In Insurance Times’s November issue, Paul Trail managing director of Close Brothers Premium Finance reveals why he believes the next round of mergers and acquisitions will be in the personal lines market
Although it is too early to predict the post-Covid market with absolute certainty, there is ample evidence of a hardening market in commercial.
Mergers and acquisitions (M&A) are also very much in the news, not least as a result of the pre-Covid merger between Aon and Willis, which will see the combined business return to the top of the Insurance Times Top 50 Brokers next time around.
The Top 50 analysis confirmed that 19 of the Top 50 brokers are private equity owned, the majority being commercial brokers, and most M&A is centred on the commercial sector. There has been far less deal making in personal lines.
Most of the growth in personal lines in recent years has been organic and generally from businesses, including startups, that have good quality technology that enables them to make money from churn and/or have attractive niche propositions.
Although the personal lines market is challenging, not least due to Covid, there are many well managed, fast growing personal lines brokers that will eventually attract attention from private equity buyers, partly because their business models are now proven, and partly because the number of acquisition opportunities in the commercial sector are declining year on year.
Selling to consolidators has proved popular among brokers looking to create value from their life’s work.
Sale propositions from consolidators vary, but essentially they give choice to owner-managers wishing to exit, or alternatively offer them a chance to keep some skin in the game under new ownership.
They can then use the resources and fire-power of the consolidators for their own inorganic growth.
In light of the continuing challenges of Covid, the economic devastation it has wreaked on many industries, and now the challenge provided by increasing prices, selling up may become even more attractive for broking owners.
The broking market is contracting in terms of actual brokerages and revenue spread for sure.
According to Insurance Times, broking revenues among the Top 50 have increased during the last year by 5.65% to nearly £10bn.
The fully independent broker may be under pressure as of now, however I believe the sector remains sufficiently exciting to attract the next generation of entrepreneurs to invest their energy into broking. For all the challenges and changes going on, it is still, in my view, the beating heart of the insurance industry.