The global insurance brokerage market is set to outpace the general insurance company market based on three key factors, according to Britton Van Dalen, Alpha FMC’s executive director and U.S. head of insurance.
As a result of this advantageous developments in the brokerage market, Van Dalen and his team at Alpha FMC are also predicting market consolidation and M&A activity to slow down as well.
“For those brokers that have been serial acquirers, we're expecting that they're going to turn their attention inward and start to think more about the integration of the deals that they've been making over the last five to 10 years,” he said.
Certain economic factors are also slowing down the rate of M&A, including inflation, high interest rates and the unsteady labour market.
“In the meantime, we expect to see them optimizing technology, operations and data, while really thinking about what has been bought to get that asset tighter or more creative, while boosting the value of it.”
In an interview with Insurance Business, Van Dalen spoke about increased technological capabilities within a brokerage can help elevate a business to new heights and why specialist brokers will be important for companies to offer a unique value proposition.
Within Alpha FMC’s recent report about the rise of the brokerage market, which is expected to increase in value from US$128b in 2021 to US$278b in 2030, Van Dalen and his team predicted that businesses looking to become more successful and profitable will look to more technological solutions to solve internal inefficiencies.
“The average broker is losing margin in core broking activities,” Van Dalen said.
“It's a very manual and intensive process that is taking away their ability to find opportunity in other areas of the business.”
As a result, more and more brokerages will look to AI and automated solutions to sidestep these duties, while also being able to help with product pricing in new ways.
“The impact of AI on the broker dataset is going to be really intriguing because at the end of the day, brokers understand pricing better than anybody,” Van Dalen said.
“Being able to use AI to understand pricing as it relates to Terms Conditions and claims outcomes, really gives them a very strong seat in the overall industry in terms of analytic power and depth.”
There has also been a large emphasis on augmenting the use of data as a means to push for growth in the present and beyond.
“There here have been significant investments in capturing data and thinking about ways to optimize the evaluation, assessment and analysis of that data,” Van Dalen said.
“Asset owners, boards of directors and C-suite employees are expecting leaders in the brokerages to make more use of that data to improve their process and decision making while turning that data into third party revenue streams.”
Elsewhere within the report, Alpha FMC has defined four broker archetypes and imperatives, which include:
“The one area we are keeping an eye on is specialists, since they have a very compelling business model,” Van Dalen said.
He elaborated on how some of their key metrics, such as revenue per head, are very high.
“It's clear that as they focus on either industry or risk specialization, they are able to deliver outsized returns compared to the rest of them broker market, which makes them really attractive from an investment perspective.”
Specialists more attractive include their lower cost of goods sold due to them being very adept in the domain that they are functioning while being able to win clients more easily.
Additionally, they typically have the deepest relationship with the insured, while specialist brokers are also a bait for talent because they will be able to work in an environment where their effort is very appreciated.
“Even brokerages that have been able to growth through M&A or through other aggressive means will begin to shift priorities as the benefits of specialization become more concrete and lucrative in the industry,” Van Dalen said.
