Brokers on the up despite challenging market

The UKGI market has seen considerable change of late.

Brokers, for example, have felt the weight of increased demand on compliance teams due to new regulations from the FCA – such as July 2023’s Consumer Duty – while fair value assessments have faced broker criticism due to the sheer amount of work involved when dealing with a large panel of insurers across a number of business lines.

Economic and political uncertainty has contributed to market-wide unpredictability too, with the looming threat of a change of government still on the horizon.

Despite these challenges, the UK broking market continues to go from strength to strength – it broke through the £100bn gross written premium (GWP) barrier for the first time in 2023, according to exclusive research from market intelligence firm Insurance DataLab.

Record-breaking year

Its Broker Performance Report 2024, published in May 2024, confirmed that the UK broker market had achieved the highest broker rating from Insurance DataLab since it started compiling data for this annual report back in 2022.

This year’s publication awarded UK brokers with a 53.2% rating for 2024, up from 51.8% for the previous year.

The annual Broker Performance Report, now in its third year, analyses the financial results of 127 broking firms across three key pillars: profitability, growth and productivity.

The 2024 edition of the report is the first time that brokers reported an improved performance across each of the three pillars. Productivity saw the greatest improvement, with the average rating climbing by 2.1 percentage points to 52.2%.

A notable driver of this improvement is an increase in the average turnover per employee, which grew by almost 6% over the last 12 months to more than £155,000.

Meanwhile, brokers have also managed to refine their cost structures. Staff costs as a percentage of turnover fell to 40% in this latest analysis, down from 41% last year after several years of escalating costs.

Insurance DataLab co-founder Dan King said these findings should serve to boost optimism across the market.

“This increase in productivity will come as welcome relief to brokers, particularly in the face of the numerous economic challenges posed by the current high inflationary environment,” he noted.

“The improvements shown by firms in our analysis should also help pave the way for future progress, with productivity often proving to be the foundations on which future financial success is built.”

While productivity at brokers has improved, it remains the lowest ranked pillar across Insurance DataLab’s analysis for 2024, with profitability and growth receiving average scores of 53.3% and 53.7% respectively.

These are the highest recorded scores for these metrics, with profitability growing by 0.7 percentage points over the last year and growth accelerating by 1.6 percentage points.

Profitability was buoyed by a 4.6% increase in the three-year aggregate earnings before interest, tax, depreciation and amortisation (ebitda) to £7.4bn for 2024, which helped brokers reach a three-year aggregate ebitda margin of 24.3%.

The improvement in the growth rating, meanwhile, was aided by a highly accelerated growth trajectory over the last 12 months, with aggregate revenues climbing by an impressive 9.4% to £10.8bn.

This follows increases of 4.5% in each of the preceding two years as the industry continues to grow at an increasingly rapid pace, no doubt fuelled by an increase in premiums that have driven up commission earnings.

And while the pace of price increases is expected to flatten over the coming months, potentially tempering future revenue growth, the broking sector remains well placed to maintain its upward trajectory.

Going for gold

As well as analysing the performance of brokers across the market, Insurance DataLab has additionally rated the performance of individual firms, with the top performers awarded an Insurance DataLab gold award.

General Insurance Brokers UK (GIB) secured the top spot in the ratings, with an overall score of 73% for 2024.

This marks the second year running that the broker has picked up a gold award after it ranked fourth last year. It also represents a four percentage point increase on its 2023 rating and is some 20 percentage points ahead of the market average.

GIB is joined on the list of top performers by Roanoke International Brokers (72%), JCB Insurance Services (71%), Berry Palmer and Lyle (70%) and Hugh J Boswell (69%).

Meanwhile, Investment Discounts On Line, Holiday Extras, Avantia, Dayinsure.com and RAC Financial Services all achieved a score of 68% for this year.

GIB’s performance was fuelled by a market-leading profitability rating of 95% after the broker reported a three-year aggregate ebitda margin of 64% – this was only bettered by JCB Insurance Services’ margin of 65%.

The broker was also rated highly for productivity, with a 70% score – this is almost 18 percentage points above the market average.

This comes after GIB reported average turnover per employee of more than £225,000 and staff costs equal to just 14% of turnover. Both are a significant improvement on last year, which resulted in a four percentage point increase in its productivity rating.

However, GIB’s overall score was dampened by a lower than average growth rating of 52%, despite the broker reporting an 8% increase in revenues over the last year. Its operating profits remained relatively steady, falling by a little over £50,000.

Top of the table

The second ranked broker for 2024 is another serial gold award winner in Insurance DataLab’s research.

Roanoke International Brokers has been ranked highly by Insurance DataLab for the past three years – for 2024, it achieved a 72% rating.

The broker received its highest rating for the profitability metric with 85%, up three percentage points on the previous year after it reported a three-year aggregate ebitda margin of 50%.

Roanoke was also rated highly for productivity thanks to a score of 74%. This followed a three percentage point reduction in staff costs relative to turnover and a 5% increase in average turnover per employee to £374,000.

And, in a win for the smaller brokers, JCB Insurance Services rounds off the top three for 2024 with a rating of 71%.

This means that all the top three brokers for 2024 reported revenues of less than £10m in their latest accounts and, like Roanoke, it also marks the third consecutive year for which JCB has won an Insurance DataLab gold award.

JCB’s score was buoyed by a profitability rating of 95% and a productivity rating of 63%. The broker was less strong when it came to growth, with a 5% increase in revenue and a £200,000 increase in operating profit – only enough to secure JCB a growth rating of 51%.

Berry Palmer and Lyle (BPL) experienced an eight percentage point increase in its overall rating to claim its first gold award in 2024 with a score of 70%. This makes BPL the highest ranked broker with revenues of £10m to £100m.

Productivity was BPL’s strongest metric with a score of 75% – although this was still four percentage points lower than the previous year. This comes despite the broker reporting average turnover per employee of nearly £750,000.

BPL also experienced a slight dip in profitability – this rating fell by four percentage points to 74% for 2024. Despite this, the broker still reported a highly profitable three-year aggregate ebitda margin of 35%.

However, it was the broker’s growth rating that secured its first gold award after its revenues increased by 45% and operating profit improved by almost £2.5m to add 26 percentage points to its score.

Size impact?

While no firms with revenues in excess of £500m picked up a gold award from Insurance DataLab for 2024, Aon UK topped the list of supersized brokers with a rating of 64%. This is an increase of 12 percentage points on the previous year, with the broker outperforming the market average across all three pillars.

Aon’s strongest metric was profitability, with the broker earning a score of 67% for this metric after reporting a three-year aggregate ebitda margin of 32% – up from 26% a year earlier.

With the advantages that come with economies of scale, it will be interesting to see if any of the larger brokers with revenues in excess of £500m manage to break into the list of top performers next year.