Strategic Consolidation in Global Insurance Brokerage Market: M&A Trends in 2023
The 2023 report entitled “Consolidation in the Global Insurance Brokerage Market: How to Create Value Executing a Consolidation Strategy” provides a comprehensive analysis of the consolidation trends within the global insurance brokerage sector. The report delves into the dynamics of the market, the drivers behind consolidation, and the opportunities and challenges that come with it.
Market Overview and Growth Projections
The author Alvarez & Marsal, provides a detailed analysis of the consolidation trends in the global insurance brokerage market in 2023 and beyond, focusing on how value can be created through an M&A consolidation strategy. Here’s our overview of the report and it’s main findings:
Market Overview and Growth Projections
The global insurance brokerage sector is valued at an estimated $105 billion in 2023 and is projected to grow at a compound annual rate of 5.5 percent, reaching $130 billion by 2027. The commercial lines insurance brokerage sector has experienced continuous consolidation over the past decade, and this trend is expected to persist, although finding sizeable candidates for consolidation is becoming more challenging in countries where consolidation has progressed.
The drivers of consolidation include a generational shift from founders to non-family management, growing compliance pressure, a need for strategic thinking due to changes in international brokerage networks, and the availability of private equity funds. These drivers present opportunities for cross-selling, international growth, and capitalizing on IT investments across a single platform.
The EMEA (Europe, Middle East, and Africa) region is diverse, with a concentration of brokerages in primary markets like the U.K., France, and The Netherlands. The rate of consolidation varies across the region, with some markets like Germany accelerating rapidly. The U.K. market is mature with more than 3,000 brokers, and the industry revenue is expected to increase at a compound annual rate of 3.5 percent between 2022 and 2028.
The U.K. is the most significant insurance brokerage market in Europe, with industry revenue expected to increase to £18.7 billion by 2028. Despite its maturity, the market is still open to further consolidation. However, the net investment by private equity is reducing as the U.K. consolidation is the most advanced.
French brokers account for about 25 percent of premium distribution. The market turnover grew by 3.5 percent in 2022, with significant activity in health insurance. Digital transformation has become a priority for traditional players, and diversification remains essential for brokers looking for new growth sources.
Germany’s insurance brokerage consolidation was not initially driven by private equity. However, the market is now recognizing the benefits of consolidation. The German market had around 46,400 active insurance brokers in 2021, and brokers were responsible for 20 to 25 percent of all new business in several insurance sectors.
The Dutch market has seen a significant decrease in the number of brokers, from about 6,300 in 2007 to about 4,900 in 2019, indicating a trend towards consolidation.
Challenges and Opportunities
The Western insurance market is mature with modest growth rates. The focus of private equity on the sector has pushed up prices for attractive targets. Businesses are generally founder-led, and consolidation comes with a change in governance, which is a challenge.
Conclusion and Future Outlook
The attractiveness of the business model and the strong drivers for consolidation have led to significant interest from private equity in the sector. Prices of both insurance broker platforms and smaller add-ons have increased, making it challenging for new entrants and established players to carry out a value-accretive M&A strategy.