The Brokerage World Follows the 2.0 Trend - this New Generation is Breaking the Market Codes

Stanislas Vital , Huw Barker , Thomas Noel-Betrancourt

The brokerage world is a two-headed market. On one side are the big leaders who have market share, yet struggle to be agile. On the other, there are the smaller players who typically have difficulty competing, but occupy a market niche. Some brokers have understood new market trends and adapted their strategy to the current challenges; others need help and support to keep pace. The insurance brokerage industry is constantly evolving and players are being forced to adapt to rapid economic changes. It is of great importance that they reinvent themselves and improve their services. What strategies have the players adopted? What re-configuration of the competitive market can we expect in the coming years?

The insurance brokerage market in Europe is at a turning point with a large number of players looking to make the most of the situation. A robust strategy and execution will be essential to achieve significant success.
Stanislas Vital

Risks are multiplying for brokers

The positive dynamic within the brokerage market has been challenged by growing regulatory pressure namely, the task of implementing GDPR (General Data Protection Regulation) and DORA regulation (Digital Operational Resilience Act) in Europe by the end of 2022 / beginning of 2023.

These regulations have directly impacted brokers’ businesses and are putting the smaller players at risk due to limited ROI (Return on Investment) of adaptation efforts. More indirectly, the DDA and Solvency II (applicable since 2016) have prompted insurers to rationalize their distribution networks.

Additional Complexities are Coming in to Play, Making the Brokers’ Role Even Harder. These Complexities Include:

  • The arrival of new players and the strengthening of competing distribution channels (bancassurers, comparators, insurtechs and direct distribution by insurers/mutual companies) has resulted in increased pressure on insurance prices impacting the profitability of brokers
  • The increasing demands of clients in terms of services and digitalization particularly given the impact of the COVID-19 health crisis
  • The advent of digital technology and the digital era increasing cybersecurity, data security, risk, and incident management challenges.

Typically, smaller players are less able to be operationally resilient in the face of these different pressures due to a lack of resources. On the other hand, Aon France, the fifth largest broker in France and a subsidiary of Aon plc, has shown great adaptation. Aon recorded a growth of more than 11% of its turnover over the first nine months of 2022. This is attributed, in part, to a digital investment plan amounting to 100 million euros in support of customers in their digital journey, including 15 million euros dedicated to France.

In a more complex environment, brokers will have to rely increasingly on their business’s “advice” dimension and put the customer at the centre of the relationship to provide services beyond core risk placement. Areas of development such as expansion of the customer base, digitalization and more global management of customer needs all require significant investment. To make these investments profitable, brokers often rely on external growth. This trend has accelerated in recent years with the arrival of investment funds seeking to consolidate the sector.

A loss of speed, profitability, specialization and technological advances are challenging the model of smaller players. It has become a real challenge to manage the risks and this has resulted in increased M&A activity which concentrates broking capability to a few large players.

Current Market Trends, Challenges, and Growth Levers

In the broking market, the increased complexity of brokering business and the increased level of their involvement in the value chain means that brokers should consider both organic and inorganic growth. Inorganic growth through mergers and acquisitions is increasingly used to rapidly resolve capability gaps and bolster broker’s longer-term strategic goals. For example:

  • Acquisition: In 2017, as part of its overall digital transformation strategy, Marsh quickly realized the need to modernize its technology, both internally for process management and externally to bring a fresh digital experience to customers (e.g., digitalize and automate the claims process, streamline, and simplify the customer experience). Marsh turned to companies such as SAM, acquired in December 2021
  • Merger: At the end of 2021, French groups Siaci Saint Honoré and Diot, owned by the Burrus Group, completed their merger, creating an independent European champion in insurance consulting and brokerage
  • New entrant: In early 2022, the UK-based Howden Broking Group announced it was expanding in France. Howden’s objective is to become one of the leading brokers in the country, with a strong presence and a specialist service offering to meet clients’ needs. Howden France is part of a plan to strengthen the group’s presence throughout Europe.

Internal trends also require consideration (e.g., increased value chain appetite, wider non-risk-based services and campaign capabilities) to endorse not only primary brokerage functions but also wider value-add services such as:

  • Mutualized marketing and sales campaigns
  • A delegated claim management service
  • Advanced Administrative and tax services

Most notably, broker-wholesalers are starting to play a bigger role, taking a unique position between insurance companies, brokers, and clients, with some working on modern integrated platforms that will bring forward this ecosystem in a more digitalized and customized path. In this evolving value chain, insurance companies are still trying to find the right manoeuvrability but may leverage increased margins with a good rhythm of new business and mutualized costs of sales or claim management.

What Can You Expect In the Future for the Brokerage World?

As market conditions have deteriorated in recent months (such as the economic impacts of inflation and pressures on insurance prices, as well as an increasingly restrictive regulatory framework), several questions arise:

  • Will increased concentration result in the victory of the “generalist” model or will specialists still be able to hold their own?
  • How will the broker model evolve, especially for local players?
  • Will the role of broker-wholesalers, who have often taken over from insurers for local brokers, continue to grow in the insurance sector?

Alpha’s Key Takeaways :

  • Have a clear and bold strategy: Know your strengths and plan how you will reinforce and/or complement them
  • Challenge your success: The market is very aggressive, no one has a lasting stronghold on any given market. Continuous adaptation is required
  • Invest in technology and client experience: The ability to provide a seamless and efficient experience to clients and insurers will be a key factor of success.

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About the Authors

Stanislas Vital
Executive Director, Head of Insurance Consulting France

Stanislas leads the European Insurance team at Alpha. He joined following a career spanning consulting and auditing across General and Specialty Insurance. Stanislas drives transformation programs in Finance, Investment and IT strategy. Stanislas works across all stages of business transformation, from strategy, through implementation. Prior to joining Alpha, Stanislas worked at Deloitte and EY.

Huw Barker

Huw is a Director in Alpha’s Insurance practice, with over 13 years’ experience working with retail and specialty (re)insurance and broking clients. Huw has a background in both industry and consulting, having spent the formative part of his career working in Claims for a large general insurer before consulting with Accenture, EY and the PEN Partnership, joining Alpha in 2021. Huw is a Chartered Insurer, is ACII qualified and has a degree in Accounting, Finance and Business Administration from the University of Kent.

Thomas Noel-Betrancourt
Senior Manager

Thomas is a Senior Manager in Alpha's Insurance team with extensive experience in Finance Transformation and Investment. Thomas has led engagements to expand adapt to changing regulatory environment, develop new solutions, support M&A transactions, and leverage technology to enhance finance and investment functions.