Furthermore, MGAs that ‘put growth over profit don’t deserve to have underwriting capacity’, says chief executive
There is not a lot of strategy surrounding the broker consolidation currently occurring in the UK insurance market, according to David Bearman, chief executive of global insurance business Aventum.
Speaking exclusively to Insurance Times, Bearman said: “If you look at what’s going on in the UK market specifically, you’ve got a whole bunch of consolidation and I actually don’t think there’s a lot of strategy to that.
“They’re buying up retail brokers, they’re buying up MGAs, they’re buying the odd overseas broker and actually, the independent brokers are getting less and less choice when it comes to who their wholesale partner is.
“And if you’re a retail broker, a specialist retail broker, a corporate broker in the Midlands, it’s very likely that you’ll be dealing with a wholesaler that has an owned entity that’s one of your competitors, which we find quite a bizarre – certainly, I wouldn’t feed my eventual competitors my data.”
This week, Bearman announced that his business, previously known as Direct Insurance Group, has undergone a rebranding and restructuring process. Now called Aventum, the group includes MGA Rokstone and wholesale broker Consilium.
Cyclical consolidation
Although noting that broker consolidation is a concern, Bearman added that it “will go on”.
He explained: “I think what you’ll find is – as we’ve seen more recently, when Aon bought a fairly sizeable national broker – those guys end up falling out the back anyway two or three years after their covenant, so broker consolidation will go on.
“Purchases and buyouts and private equity have been around since the 70s, so it will continue and it will continue in a cycle. To a degree, it’s accelerated quite quickly.
“Capital is seeking alpha, of course it is – it needs returns – and maybe private equity houses to a degree have lowered the hurdle rate, as it were, or the entry level because we’re seeing some businesses getting bought up.
“And you know the guys in the middle doing the buying here are just doing it purely because they’ve got an exit target horizon and they need to be of the next size. I don’t know if anyone read the book of Towergate, but it didn’t work very well for them when they just threw tons of money at it.”
Don’t deserve capacity
On the topic of MGA capacity, Bearman has very little sympathy for businesses who are unable to retain capacity due to particular underwriting approaches.
“I think that MGAs that have acted poorly, that have put growth over profit, they should be carried out. They don’t deserve to have underwriting capacity,” he said.
“If you write business for growth, you will do that at the cost of the bottom line to your market. So don’t expect to have a market for long.
“Poor businesses that don’t understand the numbers, that don’t understand their sweet spots, that aren’t different, that can’t differentiate because of products or tech will die out. You’ve got to add value to the distribution chain. If you don’t, you’re just a cost – why are you needed?
“I’m sure there’s some businesses out there where they’ve had capacity curtailed just at the wrong time, but ultimately, MGAs that are doing a poor job and aren’t better than their competitors are going to die away.”
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