As the UK economy bounces back, brokers are looking to small businesses to generate organic growth. But is the recovery losing momentum and is growth more likely to come from acquisition in the short term?
The UK economy is growing faster than that of its G7 peers, but growth slowed in the third quarter of 2014 to 0.7% from 0.9% in the second quarter.
Chancellor George Osborne says that the economy is at a “critical moment” as recent business surveys suggest the recovery may be losing steam.
Brokers’ opportunities for organic growth will be heavily contingent on the continued recovery of the UK economy.
As the lifeblood of the UK economy, and with an insurance spend expected to hit £5.7bn by 2017, according to market researcher Finaccord, the growth of UK SMEs will affect the fortunes of commercial lines brokers.
Nearly two-thirds of UK SMEs reported growth over the last financial year, according to research by Barclays, with an average increase in turnover of 14%, or £52,500.
And it is the smallest SMEs - or micro businesses - that grew turnover the most. They reported an 18% increase in growth, 4% higher than the UK average, with many looking
to increase their trade in overseas markets.
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Customers’ ability to accelerate growth will have a direct impact on UK brokers, says IMAS Corporate Finance partner James Simpson.
“The premium rating increases are still single-digit increases and that will assist brokers in their development. But income growth is going to be more geared towards their clients growing,” he says.
But Simpson adds that most broker growth in 2015 will be generated through acquisitions, with retirement a key driver. “It’s going to be more through acquisition than organic because organic is a slow process,” he adds.
“For brokers of any size, acquisition is going to be an integral part of their growth and development plan. That’s not to say they will neglect organic, but, to get to where they want to be, acquisition will be definitely part of that and it will appear more growth will come from acquisition.”
The UK non-life broker market is consolidating most rapidly, in part as a result of the recent acquisitions made by Arthur J Gallagher. The top 10 UK brokers accounted for 61.9% of commercial non-life insurance broking revenues in 2013, up from 52% in 2011, a proportion that is expected to rise again this year, says Finaccord.
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