Briefing: Next generation has opportunity to furnish broker mid-market as firm numbers dwindle

By Stuart Reid

Where have all the intermediaries gone?

This month (May 2024), in conversation with Biba’s chief executive Graeme Trudgill, I have been shocked to learn that in 2006/7 there were 8,261 general insurance intermediaries here in the UK, whereas there were just 4,019 as of 2022/23, as cited in Biba’s most recent manifesto (January 2024).

Brokers, which make up the majority of these intermediaries, have always been resilient. Indeed, the number of them in the UK has remained ever steady in my early career. To see this drop in less than 20 years is a shock.

Drivers of decreasing numbers

Consolidation will have had an effect here. The big have got bigger and, for now anyway, more plentiful.

The medium-sized brokers have all but disappeared and the small firms – usually the most resilient of all – are fast disappearing.

In part, this can be linked to an old broking adage that around two-thirds of broking firms have principals aged 65 or over with no natural successor. I am guessing that this has had an obvious effect as time has moved on.

Regulation too will have had its part to play.

We are one of the most heavily regulated industries in the UK and, compared to financial regulation worldwide, we have a disproportionate burden to bear.

Having been involved in or overseen more than 100 acquisitions over the course of my career, the most common reason for a sale – for the working equity holders anyway – is that they just want to ‘get the heavy rucksack of running a company off their back’ and return to what they used to do, what they enjoyed and what they were best at. Namely, to win and look after clients.

The regulatory burden on the vast majority of brokers, especially those with less than 10 staff, cannot be underestimated.

The smaller intermediaries don’t have a risk, treasury or compliance committee, with experts at their beck and call. They have to fit in all the additional work around compliance themselves while fighting insurers over service and finding time to visit their customers.

Opportunity for small firms

Despite all this, the reduction in intermediary numbers offers a fantastic opportunity for those that remain in the market and for those that have the gumption to set up their own business.

Intermediaries may have disappeared, but demand for their business hasn’t. Total gross written premium through commercial lines brokers was £89bn in 2022/23, for example, according to ABI figures included in Biba’s 2024 manifesto.

Much of that £89bn is now handled by very large brokers – these businesses will always be under pressure from their peers, but also from smaller firms that are much more fleet of foot.

This is particularly the case across specialist classes, small to mid-sized commercial business and in the development of new and innovative products.

Add to this the significant minority of insurance personnel who now work for companies they never chose and there is the additional opportunity for small firms to recruit quality staff who are dewy-eyed about a return to a firm where cause and effect doesn’t take months and they can have greater autonomy.

This recalibration of the workforce is good for existing businesses because it can help repopulate the mid-market, which is severely depleted and where value – to customers and shareholders alike – is optimal.

Building something special

Insurance has always been a cyclical industry – hard and soft markets, buying and selling businesses abroad – and this is also true of the makeup of intermediaries.

It may well be that there are barriers to entry, a heavy burden of regulation and insurer service that is currently truly poor, but set up your own business, or – as my preference would be – join, buy or invest into an existing one that is small and growing and you have a generational opportunity to build something very special.

Let us not forget that in the majority of cases we live in a world of annual renewal and have a cash generation that outstrips most other industries. This provides one of the safest environments to establish a business.

Maybe it is time for a new generation to be bold, as many who are now selling intermediaries were bold 20 or 30 years ago. The current opportunities would appear to be obvious.