Briefing: Tough times for brokers, but future remains bright

By Insurance DataLab cofounder Matt Scott

To say it has been a challenging year for brokers is a bit of an understatement.

The last 12 months have been full of economic and political uncertainty, rising costs and an increasingly heavy regulatory burden that have all added to the pressures facing the broking industry.

Having said that, brokers are still managing to deliver growth – as evidenced by this year’s Top 50 Brokers report.

The brokers covered by the research reported their biggest ever total revenue levels at just under £13.5bn.

This represents a 15.4% increase on the previous year, which equates to some £2bn of additional revenues – the biggest jump recorded since the Top 50 Brokers was first conceived.

While organic growth is certainly still a factor at play in the rankings, acquisitions continue to be the driving force behind these growing revenues across the market, but particularly amongst the bigger players.

I still expect these acquisitions to continue, but with mid-market consolidation having already been a mainstay of the market for many years, the supply of high quality targets is beginning to wane.

This means that finding the right business to acquire is becoming harder than ever. Data will be the key to any successful acquisition strategy going forward – more so than it is already.

There is also the looming prospect of a so-called mega-deal – the consolidation of the consolidators that has been mooted for so long. I certainly wouldn’t rule out such a deal materialising over the short to medium-term.

Over the hump?

But what about the prospects for brokers away from the hustle and bustle of M&A?

Well, economic conditions certainly do remain tough, but we are starting to see the light coming over the horizon.

The Bank of England reported in its latest Monetary Policy Report, published in August 2023, that economic activity was continuing to grow – albeit modestly.

Inflation has started to come down as well, but still remains too high. This is having a big impact on the broking market, particularly in a personal lines sector that has been hardest hit by the cost of living crisis.

This has made insurance much less affordable across all aspects of our society, as well as for the businesses that shape our economy. And with insurance a grudge purchase for many consumers, this will be of concern to brokers across all sectors of the market.

These tough conditions are already affecting profitability, with the Top 50 Brokers research showing a trend of subdued ebitda margins across many players in the market following record highs in 2022.

Having said that, the prospect for improvement remains bright and separate research we have conducted at Insurance DataLab, our May 2023 Broker Performance Report, certainly showed signs of optimism, with growing levels of productivity helping to prepare the market for future successes.

Brokers will continue to attract investment despite the tough conditions – given the cash generative nature of broking making, brokers do not just operate a successful business model, but also represent an attractive investment opportunity.

The horizons for the broking market are expanding too, with a new wave of European consolidation and the continued flow of capital from the US continuing to make the most of existing opportunities – and create new ones.