A recently released Swiss Re Sigma study has concluded that as the complexity of risk increases brokers face a greater demand for their services.
The report entitled ‘Commercial insurance and reinsurance brokerage – love thy middleman’, examines developments in the key broker-markets for non-life commercial insurance and reinsurance and shows how the role of the broker has evolved over the last 20 years. The report also considers issues such as consolidation, patterns in profitability, and long-term prospects for the global brokerage industry.
Thomas Holzheu, senior economist at Swiss Re and the editor of the study, commented: “The role of brokers in the commercial insurance and reinsurance sectors has changed over the past 20 years. Corporations with large commercial and industrial risks are facing a rapidly shifting risk landscape brought about by changes in the economy, the legal environment and the emergence of new risk classes. As a result of the current hard market, brokers are experiencing strong demand for insurance solutions and risk management services. This increase in demand also reflects the growth in offshore insurance markets such as Bermuda, which are almost entirely broker driven.”
Swiss Re’s study concluded that “during the last two decades, the role of the broker has evolved from pure intermediation to additionally providing services for clients and insurance companies.” It pointed out that “Today brokers use sophisticated risk-modeling skills in combination with their market knowledge to structure risk solutions for clients. They have also developed additional fee-based services such as claims administration, risk management, asset management, employee benefit, HR consulting, risk securitisation and actuarial consulting.”
The report also considered the consolidation of brokers in the U.S. and Europe over the last 10 years, which has created a highly concentrated market. According to the report in 2002 global commercial brokerage revenues were estimated at about $27 billion, “over half of which were accounted for by the two largest broking firms Marsh and Aon.”
However, the study also found that in a certain sense the “broking sector remains fragmented, with many small niche brokerage firms. Further consolidation in the broking sector is expected as mid-sized and regional companies make acquisitions to fuel revenue growth and expansion into additional markets.”
The reinsurance brokerage market is also highly concentrated. In 2002 78 percent of the estimated $3 billion in global revenues were earned by the four largest brokers.
Swiss Re also found variations in the role played by brokers from country to country. They “play an important role in the US and the UK and their share of the Continental European market continues to increase.” Brokers also “occupy strong positions in Latin America and Southeast Asia, but are virtually non-existent in the key markets of Japan, South Korea, China and India.”
Swiss Re concluded that “the liberalization of financial services markets and the growth of emerging insurance markets is expected to provide brokers further growth opportunities.”
A full copy of the report may be obtained form the Swiss Re Web site at: www.swissre.com.
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