1、Matt LeonardBenedikt DietlViknesh SivalingamCatherine PolaneczkyTHE NEXT PHASE OF GROWTH FOR INSURANCE BROKERSFinancial sponsors need to integratebusinesses and drive cross-organizational effectiveness Oliver Wyman2The Next Phase of Growth forInsurance BrokersThe US insurance market has seen a prolo

2、nged period of growth driven by supportive macroeconomic conditions and an increasingly complex set of risks that are actively managed by corporates,small to medium-sized businesses(SMBs),and individuals alike.Insurance brokers have been central in helping end-insureds navigate this evolving risk la

3、ndscape ranging from an increased rise of climate-linked catastrophic events to more sophisticated and frequent cybersecurity and data privacy incidents.As a result of the Covid-19 pandemic,insurance brokers have needed to take actions and incorporate new ways of working.Insurance brokers have also

4、inadvertently benefited from the buoyant interest rate environment in the last two years.The hardening market helped offset temporary malaise in the insurance sector at the start of the pandemic and laid the foundation for what was an unprecedented year in 2021,as many insurance brokers,listed and p

5、rivate,delivered significant value to their shareholders.While this overall narrative bodes well for the insurance brokerage ecosystem,it does mask somewhat diverging fortunes for different constituents within that ecosystem.Our analysis suggests that a handful of insurance brokers such as the Top 4

6、 Global Insurance Brokers(Marsh,Aon plc,Willis Towers Watson and Arthur J Gallagher&Co.)1 and,highly acquisitive sponsor-backed insurance brokers(for example,Hub,USI,Acrisure)have experienced significantly higher premium and revenue growth,while many others in the long-tail struggle to remain compet

7、itive without the same scale benefits.Sponsor-backed insurance brokers now account for more than half of the top 30 brokers in the US across commercial,personal,and employee benefits(EB)lines.Many,if not all,of the sponsor-backed brokers have employed a methodical approach to mergers and acquisition

8、s(M&A)by laying out an attractive proposition to smaller brokers who recognize the benefits of being part of a bigger whole.The difference in appetite for acquisitions and ability to close deals have been stark.This group accounted for approximately 76%of all deals in 2021,2 ayear where insurance br

9、okerage M&A volumes hit record highs.Within the highly fragmented independent insurance agent and broker landscape,sponsor-backed brokers use similar inorganic or acquisition roll-up plays to achieve growth,but there are significant differences in the integration approach.These differences have bene

10、fited the smaller businesses being acquired as they are presented with offers from brokers with different DNAs.Different platforms present them with a range of offers,from completely“hands-off”approaches with integration limited to centralized administration functions to“one broker”acquisitions with

11、 significant rationalization of brand identity,technology,and processes.1 Sources:Business Insurance Reports(20172022),S&P Market Intelligence,Conning,IIABA(Association for Independent Agents),Oliver Wyman Analysis.2 Source:OPTIS Partners(2021);Totals include US and Canadian property&casualty and em

12、ployee benefit brokerages,third-party administrators,and managing general agents.Oliver Wyman3The Next Phase of Growth forInsurance BrokersAs we discuss in this paper,while a plurality of integration approaches has worked until now,we believe that models espousing greater standardization are likely

13、to win in the long-term.Financial sponsors and the management teams they support will have to work harder to integrate businesses and drive cross-organizational effectiveness to realize continued growth,especially considering the turning economic environment.Exhibit 1:Financial sponsor-backed player

14、s have arrived in force in the insurance space,causing insurance brokers to reshape business models,technology,and capabilitiesUS P&C Commercial Direct Written Premium(DWP)by broker segment116401410191154113111911540131219115381215191153413162120162017201820192020202111530141921$284BN$293BN$307BN$32

15、8BN$342BN$388BN8%5%1%7%20%8%6%CAGR(20162021)Top 41Direct/onlineCaptiveOther agentsand brokersOther top 1003Sponsor-owned21.Top 4 Global Insurance Brokers include Marsh,Aon,Willis and AJ Gallagher2.Sponsor-owned include Alliant,Brown&Brown Insurance,HUB International,Acrisure Insurance Solutions,USI

16、Insurance Services,Assured Partners,BroadStreet Partners Insurance Brokerage,OneDigital Health and Benefits,Alera Group,PCF Insurance Services,The Hilb Group,World Insurance Associates LLC,High Street Insurance Partners,Patriot Insurance Company,and NFP3.Total number of agents and brokers profiled i

17、n the“Top 100”is typically greater than 100(for example,117 included in2021);additionally,some agents and brokers do not report revenue and are not included in the total for“Remaining top 100 brokers”(for example,three agents and brokers in 2020)Sources:Business Insurance Reports(20172022),S&P Marke

