The marked trend toward consolidation in the insurance brokerage sector may have a hiccup, but it will not be slowed by the global economic recession, according to a new report on the insurance brokerage market by Advisen Ltd.
According to the report’s author, John Molka, of Advisen: “Large brokers enjoy certain advantages of scope and scale. At least in theory, their costs are lower, and they are able to provide a broader array of services. But small brokers are the engines of growth in the insurance market, and larger brokers will continue to acquire them to tap into their growth potential.”
The report says the largest brokers are trying to become broad not deep, due in part to pressure from former New York Attorney General Eliot Spitzer. They are expanding into more market segments and niches, and particularly the vast middle market.
“The middle market has long been the strength of mid-size brokers, many of which have pursued aggressive “roll up” acquisition strategies to grow market share in this segment,” according to an Advisen statement.
“The emphasis on middle market business pits the megabrokers against second- and third-tier brokerage firms,” said Advisen executive vice president Dave Bradford in the statement. “Size has advantages, but smaller brokers historically have been quite successful in this sector.”
The report notes, as an example of the trend, that Aon Re acquired Benfield Group, the third largest reinsurance intermediary. That move gave it a dominant position over competitor Guy Carpentor & Co.. But Guy Carpenter & Co. Carpenter in turn acquired regional and specialty intermediary John B. Collins & Associates, and has announced plans to buy Lloyd’s broker Rattner Mackenzie Ltd..
The Advisen report is a 20-page document, titled, ‘Insurance Broker Economics: The Carousel of M&As.’ The report can be purchased from the Advisen Corner, at http://corner.advisen.com/reports_topical_broker_economics.html, for $499.