The number of commercial brokers will shrink from 3,000 to less than 250 in ten years, predicts Hugh Warren, chief executive of Willis Commercial Network.
Warren, who is in charge of a network of 50 independent brokers in England and Wales, believes smaller companies face an “Armageddon” as they are forced to sell their businesses, due to imminent retirement, market consolidation, the General Insurance Standards Council (GISC) and advances in technology.
“Commercial brokers and inter-mediaries are going to disappear,” he said. “Right now, there are way too many brokers but, by 2010, I think there will be fewer than 250, primarily because of retirement.”
Willis, the world's third largest broker, recently conducted research across a random sample of brokers with annual premium dealings below £2m. Out of the 45 questioned, more than half were 55 years old or over, while 70% were over 50.
“If insurers are going to get more demanding, brokers will worry about sustaining the value of the assets they've built,” he said. “They will be forced into selling them, as in many cases this is their pension.
“If they feel that business is going to get smaller, they will sell as quickly as possible – particularly when they turn 55 and realise mortality is not too far away.”
Warren also predicted further consolidation as insurers get more demanding and brokers are forced to comply with the GISC regulations.
“Brokers can easily become registered members of the GISC,” he said. “But they will find it very difficult to comply in the way they trade business and the amount of professional indemnity they have.
“Systems will also drive consolidation as they become more costly and companies cannot keep up with the technological change.”
Warren said Willis would become “an acquisition team as the brokers in our network will grow”.
But he added: “For small brokers, it is terrible news. It's an Armageddon.”
Mike Williams, chief executive of the British Insurance Brokers' Association (Biba), said: “The figures would suggest that the reduction in the number of players is going to continue. But the really difficult thing is to predict where it is going to stop.
“Despite the shrinkage, it's obvious brokers want to invest in technology and the market is growing. There are young people keen to get into commercial lines and the GISC is flexible and working to help brokers, not hinder them.”