18、t Intelligence,Conning,IIABA(Association for Independent Agents),Oliver Wyman Analysis Oliver Wyman4The Next Phase of Growth forInsurance BrokersUNDERLYING FUNDAMENTALS REMAIN RESILIENT AND SUPPORT THE ATTRACTIVENESS OF INSURANCE BROKERSAs we navigate a period of high inflation and rising interest r

19、ates,expectations are that the economy will likely face a“hard landing”in coming months as the Federal Reserve approved an interest rate increase to 5.25%in May 2023,which is the 10th increase in a little more than a year.The impact on the Property and Casualty(P&C)insurance sector will likely remai

20、n bi-directional.On the one hand,a less inflationary environment will provide insurers with some much-needed relief as they look to control claims inflation.On the flipside,significant increases in interest rates may dampen borrowing and result in fewer new property,vehicle,and inventory purchases,s

21、lowing the growth of insurable risk exposures in the economy.IMPACTS TO THE BROKERAGE ECOSYSTEMThe associated brokerage ecosystem is likely to experience the impact of less insurable risks,though we do not expect this impact to be outsized for the following reasons:End clients will continue to requi

22、re risk management advice to address growing exposuresCorporates and SMBs are recognizing the importance of appropriate risk management,especially as it relates to high-priority concerns,such as their employees well-being and retention,cyber risks,and the impact of climate change(such as the inabili

23、ty to predict catastrophic events).As these risks continue to percolate and magnify across different industries within the economy,we believe end clients will seek more comprehensive and“fit-for-purpose”insurance solutions even in a more bearish market.Insurance brokers have historically been a resi

24、lient categoryWhile many of the largest brokers did see dampened revenues in 2009 and 2010 as a result of the 2008 global financial crisis,they also saw a relatively swift return to top-line growth thereafter,even as many other industries continued to grapple with the ramifications of the downturn.T

25、he“must have,”often mandated nature of insurance means it is not an expense that is cut in times of cost rationalization,and instead primarily impacted by asset value related declines(forexample,contract risk exposures)that may be observed disproportionately at the beginning of a turning economic cy

26、cle.With the changing macro environment,executives will need to re-focus on margin management and support continued profit pool expansion Oliver Wyman5The Next Phase of Growth forInsurance BrokersBrokers remain highly relevant despite the continued growing relevance of direct-to-customer modelsDirec

27、t-to-customer(D2C)distribution models sustained strong growth,particularly in personal and SMB lines during the bull market years,as technology-led businesses prioritized growth at all costs.As the market sees a shift in paradigm towards“profitable growth,”D2C channels may face a relative slowdown i

28、n the US.In the medium term,we anticipate a proportion of the client population may adopt a D2C proposition,but we expect that many end-insureds(especially larger corporates)will continue to require a brokers support to evaluate risk management strategy and determine the appropriate insurance market

29、s.The“modern”broker is however likely to incorporate a significant amount of technology and digital tools going forward both in facilitating their interactions with the end-insured as well as in streamlining how to place business with carriers.While brokers have made progress in“running a tighter sh

30、ip,”there remains a lot of opportunity for operational value creationThe vast majority of brokers have continued to meander through their operational optimization journey.A very supportive market for M&A coupled with continued organic growth has meant that broker executives have been disproportionat

31、ely focused on top-line growth and market share gain.We anticipate a changing macro environment will nudge executives to re-focus on margin management and help support continued profit pool expansion even in a period of more muted top-line growth.FOCUSING ON THE BOTTOM-LINEGETTING THE BASICS RIGHT H

32、AS NEVER BEEN MORE IMPORTANTThe long bull market run we observed through the 2010s and into the early months of 2022 was fueled by an extended period of cheap borrowing costs.Sponsors used the favorable lending conditions to craft highly accretive inorganic roll-up plays where local and regional bro

33、kers were consolidated into national broker platforms.These roll-up plays thrived in an environment where deal multiples continued to trend up.As the market gifted at-scale businesses with higher valuations than their smaller peers,sponsors could always justify further deals through multiple arbitra

34、ge.For example,a brokers average cost of acquisition was brought down over time,while the value of the platform asset continued to increase as it became broader and deeper across regions and lines of business.Through our work with a significant number of sponsors and management teams,we observed tha

35、t acquisition philosophy was largely consistent,but there were greater divergences in integration strategies.Integrating a group of(often highly entrepreneurial)insurance brokers with pre-established ways of working into a platform is non-trivial and must be managed carefully,so as not to stifle pro

36、ductivity and drive unwanted attrition.Oliver Wyman6The Next Phase of Growth forInsurance BrokersOn the flipside,adopting a more“light-touch”approach runs the risk of creating a franchise with an inefficient and varied operating model,and possibly weak controls.Sponsors and management teams have gen

