As the big firms lose income the many smaller broking groups in the Top 50 are reporting strong growth and embarking on another year of fierce dealmaking. Caroline Jordan reports

?There are some clear winners in this year’s top 50 UK insurance brokers and they are not necessarily the usual suspects. The top three are unchanged as of 2006 – with Aon, Marsh and Willis occupying the first three slots.

It’s a case of the nationals dominating here, but what stands out is that all three have seen a considerable reduction in brokerage.

In particular, Marsh has seen a fall of 5.2%. The impact of transparency and the legacy of Spitzer has been painful both in terms of job losses and the reduction in earnings.

So, it has been goodbye contingent commissions. And, it is notable while both Marsh and Aon have been bullish in their support for a clear fee structure and not taking payments from insurers, that this has enforced belt tightening.

In January, Aon appointed Peter Harmer as chief executive of Aon in the UK, succeeding the hugely respected Dennis Mahoney.

Harmer was chief executive in Australia for seven years. Mahoney will continue to serve as chairman.

“Customers must have transparency and it is notable that some brokers still offer poor visibility,” Harmer comments.

In a market where acquisition is the name of the game for so many firms, Harmer says his focus is on organic growth – and on profitable niches. He says he would not rule out acquisitions and points out that in January, Aon bought classic car specialist Footman James.

“It’s a firm that is traditional in its service but also innovative. There are more classic car owners and it is a way we’ll create value, he says.”

But, he adds that the long established Aon Private Clients, its high net worth specialist division, is a star performer, growing around 25% year on year and its affinity group business is also showing strong figures.

And, along with many of the super provincials, brokers such as Aon will be looking no doubt to push corporate risk management consultancy.

There is no getting away from it, but Towergate has been an amazing success story. It has moved up two places and is a past master at acquiring highly profitable niche businesses along with hammering out lucrative deals from insurers.

Strongest team

Peter Cullum is still out there doing the deals and he has built one of the strongest teams in the market. Last year, he lured Amanda Blanc from Groupama, and Norwich Union’s Ken Wallace joined as a non-executive director.

The problem for Towergate now is that other acquisitors, insurers and venture-capital backed brokers, are chasing the same targets.

There are only so many good independents left out there and Towergate is not the only one with a fat chequebook.

It is understood Towergate is looking to grow its presence in the London market and uses the services of super fixer Terry Wellard on an

ad hoc basis. It also has Cullum Capital Ventures led by Tim Johnson which targets smaller regional business. This offers a number of options for brokers looking to sell, including ones where only a percentage of the business will be purchased. This releases cash for the principal, but also means a more gentle handover process.

Towergate is aiming to offer a multi-strategy solution when it comes to acquisitions, but others are also steaming in to the deals. The fact Towergate is so big now, may also count against it. A smaller broker may say it is able to offer more flexible terms or indeed convince the principal that it can offer a better home to existing staff. It may all be touchy feely, but Towergate is certainly not swimming alone.

Although it is near the bottom of the table at No 48, Broker Network shows a stunning brokerage return of 65.2%. It clearly has a winning formula when it comes to acquiring businesses, not least because it allows its purchases to retain their own brand and backs them in their local communities.

Chief executive Grant Ellis remains an approachable and popular figure in the broker market and smaller firms have benefited in particular from network membership – so it clearly can make sense to sell out to a business they trust.

And, the people at Giles are obviously doing something right too. It has moved up from number 48 to 25 and produced an outstanding brokerage growth figure of 130.4%. Managing director Howard Pearson joined when Giles bought Miller’s retail operation.

“I’m absolutely sure there is going to be further growth. We’re still in the foothills, not the mountains

Steve Smith, Kerwin Smith (a Giles purchase)

He comments: “I have found that when a broker is considering a sale it will want to talk to Giles. This is an exciting business. All the senior people work incredibly hard and are unpretentious. It’s a cliché, but you can feel the buzz here and there are so many opportunities.

