Commercial non-life insurance brokers in Australia, Canada and South Africa
Brokers seek to expand through acquisitions in three key markets
New research from Finaccord, a market research consultancy specialising in financial services, reveals that while the levels of market concentration among commercial non-life insurance brokers in Australia, Canada and South Africa are still lower than in most European markets, a trend towards more consolidation is now underway.
Collectively, the markets for commercial non-life insurance broking in the three markets studied by Finaccord are estimated to be worth nearly USD 5 billion in terms of broking revenues in 2012. The largest of these three markets is Canada where brokers’ revenues from commercial non-life insurance are estimated at USD 2.42 billion in 2012, followed by Australia with USD 2.01 billion. While they are much lower in South Africa, at USD 528 million, brokers there recorded the highest nominal compound annual growth rate of 6.8% between 2008 and 2012, compared to 3.7% in Canada and 3.3% in Australia. However, when adjusting for inflation, commercial broking revenues achieved the highest growth rate in Canada at 1.8%, ahead of South Africa at 1.2% while in Australia, revenues grew by a compound annual growth rate of only 0.2% in real terms.
“In all three markets, brokers have a very strong presence in the intermediation of commercial non-life insurance", commented Bernd Bergmann, a Consultant at Finaccord. "Historically, there has been only a moderate degree of competition from agents in commercial lines, and online and other direct providers have so far not made much progress in undermining the dominance of brokers among business customers. But while brokers can defend their share, there is little room for them to grow further collectively as a distribution channel. Combined with the fact that growth in the underlying market for commercial insurance has been mostly unimpressive since 2008, the most obvious way for individual brokers to grow in these three markets is through mergers and acquisitions”.
A feature of all three countries is that the market concentration has traditionally been somewhat lower than in most European countries. While Finaccord’s research about commercial non-life insurance brokers in 20 European countries published in July 2012 revealed that the top ten brokers command an average of 67.0% of broking revenues in these markets combined, the equivalent figures are 63.1% for Australia, 56.8% for South Africa and only 43.5% for Canada.
“The general strength of the broker channel has tended to coincide with a relatively high degree of fragmentation in all three markets. In the case of Australia, and even more so in Canada, this phenomenon has also been the result of regional specialisation. In Canada, it is quite common for brokers to focus on clients in one province only”, continued Mr Bergmann.
However, the traditionally fragmented structure of these markets is being challenged increasingly as mergers and acquisitions are starting to bring about a higher degree of consolidation. In Australia, major driving forces behind consolidation include not only the major global brokers such as Aon, Marsh and Jardine Lloyd Thompson but also domestically-owned companies like OAMPS and Austbrokers. The latter, which operates partly in the manner of a broker network, has been particularly active in expanding its business through acquisitions in recent years and it held stakes of 50% or above in 41 individual brokerages by the end of 2011.
In Canada, on the other hand, major competitors driving the trend towards market concentration are Hub International, Western Financial Group and BFL Canada, all three of which have made important acquisitions in recent years. In South Africa, meanwhile, Aon has become the leading broker in the country through a large number of high-profile acquisitions although Marsh has made up a lot of ground in the wake of its purchase of Alexander Forbes Risk Services in January 2012.
“There is stronger momentum for mergers and acquisitions among insurance brokers in Australia, Canada and South Africa than in most European countries. If these trends continue, the levels of market concentration in these three countries are likely to match the patterns generally apparent in Europe in the foreseeable future”, concluded Mr Bergmann.
