Recession Slows But Doesn’t Halt Brokerage Consolidation: Advisen

Size still matters, reminds a new report on the insurance brokerage market by Advisen Ltd. As a result, the frenetic pace of consolidation in the brokerage sector will be only temporarily slowed by the global economic recession.

“Large brokers enjoy certain advantages of scope and scale,” said John Molka, the author of the report. “At least in theory, their costs are lower, and they are able to provide a broader array of services. But small brokers are the engines of growth in the insurance market, and larger brokers will continue to acquire them to tap into their growth potential.”

Due in part to pressure from former New York Attorney General Eliot Spitzer, the very largest brokers have shifted their acquisition strategy from vertical integration — owning the supply chain — to achieving greater breadth and depth across more market segments, focusing on both niche opportunities and the vast middle market. The middle market has long been the strength of mid-size brokers, many of which have pursued aggressive “roll up” acquisition strategies to grow market share in this segment, according to Advisen’s experts.

“The emphasis on middle market business pits the megabrokers against second- and third-tier brokerage firms,” said Advisen executive vice president Dave Bradford. “Size has advantages, but smaller brokers historically have been quite successful in this sector.”

The two largest brokers, Aon and Marsh, also have been in head-to-head competition to achieve a dominant position in the reinsurance market. In the past year, Aon Re acquired Benfield Group, the third largest reinsurance intermediary, significantly extending its lead over Marsh’s Guy Carpenter & Co. Carpenter in turn acquired regional and specialty intermediary John B. Collins & Associates, and has announced plans to buy Lloyd’s broker Rattner Mackenzie Ltd.

Topics Agencies