How are small brokerages staying competitive amid the M&A boom?

Survey reveals brokers' top concerns

How are small brokerages staying competitive amid the M&A boom?

Insurance News

By Gia Snape

Mergers and acquisitions (M&A) have transformed Canada’s insurance brokerage landscape in recent years. A record-breaking number of deals has led to a shift in the market, with large consolidators seen to dominate the property & casualty (P&C) space.

An industry survey shows that while brokers are concerned about the pace of consolidation, smaller brokers are seeing opportunities as well as challenges.

In its 2023 property & casualty insurance (P&C) brokerage report, Smythe polled brokers on economic and industry trends that were concerning them. More than a third (37%) of brokerage executives said that the surge in consolidation was a source of worry.

“When we talk to brokerages about their views on consolidation, we get split responses,” said Alex Wong (pictured), insurance practice group leader at Smythe, a Vancouver-based professional services and advisory firm. “There’s worry, but they also see opportunities.”

Pros and cons for smaller brokers amid M&A surge

“On the downside, a lot of smaller brokers now find it more and more difficult to place business because many insurance carriers, especially the bigger ones, want volume,” said Wong, who specializes in M&A advisory services among P&C insurance brokerages.

“Some brokers are concerned that they're just going be too small to get the attention that they need from the insurance carriers. But on the flip side, they also see the consolidation as an opportunity from a client service perspective.”

Smaller brokers are often able to attract new business as clients look to switch from large consolidators for their insurance needs, Wong explained. Consequently, smaller brokers can maintain competitiveness by fine-tuning their customer service capabilities and leaning into their specialties.

“I think many smaller brokerages that are staying independent still see high-quality client service as an opportunity to pick up new business,” Wong said.

How are small independent brokers staying competitive?

One way that smaller brokers are staying afloat in an increasingly competitive market is banding together, Smythe found.

“What I'm hearing from independent brokers is they’re finding ways to work together to share resources, whether it's on the technology side or the carrier relationship side of the business,” Wong said.

“Whether they’re joining formal associations of independent brokerages or having informal resource-sharing, it’s probably one of the biggest strategies brokers use so they don’t have to go at it alone.”

Smaller brokers are also keen to seize opportunities by embracing their specialties and focusing on where they’ve seen success in the past.

“What segments of clientele do they know very well?” Wong asked. “It’s the client service piece that they can capitalize on, by making sure that they’re doing it really, really well.”

Brokers’ top economic and industry concerns

Staying competitive is increasingly important for smaller brokers, which might be more impacted by economic challenges such as inflation and “hard market” conditions in the P&C industry.

In Smythe’s survey, nearly three in four broker leaders (71%) said that the threat of inflation remains a huge concern.

Higher costs of businesses for insurers can push insurance premiums up, prompting customers to look for more affordable options, which then negatively impacts their quality of coverage and brokerages’ profitability.

Most survey respondents (86%) also said the P&C “hard market” that has persisted for several years is unlikely to change, though just over half (57%) are worried about its impact on the industry.

Apart from economic circumstances, brokers are also challenged by the talent shortage and technology changes in the industry.

“One part of the survey that was a bit surprising, but also made sense, is the number of brokerages that are feeling the pinch in terms of the increase in compensation costs for retaining and attracting talent,” Wong said. “Only about a third of brokerages are still thinking about increasing compensation to attract talent.

“Many seem to be tapped out, so they're looking at other ways, such as flexible working, to attract the talent they need.”

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