“One broker Steve Smith of Kerwin Smith, which was recently acquired, is now running our northern region for example. The leadership is highly visible, and they are talking to a lot of businesses right now. I’m absolutely sure there is going to be further growth. We’re still in the foothills, not the mountains.”

Just outside the top 10 at No 11 is IAG, the holding company of, among others, Equity and Hastings Direct. UK group chief executive Neil Utley says: “Our acquisition strategy remains aggressive; in fact we’ve made 17 regional broker acquisitions during the past 12 months alone.

“Equity now has almost 80 branches across its UK network and we’re well-placed to achieve 100 before the end of 2008. The group is at the legal stage of half a dozen more acquisitions and the funding is in place for larger purchases that fit our criteria."

Best to come

And it has been a splendid year for Oval, now in the top 20 at number 16, up from 21 last year. Chief executive Philip Hodson describes the past year as “steady” however and says the best is yet to come.

“There are another 12 [acqusitions] in the pipeline and we could see as many as 15 or 16 by the end of the year. We’re about to press the accelerator.”

Hodson says business is going well in part because of its first rate relationship with backer Caledonia, which holds 34% of the business. “It’s comfortable that it has a minority stake and we work well with it. We’re a company that gives our people plenty of rope so they can play an active part in running the business. This works with brokers and even though we’ve been approached, we’re not looking to sell.”

Meanwhile, this has been the year that insurer AXA has made its mark, seeking to win a share of distribution through its cracking trio of acquisitions in Smart & Cook, Stuart Alexander and Layton Blackham. The AXA owned Venture Preference holding company has leapt up the table to No 14 from 27.

And, now Groupama wants to be in on the act. There have been strong rumours, first revealed in Insurance Times, that the insurer is set to buy high net worth broker Lark. Meanwhile, it has recently bought two well regarded firms, Carole Nash which is in at No 33 and attractive regional Bollington.

Groupama corporate services director Paul Picknett comments: “We have appealed to the brokers we’ve bought because we make it clear from the start they remain independent. We position them as sister companies but they are not going to be absorbed into Groupama.”

But, is this going to make Lark sign on the dotted line? Picknett is tight-lipped on this point but emphasises there are “plenty of tempting businesses out there we’re interested in”.

Meanwhile, the trade press is packed with acquisition stories. And, as with so many of the top businesses here, this has fuelled much of the growth.

Yet, outside of this top 50, many smaller deals can become tedious. In many cases it is just another so-so broker reaching retirement age and cashing in by selling his book of business to a slightly less humdrum firm.

But, although it has only moved up two places to No 17, RIAS is an interesting case in point. It is in excellent shape, but has not been out buying rivals – it has grown purely organically. The Bournemouth broker is owned by insurer Fortis.

Managing director Janet Connor says: “I’m delighted we are in the top 20. There are a lot more brokers targeting the over 50s so we focus on service and recommendations. Our research shows that 88% of our customers would advocate us.”

She adds good service means telling call centre staff they have no limit on the time they can speak to customers and although household cover for oldies is viewed as a good bet, travel cover in this sector is stickier.

Indeed, it is an area where consumer groups have knocked the industry for age discriminatory practices. But, Connor says her firm is able to offer insurance for those aged up to 99 and even its pet cover has no upper age limit.

Making the most of the ageing population is one matter – seeing the fresh shoots of embryonic brokers is another. Indeed, Eric Galbraith, chief executive of Biba, has expressed concern that too few new broker firms are setting up, perhaps held back by regulatory and financing pressures, even if these are perceived rather than real.

In this top 50, as has been a growing trend over the past few years, success is predominantly coming about as a result of consolidation. Or as in the case of the nationals through their sheer size.

But, will some younger brokers say enough is enough and have the courage to start new businesses? It may be years before they make it into the top 50, but the current state of the market could be the tipping point.