Commercial brokers face further consolidation this year, according to comprehensive research

Up to one in five commercial broking firms could have closed down or merged into bigger businesses by this time next year, according to research published by Insurance Times’ parent company, Newsquest Specialist Media.

The role of super-consolidators such as Towergate in driving the shift in the market was also highlighted.

Thirty eight per cent of those respondents who had received takeover approaches in the past 18 months received them from Towergate.

Brokers also vented their frustration with the service they received from insurers which, despite insurers’ efforts to improve, many claimed was consistently poor.

In the research project, which questioned 378 senior and client-facing staff in broker businesses between July and August 2007, brokers ranked the top 18 insurers on factors including service, claims handling and documentation.

Hiscox topped the table for comprehensive service, while AXA came last. The report said: “To most brokers, AXA meant shaky admin, crummy staff, inadequate resourcing, local branch closures and communications hell. Several brokers had ceased placing with AXA. If things don’t improve fast, more may follow.” AXA declined to comment.

Other low ranking insurers included Royal & SunAlliance, Zurich and Allianz, while high performers were Chubb, QBE and Fortis.

Brokers were set to continue selling up or merging their businesses, with 5% already completing a merger and a further 4% expecting to do so within the next 18 months.

A further 10% said merging or closing down was a real possibility in the months ahead, meaning 19% of firms in the market could effectively disappear.

The report said: “The busy merger market is a product of many factors. For consolidators, these include the availability of cheap money and the belief that better profits can be wrung from broking businesses through economies of scale and improved bargaining power on commissions.

“Many greying owners, fatigued by tough competition and new FSA bureaucracy, are taking a profitable exit while the chance is there.”

Looking further ahead, only 63% of senior respondents were confident that their firms would have been neither bought up nor closed down by 2012. Fourteen per cent thought it probable that their firms would have been bought or closed.

Swinton, Equity Insurance Brokers, Willis, Oval, Cobra, AXA, Smart & Cook, Jelf and Giles were named as active acquisitors in addition to Towergate.

The project, overseen by Newsquest Specialist Media’s head of research, Peter Joy, will be repeated annually.