Insurance DataLab analyses how brokers have performed over the last year in the face of significant economic difficulties

The UK broking market has faced some tough market conditions of late, with increasing regulatory workloads, a difficult economic landscape and rising costs all adding pressure to the broker business model.

Despite this, brokers continue to demonstrate a resilience that has made them very appealing to private equity investors.

Indeed, the 2023 Insurance DataLab Broker Performance Report – which is ­officially being launched at this year’s Biba conference (10-11 May 2023) – has revealed that brokers’ financial performance has remained relatively steady despite the headwinds they face.

This year’s analysis has been extended to cover 136 broking firms, making it the most comprehensive view of broker performance to date.

What hasn’t changed, however, is the aim of finding the best performing brokers that are delivering long-term and sustainable financial performance that is outperforming the wider market.

To achieve this, Insurance DataLab looked at three key pillars – profitability, growth and productivity – which it then combined to give an overall rating for each company.

The brokers covered by the report received an average broker rating of 52.2% for 2023, up from 51.8% the previous year. This is, however, slightly down on 2021, when the average rating stood at 52.7%.

Despite this ongoing strong performance, growth has faltered slightly, with the average growth rating falling from 54.0% in 2021 to 51.5% after a decline in operating profits.

On the up?

The 136 brokers in Insurance DataLab’s analysis reported an aggregate operating profit of a little more than £2bn, according to the latest set of results, down £16.3m on the previous year. In 2022, however, aggregate operating profit grew by almost £348m, although this was still less than near £423m of operating profit growth reported for the previous year.

When it comes to revenues, however, brokers have continued to find growth, despite the tough market conditions.

Indeed, the aggregate revenue of the 136 brokers in this report grew by 4.7% to almost £10.4bn, according to the latest set of accounts.

This compares with revenue growth of 3.7% for the previous year and just 1.6% for the 12 months preceding that as business continues to recover post-pandemic.

Brokers received their lowest score for productivity – based on turnover per employee and staff costs as a percentage of turnover – with an average rating of 50.9% for 2023 under this pillar, in line with the average score received for 2021.

This is, however, an improvement on 2022, when the average productivity rating stood at 50.1%.

This steady score comes despite an increase in the value of staff costs as a ­percentage of turnover, which have risen from an aggregate of 43% in 2021 to 48% in 2023.

But this was offset by an increase in average turnover per employee, which has grown from about £138,000 to a little over £146,00 in 2023.

Meanwhile, brokers received their highest rating under Insurance DataLab’s profitability pillar, receiving an average score of 54.3% for 2023. It was also the only metric to improve over the course of this analysis, rising from 53.3% in 2021.

This improvement was driven by an increase in three-year earnings before interest, taxes, depreciation and amortisation (Ebitda) margin, which stood at an aggregate of 24% for 2023, up from 22% in 2022 and 19% in 2021.

Size breakdown

But how does financial performance compare when it comes to the size of a broker?

To help answer this question, Insurance DataLab categorised brokers into four different size bands, according to the revenues as disclosed in their 2021/22 accounts. These bands have been defined as:

  • Small: revenues of £10m or less;
  • Medium: revenues of between £10m and £100m;
  • Large: revenues of between £100m and £500m;
  • Super: revenues in excess of £500m.

When it comes to overall performance, the brokers with revenues in excess of £500m scored highest, picking up an ­average Insurance DataLab broker rating of 58.5% for 2023.

This compares with average scores of 55.8% for large brokers, 52.8% for medium-sized brokers and 49.8% for the smallest brokers in the market.

Indeed, larger brokers have out­performed their smaller peers in each of the past three years, with the top two revenue bands also increasing their ­average score over each year of this analysis.

Those brokers with revenues in excess of £500m improved their average score by a total of 2.9 percentage points over the past two years, after reporting an average rating of 55.6% in 2021 and 57.0% in 2022.

Large brokers, meanwhile, improved their average rating by 1.9 percentage points over that same period, after reporting scores of 53.9% and 54.5% for 2021 and 2022 respectively.

This means that the top two revenue bands have extended their lead over the medium-sized and smaller brokers.

Those medium-sized brokers, with ­revenues between £10m and £100m, reported a 0.2 percentage point improvement over the course of the past two years, after receiving an average rating of 52.6% for 2021.

Smaller brokers, meanwhile, have reported a worsening average broker rating across each year of this analysis, with the average score falling by a total of 2.2 percentage points since 2021.

These brokers received an average rating of 52.0% for 2021, falling to 49.9% in 2022 and 49.8% in 2023.

Top profits

When it comes to profitability, those ­brokers with revenues in excess of £500m performed best, with an average rating of 62.7%.

This marks an improvement of 3.6 percentage points on the previous year, when these super-sized brokers received an average rating of 59.1%, which was itself a 4.9 percentage point improvement on the previous year’s score of 54.2%.

This means that brokers with revenues in excess of £500m outperformed their closest peers – large brokers, with revenues of between £100m and £500m – by some 5.8 percentage points in 2023, and the market average by 8.4 percentage points.

Smaller brokers, with revenues of less than £10m, were ranked third for profitability with an average profitability rating of 55.0% for 2023, up from 54.8% in 2022 and 54.4% in 2021.

Medium-sized brokers, meanwhile, received the lowest profitability rating of the four revenue bands, with an average score of 52.3%

This compares with average scores of 52.3% and 53.6% for 2021 and 2022 respectively, making these medium-sized ­brokers the only revenue band not to improve their profitability since 2021, as well as the only sector of the market to report worsening profitability over the past 12 months.

Those brokers with revenues in excess of £500m were also highest ranked for growth, with an average 2023 rating of 57.3%.

This compares with average scores of 54.1% for large brokers, 53.6% for medium-­sized brokers and just 48.7% for smaller brokers, with revenues of less than £10m.

When it comes to productivity, however, it is not the largest brokers that come out on top, but those with revenues of between £100m and £500m.

These large brokers received an average productivity rating of 57.1% for 2023, up from 56.5% for 2022 but down from 57.2% for 2021.

This compares with a 2023 productivity rating of 52.5% for the largest brokers with revenues in excess of £500m, 52.3% for medium-sized brokers and just 47.9% for those brokers with revenues of less than £10m.

Despite this high average performance from the larger brokers, the majority of the businesses to pick up Insurance DataLab Gold Awards for 2023 – to be revealed at 11am on the opening day of the Biba Conference from the Insurance DataLab stand – have revenues of less than £10m.

This demonstrates that while size and scale may help, they are not the sole determinant of success.

Summary methodology

Performance metrics have been calculated using Insurance DataLab’s own analysis of broker company accounts filed at Companies House, which takes into account both short and long-term performance covering the past three years of trading.

The three metrics used to calculate the overall Insurance DataLab broker rating are:

  • Profitability: Insurance DataLab has calculated the three-year aggregate earnings before interest, tax, depreciation and amortisation (Ebitda) margin by dividing the aggregate Ebitda figure by the aggregate revenue generated over the past three years.
  • Growth: Insurance DataLab calculated a growth metric comprised of a weighted average of the growth in revenue over the past 12 months and the growth in operating profit over that same period.
  • Productivity: Productivity has been assessed by looking at staff costs as a percentage of turnover over the past 12 months, as well as the turnover generated per employee over that same period.

Each metric has then been standardised to create a percentage score for each broker, with a weighted average used to create the overall rating.