Market share is being increasingly concentrated in the hands of fewer, larger brokers. The Business Insurance Top 100 list provides ample evidence of this trend. Fueled by M&A activity, the revenue controlled by the top 100 firms has increased at a compound annual growth rate of over 13% in the last five years. The top 100 firms now control almost $69 billion in commission revenue. You can continue to describe the market, overall, as fragmented, but our industry is consolidating. And that consolidation is driving increased competitive pressure in the insurance distribution system as the number of larger, well-capitalized firms expands in the middle-market.
The next chapter of consolidation from acquirors will include more than retail. Acquiring firms at the Summit reported that almost 20% of their 2023 acquisitions were of firms outside of retail insurance distribution. Targets included wealth management and retirement advisory firms as well as specialty distribution (wholesale, MGA, etc.). The most active acquirors reported an even greater percentage of non-retail deals (25%). Large brokers have strong relationships with clients and are high-quality sales organizations – both are key assets that give insurance brokers a competitive advantage that can be leveraged in expanding product offerings.
The consolidation wave has created an abundance of new leadership opportunities for those firms that remain privately-held. There were at least 20 privately-held firms at the Summit that, as a result of consolidation in the past few years, are now the market leaders in their respective geographies. Market leadership creates significant opportunity for these firms to attract talent and accelerate their growth trajectories. Further, leading privately-held firms are invigorated by their ownership model as they think about the future. Without an outside constituency in the boardroom, they can think long-term about the best ways to grow the firm, create opportunities for employees and improve client service.
Staying privately-held is harder than ever – but also more rewarding. Increased competition from institutional capital-backed brokers as well as the soaring valuations in the marketplace have both made the decision to remain privately-held a bit tougher. However, many brokers believe that this is the best path. Those brokers would be wise to listen to the words that the Summit’s guest speaker, Coach Nick Saban, imparted regarding the dangers of complacency. Complacency is the enemy of ultimate success. Lifestyle agencies that aren’t focused on growth, operational improvement, and innovation are going to have a tough time. But those brokerages that maintain the discipline to grow and evolve will find the privately-held ownership route to be rewarding – both financially and culturally.