By mid-2004, up to 1,800 broker firms could disappear from the UK market as regulation, retirement and high rates drive them to consolidation.

A survey conducted by accounting firm Mazars and Biba found that an overwhelming 86%of brokers believe broker numbers will decrease in the next 18 months.

More than half say that 10% to 30% of the UK's estimated 6,000 brokers, or between 600 and 1,800 businesses, will leave the industry in that time.

The survey reveals that acquisitions will drive consolidation, with 46% looking to acquire. Of these, 43% intend to do so in the next six to 12 months. Almost as many are looking to sell, with 36% of brokers identifying a sale as their key succession strategy. But, at14%, few brokers believe that consolidation will have a positive effect on their business. Brokers in Northern England are the most acquisitive in the country with 56% of Northern-based brokers planning to grow through acquisitions. The country's least acquisitive brokers are those in London and the South, with only 41% in each area saying that they are planning to acquire.

When choosing an acquisition target, cultural fit, reputation and
quality of the team are the top three selection factors. But 47%of those
who have merged found cultural and staff integration and retention the biggest challenges.

Investing in product development (33%) and acquiring broking personnel (32%) are other popular growth strategies, while 39% of brokers are members of, or would consider joining, a network or alliance.

Retail brokers are almost twice as likely as wholesale brokers to consider merging with another broker. While only 24%of wholesale brokers would merge,49% of retail brokers said it was a viable option.

Mazars head of insurance Robin Oakes said competition, regulation, high sale prices, the hard market and lack of succession strategies are all factors driving broker consolidation.

"Brokers are looking at the future and all of these factors are making now a good time to sell," he said.

Capacity is seen as the biggest issue facing the industry in the next five years, with 43% identifying sufficient capacity as key. Regulation, at 17%, is considered next important.

As such, brokers believe the hard market will continue:84%say it will last longer than a year, and 23% think rates will remain hard for more than two years.

Competition threats are divided; brokers focused on wholesale markets think large regional or national brokers and global brokers are the biggest threats, while retail brokers fear increased competition from direct insurers, banks and building societies.

The impending transfer to FSA regulation is high on the list of broker concerns with 48%saying that the shift from GISC to FSA regulation will have a negative effect on their business. Half those surveyed think its effect on the overall UK
market will be negative.

Brokers are unlikely to be happy with the work required to achieve and maintain FSA compliance;40% believe that the work needed to satisfy current GISC requirements is too onerous.

This trend is particularly pronounced among firms with more than 100 staff; 36% believe the GISC requires too much work, compared to 20%of smaller brokers.