Australian insurance brokers are closer than you think
Is business tough down under too? To find out how Australian financial services professionals weathered the recent economic fallout we turn to the results of a recent Macquarie Relationship Banking survey. The Macquarie Group – according to the company we
The inaugural survey was conducted in 2007 among 118 insurance broking businesses. The latest benchmark survey was completed in 2009 among more than 200 Australian broking firms. It revealed that the Australian insurance broking industry powered ahead despite a raft of challenges.
Conditions are perfect for new business
More than 80% of brokers recorded revenue improvements over the previous 24 months, with 88% predicting further improvements in FY2010. How did these financial services providers achieve growing revenues in a hardening market? Macquarie says the improvement was largely due to consolidation in the sector. But before you get too excited you should consider this performance in context. Australia has the honour of being one of the best-managed economies through the recent global recession. The Australian economy avoided technical recession by NOT posting two consecutive quarters of negative GDP growth.
There is reason for the positive outlook. Macquarie Relationship Banking Head of Insurance Broking Peter Conquest recently told insurance news portal http://www.insurancenews.com.au/ that brokers are facing favourable conditions. They are conducting business in the proverbial ‘sweet spot’ of both economic and insurance cycles. “This optimism around revenue lines is supported by the expectation that the long-predicted hardening of premiums will reveal itself soon, providing a natural uplift,” said Conquest. All else being equal, hardening premiums lead to improved operating margins and – of course – better premiums on existing business.
And conditions to grow business are optimal too. Conquest believed “opportunities for organic revenue growth” improves with each domestic interest rate increase. Australia was among the first economies to hike interest rates as the globe exited recession recently.
Ignore weaknesses at your peril
When business is going well we often forget about possible obstacles. It’s not all plain sailing for Australian insurance brokers. The Macquarie survey reveals growing concerns in the areas of competition and skills. Improved conditions in the financial services realm will encourage new entrants to the sector and the increased competition will require that existing brokers pay closer attention to clients, take steps to retain top personnel and remain cost competitive. Almost 22% of the brokers in the survey mentioned competition as the biggest threat to ongoing profitability. But by far the biggest threat remains the performance of the overall economy.
More than half of the brokerages surveyed indicated they would be adding to their staff complement in the next year. And two thirds of all brokerages flagged recruitment as a “considerable business challenge!” These businesses realise that finding and retaining skilled personnel is an essential ingredient for success in the professional financial advice space. It seems the only place in the world where skills shortages don’t exist is in the minds of the executive of South Africa’s infamous Black Management Forum.
Australian insurance brokers share a number of concerns with their South African peers. They’ve also experienced a shift in product distribution as technology favours selling insurance online. “A number of brokers have commented that the direct players have become increasingly competitive,” noted Conquest. The best way to prevent client migration to this platform is for brokers to differentiate their service offering!
Consolidation is the order of the day!
Bigger is better in the financial services industry. Approximately 75% of large broking firms were considering acquiring smaller firms in the coming year. The trend to larger operations has been in place for some time as smaller outfits struggle with increasing administrative and regulatory burdens.
Editor’s thoughts: The Macquarie survey confirms that businesses can grow despite tough economic conditions. In other words, success is a function of management rather than economy. A good management team will survive recession and emerge leaner and meaner to power through the recovery, while a poor management team can lead a company to the brink through boom times. Has your practice ‘toughened up’ through the recent economic contraction? Add your comments below, or send them to gareth@fanews.co.za
