London Market consolidation to increase next year - Deloitte

Merger and acquisition (M&A) activity relating to London Market brokers is likely to accelerate in 2014 as smaller intermediaries are disadvantaged because of the costs of regulation and an ageing ownership profile, according to a report by Deloitte.

The business advisory firm says small brokers are facing challenges with the widening technological gap between large and small businesses.

According to the report, the regional UK broker market has experienced high levels of activity driven by private equity-backed consolidator business models, while M&A activity in relation to London Market brokers has been subdued over recent years.

Additionally, acquisitions that have taken place have focused on the top independent London Market brokers, while interest in smaller brokers has been limited.

But with market changes making it increasingly difficult for smaller brokers to operate in the London Market, improving economic conditions and interest from private equity, combined with an ageing ownership base, this is likely to lead to an increase in the number of businesses available for sale.

The report says: “The cost of complying with regulatory requirements has increased, which has put pressure on smaller brokers who have more limited means or capability to adapt to regulatory change.

“Management information has become a critical tool for insurance brokers to be able to monitor their business performance adequately, ensure regulatory compliance and make effective business decisions.”

Deloitte insurance partner Ian Clark added: “There are 192 brokers placing business in the market but about half of premiums are from Aon, Willis and Marsh. The top 20 brokers account for about 80% of premiums, which means about a fifth of Lloyd’s premium volume is shared between 90% of brokers and consolidation is overdue. 

“The increasing regulatory burden and changes to the wholesale broker market are making it challenging for smaller brokers to operate.”