UK Broker Market ‘Stagnant;’ M&A, but No Real Growth: Finaccord Study

August 5, 2015

Two new research studies issued by market research firm Finaccord put a value of £4.64 billion [$7.234 billion] on the size of the total non-life insurance broking market in the UK in 2014, up marginally from £4.55 billion [$7.09 billion] in 2010.

“This was equivalent to a nominal compound annual growth rate of 0.5 percent but a compound annual rate of decline of 2.5 percent in real terms once inflation has been factored in,” the report said. “Moreover, the market size in 2014 was composed of around £ 2.54 billion [$3.958 billion] from commercial lines broking and £2.10 billion [$3.272 billion] from personal lines broking with the value of both segments having retreated in real terms since 2010.

Finaccord Director Alan Leach said: “In terms of its overall value, the UK non-life insurance broking sector is both highly mature and competitive. “Nevertheless, while the market might appear stagnant at first glance, it masks considerable dynamism at the level of the specific competitors in it.

“Notably, merger and acquisition activity has been widespread in recent months and successful brokerages are achieving impressive rates of growth by implementing differentiated strategies in areas such as affinity and corporate partnerships, selling through aggregators, and developing expertise in specialist product or customer segments.”

In addition to quantifying the value of the market, the latest research also ranks the top 60 brokerages in each of commercial and personal lines broking according to their fees and commissions generated from these activities in 2014.

Finaccord’s data concludes “that the top three commercial lines brokers controlled 36.0 percent of the UK market in that year and the top ten 65.4 percent of it while the equivalent percentages for personal lines brokers were 32.4 percent for the top three and 63.4 percent for the top ten. However, while there has been a clear trend towards consolidation in commercial lines broking in recent years, this has been much less evident in personal lines broking.”

Leach noted that “as has been well documented, many of the leading commercial lines brokers have expanded through purchasing smaller players in recent times. In particular, Arthur J. Gallagher is now ranked in the UK’s top three as a result of a series of acquisitions made since 2011 and fast-growing competitors just outside of the top ten include Howden, a subsidiary of Hyperion Insurance Group, and US-based brokerage Integro. On the other hand, the IPOs of the AA and Saga out of Acromas Holdings in 2014 actually caused the UK’s personal lines broking market to become less concentrated than before.”

As for the future, Finaccord said its “analysis suggests that the UK non-life insurance broking sector will struggle to deliver much in the way of organic growth up to 2018. In fact, with a total forecast value of £4.69 billion [$7.308 billion] in that year, it will continue to decline in real terms as a result of both the limited scope for expansion of underlying non-life insurance markets and the fact that brokers will find it difficult to increase their distribution share in either commercial or personal lines. In the former case, this is because it is already very high (at around 88 percent) while in the latter it is due to on-going competition from alternative channels, most notably direct sales and aggregators.”

In conclusion Leach explained that in order to compete successfully, “non-life insurance brokers in the UK will have to carry on placing a high emphasis on innovation not only in their traditional field of broking but also, in some cases, in underwriting given that a number have set up facilities in this arena.

“Conversely, a key issue for large insurance underwriters will be the recurring question of whether there is merit in their attempting to exert greater control over the broking channel by taking ownership of parts of it. Indeed, a number of the leading brokerages already belong to groups whose primary business is insurance underwriting.”

Source: Finaccord

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