Broker market consolidation
Posted on: 17 December 2018
Speaking of brokers, the trend for consolidation seems to show no signs of slowing with more than 40 acquisitions already completed by Q3 2018, of which approximately one third were worth between £25m and £100m. Indeed, the number of broker deals in 2018 looks set to overtake that of 2017’s by more than 33%.1
A number of factors are driving this, including the interest of private equity in this sector, competition between brokers squeezing margins, a lack of organic growth, regulatory pressures and the need for brokers to futureproof against technological advances. Brokers are seeking to gain operational efficiencies through economies of scale and are looking to acquire and use the specialist knowledge held by other firms, for developing niche offerings with a more personalised service.
Private equity-backed broker acquisitions are now the norm, aided by heightened investment interest from overseas following the devaluation of sterling and, of course, strong margins.
Consolidation has always occurred in the insurance sector and so could be viewed as business as usual. We are, however, approaching an inflection point as the polarisation of the market removes the midsized independents. Watch the interest in networks really now take off! With increased digitalisation of process models and data collection, the role of the broker, increasingly, is to operate as a strategic risk advisor using analytics and data-driven insights to best advise their customers. This, however, does not remove the need for one of the fundamentals in the Commercial market space: trust in personal relationships and service.
Customers want a personal rather than simply transactional experience and this is where brokers must really add value and secure their place in the market.