merger will go further and deeper. It is expected to disrupt the market stagnancy and encourage tech evolution in the insurance brokerage space. Here’s how:

1.  New consulting solutions

Aon’s expertise in risk, retirement and health is expected to speed up creation of new solutions that leverage WTW’s experience in cyber, delegated investments, intellectual property, climate risk and health solutions.

2.  More data-driven business

With this merger, Aon has acquired plethora of data from WTW amid the GDPR regulatory environment. WTW specializes in data mining that it uses to provide consultancy, giving Aon the opportunity to innovate faster.

3.  Optimizing cost

The merged entity expects to gain large savings with one-time integration. Some of the major drivers in cost reduction would include annual pre-tax synergies, consolidation in infrastructure and real estate and consolidation in third-party contracts.

4.  Digitization

The combined entity is expected to adopt technologies like digital document exchanges for timely delivery, and new workflows for underwriting and client onboarding (like digital signatures, verbal consents and data capture). Other technologies would include interactive solutions between underwriters and brokers to negotiate policy coverages and rates, allowing for seamless flow of information and experiences.

References:

• https://www.peoplemattersglobal.com/news/c-suite/aon-to-acquire-willis-towers-watson-in-30-bn-deal-24951
• https://www.insurancebusinessmag.com/us/news/breaking-news/aonwillis-towers-watson-unification-whats-the-impact-216364.aspx
• https://www.pionline.com/consultants/disruption-likely-be-result-aon-wtw-merger
• https://www.willistowerswatson.com/en-us/News/2020/03/aon-to-combine-with-willis-towers-watson-to-accelerate-innovation-on-behalf-of-clients