London-based Aon, which has 50,000 employees, will take over Ireland-domiciled Willis, which has 45,000 employees around the world.
Willis Towers Watson shareholders will receive 1.08 Aon shares for each Willis Towers Watson share, which represents a 16.2% premium to Willis Towers Watson's closing share price on 6 March 2020, said the companies.
Both firms provide a wide range of professional financial services around the world and are active in insurance, retirement, consultancy and other financial sectors.
Aon operates in 120 countries and offers financial risk-mitigation products as well as providing insurance and pension administration. Willis is also a global business offering advice and consultancy, insurance broking and financial solutions.
The deal is likely to lead to major cost savings, say the firms.
Aon says it anticipates that the transaction will provide “annual pre-tax synergies and other cost reductions” of $800m (£615m) by the third full year of combination.
Willis Towers Watson chief executive John Haley said: "The combination of Willis Towers Watson and Aon is a natural next step in our journey to better serve our clients in the areas of people, risk and capital.”
“This transaction accelerates that journey by providing our combined teams the opportunity to drive innovation more quickly and deliver more value."
Aon chief executive Greg Case said: “This combination will create a more innovative platform capable of delivering better outcomes for all stakeholders, including clients, colleagues, partners and investors.”
"Our world-class expertise across risk, retirement and health will accelerate the creation of new solutions that more efficiently match capital with unmet client needs in high-growth areas like cyber, delegated investments, intellectual property, climate risk and health solutions."