Consolidators have been using the Covid-19 pandemic ‘as a bit of a lever to push people’ into considering selling up ‘sooner rather than later’, says regions MD
The “phenomenal amount” of broker consolidation in the insurance market at the moment “has to be a cause for concern” because “it reduces the amount of brokers available”, said Sara Fardon, managing director of Willis Towers Watson Networks.
Speaking exclusively to Insurance Times, Fardon noted that “consolidation is ongoing and we have to accept it’s here. It’s market dynamics. Sooner or later, people do want to exit their businesses and they will look for the option that suits them”.
However, “for every broker that consolidates, the entrepreneurial spirit is alive and well”, Fardon continued, as some broking staff would rather go it alone in a new business venture than work for a larger organisation or consolidator.
“It’s good for clients, it’s good for the market, it’s good for the insurers if there are new kids on the block wanting to grow businesses and having as much help as they can to get those businesses established,” she said.
Supporting startups is one of the strings on WTW Networks’s organisational bow.
Fardon explained: “Whilst consolidation is happening, it is equally important to look at the front end and think how can people start up businesses and what are the barriers to entry to starting up an insurance broker and how can different models help?
“You’ve got to work out how you get your finance and you’ve got to work out your business plan and where you get your clients from.
“We’re right by your side at that beginning bit to say ‘don’t forget to think about this, let’s support you with getting your [professional indemnity] insurance in place, let’s help you think about which computer system to use, let’s think about helping you with marketing’.
“When you’re busy thinking about how you are going to win the next client, you could do with a helping hand in these particular areas. That’s what we’re really bringing to that front end.”
Driving consolidation
In terms of what is driving the current pace of broker consolidation, John Read, managing director, regions at Willis Towers Watson Networks, pinpointed “the amount of capital going into the market, the amount of investment funding available” as “really driving the activity”.
He explained: “Some of the consolidators have to keep on utilising that money because that’s what their purpose is really and they’re backed by some major finance. If they just sit on the money, then it’s not doing anything.
“There’s a real drive and a lot of competition in the market, which means that the multiples are just increasing all the time and of course it gets to a point where people who haven’t necessarily been thinking yet of selling think ‘well in that case, maybe I’ll think about it sooner’. It’s just a natural course of events I guess.”
Read added that the age of business owners and principals is also influencing consolidation because they “are getting to a point where naturally they’re going to be looking at [a] potential sale [or] succession of some kind.”
However, Read also believes that consolidator organisations have been using the Covid-19 pandemic “as a bit of a lever to push people into thinking about things sooner rather than later”.
He said: “I think de-risking definitely is something that people have looked at and talked about. Back end of last year and [the] start of [this] year, there was a lot of activity, a lot of talk around what the [Spring] Budget would do, the impact of entrepreneurs’ tax relief, etc.
“I think the consolidators are utilising that as a bit of a lever to push people into thinking about things sooner rather than later.
“It was that perfect storm really when we’d just come out of a period of difficulty for lots of different reasons around the way [the pandemic] played out in the press and all of the changes and the issues and uncertainty about the future, and then people coming along with big wallets saying ‘why don’t you take a break?’
“I think that had a big impact and will continue to an extent, although seeing the economy bounce back as it has done might give people more hope for the future and confidence.”
Presenting a different dynamic
During the session, Reid said he was not convinced that broking networks are too much help nowadays in terms of supporting broking startups, as “networks themselves are now all owned by consolidators”.
“The pressure will be to buy the network members because they get more value from those members if they do so. So, even joining a network can have its issues for a small broker,” he added.
Willis Towers Watson Networks feels it may have been forgotten about in Reid’s market analysis here, as the network is broker-backed due to being part of the Willis Towers Watson family.
Read told Insurance Times: “Every other network is owned, as far as we’re aware, by a [venture capital]-backed consolidator and it does, in our view, create a different dynamic for insurers and for brokers as well.
“We, being the only independent one, feel that we are more aligned to the independent broker marketplace and really want to preserve that at all costs and support members for as long as they want to remain independent.”
Even if network members do wish to sell their businesses, Read explained that WTW Networks has a mechanism where it can introduce brokers wanting to sell to “other network members who are acquisitive”, enabling companies to stay in the independent broker arena rather than joining a consolidator.
No comments yet