Consolidation expected among smaller insurance brokers

The combination of increased time, cost and regulatory pressures, skills shortages and the introduction of regulatory examinations that financial intermediaries will be required to write from this year are expected to result in a rise in industry consolidation, particularly amongst short term insurance brokerages.

That is the view of Clint Harker, Managing Director of Genesis Capital’s short term insurance subsidiary - Gen-Assist Insurance Brokers - who says these factors will force smaller operators to seek partnerships, either through merger or acquisition, over the next five years.

Harker says insurance brokerages with a premium turnover of less than R20 million per year are definitely feeling the pinch. “These brokers are at a distinct disadvantage to their larger peers. Not only do they face an industry-wide skills shortage and salary demands way in excess of inflation, but their businesses cannot offer the career prospects that the so-called “Generation X” is looking for.”

He adds that the impending regulatory examinations that are being introduced by the Financial Services Board for financial intermediaries is likely to fuel the industry consolidation significantly. One industry body has already suggested that the regulatory exams may result in 300 000 job losses in the financial services industry.

“We understand the regulator’s objectives where regulatory exams are concerned and fully support their efforts to create a professional industry where consumers benefit from the best possible financial advice. However, there are also a number of industry members, particularly those over the age of 55, who have not had to study since matric and see these exams as a nuisance. For them, this could be the final straw that sees them exit the industry.”

Harker says another challenge facing small insurance brokerages is the perceived favouritism afforded to large brokers by the country’s insurers. “The insurance companies focus on larger brokerages which have the underwriting capacity and claims mandates that allow them to respond to client requests faster and entitle them to earn more income through various structures.”

He says many smaller operators are also exiting the financial services advisory space as a result of their not having invested in strategic processes. “The impact of this can be seen by the lack of succession planning in many of the smaller firms .

Harker says Gen-Assist is one of the brokerages looking to benefit from this consolidation and is actively exploring acquisition opportunities in the short-term insurance space over the next twelve to eighteen months. “As the South African financial services space continues to evolve to one of stricter compliance and enforcement, we will actively seek out smaller brokerages keen to consolidate their businesses under a dynamic short-term insurance umbrella.”