Safety in numbers?

As a trend, the consolidation of Britain’s army of insurance brokers was easy enough to forecast.

First, the emergence of direct insurers offered an alternative distribution model and put pressure on commission rates. Then the dotcom revolution seemed to threaten the existence of virtually all types of intermediary.

More recently, brokers have had to deal with the onset of general insurance regulation by the FSA, compliance costs, heavy investment in new IT systems and fierce competition.

With half of the brokers in the UK market over the age of 55, it’s not surprising that many have been considering an exit. Three years ago, a survey by accountancy firm Mazars found that more than a third of UK insurance brokers wished to sell their businesses.

The figures show there has been an enormous shake-up: the number of registered insurance brokers has more than halved, to around 4,500, in the past five years.

Much of this is due to larger groups acquiring smaller ones, such as privately owned Towergate Group, which has made 100 acquisitions of brokers and underwriters in its 10-year history and now calls itself Europe’s largest independent broker.

CBG Group, the Manchester-based insurance broker and financial adviser, has also played a role in the consolidation of the sector. In the past 18 months, it has bought Swinburne James, a provider of general insurance broking services in north-west England, and Spencer Lavery Associates, a specialist healthcare insurance and general insurance broker.

In the company’s March results statement, chairman Laurie Turnbull said: “The acquisition market had been relatively stagnant as firms prepared for FSA approval.... The group is currently considering a number of other potential acquisitions.”

To each his own
But selling out isn’t right for everyone. What many brokers who did not wish to sell wanted was a way of increasing their buying power.

Many found the answer in broker networks– member organisations that enjoy economies of scale and increased negotiating power.

Broking networks offer a means by which small and medium-sized brokers can stay independent by operating under an umbrella, providing them with services such as compliance and greater buying power with underwriters. Networks deal with the FSA on behalf of their members and provide IT and human resources support.

They can offer enhanced commissions and profit shares, top-level agency status, exclusive products and services, compliance support, marketing services, an open IT platform and, most importantly of all, the added support necessary to remain independent.

Broker networks are not for everyone, however. Operating within one requires relinquishing some control, though clearly not as much as would be ceded in a takeover.

Some firms who have decided not to join networks cite concerns about having to take on board quality standards and IT platforms that don’t suit their distinctive styles of operating.

The model seems here to stay, however, and the future of broking looks to be a blend of more powerful larger groups competing with broker networks and direct insurers.

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