IIB fears acquisitions will be used to control distribution
Insurers have failed to persuade the market that their acquisition of brokers will not lead to a watering down of brokers’ independence, a survey by the IIB has revealed.
Over 70% of brokers surveyed felt that insurers buying brokers would result in unfair competition and preferential treatment.
By contrast, only 11% said that it would make no difference to market conditions.
IIB director general Andrew Paddick warned that brokers would have to take drastic steps if evidence emerged that acquisitions were being executed as a means of controlling distribution.
“We would have to respond to protect our members. One option would be for brokers to band together and take their business from the offender insurer to another.
“The IIB is monitoring the fall-out of recent mergers, including AXA’s acquisition of Smart & Cook, Stuart Alexander and Layton Blackham, and Groupama’s purchase of Carole Nash and a majority stake in Bollington.
Paddick added: “I do not believe some insurer claims that they are buying brokers solely as an investment.
“It is far more tactical to secure influence over the movement of large blocks of business.”
He agreed with another finding of the survey – that demand for broker acquisitions exceeding supply would continue to impact on price.
“Prices have risen sharply in the past year or two. FSA regulation has helped people sell. Insurers are typically paying a lot more than the market would expect.
"This also has a lot to do with the motives of brokers: some want to make money, others want to protect their staff’s employment.”
According to the survey, one in three brokers was interested in buying other brokers, but only half that number said they may be sold within the next three years.
However, only 40% of brokers’ succession plans would culminate in an open market sale.
The survey also claimed that all but 94% of brokers had received an acquisitive approach in the past 12 months. Two thirds had received more than three approaches, while 11% had received in excess of 10.
Despite growing opinion that the acquisition frenzy will start to lose steam over the next 18 months, Paddick said that, with over half of company directors aged over 51, it would continue in earnest for the next 10 years.
He conceded that IIB membership fees could increase as a result. Over 600 of the IIB’s 1,000 members took part in the survey.
See News Analysis. page 10
Age of principals/directors