37、erally confronted this conundrum by adopting one of these three strategies:Hands-off acquirersMinimize change at the agency level with integration focused on control functions and HR administrationHybrid acquirersExtend integration beyond control and human resources administration functions into fin

38、ance,IT,real estate,brand,and aspects of sales supportIntegrated acquirersRationalize brand identity,finance,and control functions shortly after close,and over time align front office practices and functionsWhile all these models saw notable success in the bull market years,we expect some bifurcatio

39、n in the relative success of these strategies in a more muted market,with flat to contracting deal multiples.We anticipate that high-quality broker platforms will continue to benefit from healthy multiples,whilst businesses with“work required”are likely to be disproportionately impacted in a disloca

40、ted market.In relation to the three strategies above,we see“hands-off”acquirers as being at highest risk of being penalized.The market may mark hands-off acquirers down for having a broad swath of individually sub-scale agency businesses operating on different systems and processes and requiring sig

41、nificant integration prior to being ready to recognize broader operational and financial synergies.Stated differently,we increasingly see significant integration and an institutional focus on the bottom-line as a requisite for a high-quality insurance brokerage platform of the future.Through our wor

42、k with a broad spectrum of brokers and their third-party software and service providers in the insurance ecosystem,we have identified the following four key drivers of tangible results from greater integration.Sponsor-backed brokers now account for more than half of the top 30 brokers in the US acro

43、ss commercial,personal and employee benefits(EB)lines Oliver Wyman7The Next Phase of Growth forInsurance BrokersExhibit 2:Three M&A archetypes exist for how platforms integrate acquired agenciesFinance andaccountingFinancial reportingAccounting/controllershipTreasury andcash managementTaxOperations/

44、account managementRenewals managementPolicy changes/servicingClaims FNOLGeneral enquiresMergers andacquisitions(M&A)1SourcingDue diligenceIntegrationKey functional areas in a brokerage platformReal estateFacilitiesmanagementAcquisition/dispositionControlfunctionsRiskLegalLicensingComplianceProcureme

45、ntSales and placementClient needs assessmentQuoting and proposal developmentBinding and policy issuanceAMSAMSMarketingBrandingLead generationContent creationMarketing and public relationsCRMInformationtechnologyApp developmentand maintenanceInfrastructureInformation securityData analyticsHuman resou

46、rcesRecruitingTraining/onboardingPayroll administrationEmployee benefitsadministrationHRISAMSCore systemsCorporateResponsibility:HybridWholesale broker relationsCarrier relationsSales managementCross selling supportInvoicing and billingClient onboardingSales supportAMSAMS Agency management system HR

47、IS Human resource information system CRM Customer relationship management1.Integration activities can be based in operations or in M&ASources:Expert Interviews,Oliver Wyman analysisFOUR KEY DRIVERS FOR SUCCESSFUL INTEGRATIONTech and operational model optimizationEfficiency and effectiveness levers a

48、re necessary for attaining material savings post integration(for example,integrated IT infrastructure/data architecture/applications,organization streamlining,and operating model optimization).Focus should be placed on establishing an integrated technology stack,standardization and centralization of

49、 corporate services,process re-engineering toexpand automation and self-service,and organizational streamlining.Oliver Wyman8The Next Phase of Growth forInsurance BrokersEffective use of third-party vendorsOptimizing procurement and vendor management can help extract savings in third-party expenses.

50、This includes outsourcing non-core/low value activities,optimizing third-party spend(consolidating vendors,implementing a central expense management solution,reducing contracts,or renegotiating vendor agreements where possible),and establishing cost management governance.Pricing effectivenessOpportu

51、nity exists to leverage scale to enhance revenue.Focus should be placed on ensuring commission alignment and driving yield optimization via standardizing commissions,optimizing performance commissions,and reducing commissions leakage.Salesforce effectivenessMaximizing productivity should be the focu

52、s of initiatives addressing front office staff.Key focus areas include optimizing the front-office organization,implementing productivity management(for example,aligning incentives to metrics,centralizing support teams),analyzing customer profitability,and ensuring a structured coverage model.The ri

53、ght combination of the drivers listed above(amongst others)will vary broker-to-broker.Nonetheless,we see universal value for brokers investing in these areas in lockstep with ongoing acquisition strategies.We generally recommend a staged approach,starting with levers that have the broadest level of

54、organizational buy-in and are expected to deliver the greatest upside.Successful execution against the first few levers creates confidence in the approach and then gives management the authority to pursue other levers.For a financial sponsor nearing the tail end of its hold period,demonstrating the

55、organizations ability to execute against one of these levers establishes precedent and sets the organization to be viewed successfully against a longer-term management plan.While we maintain that insurance brokers remain a very attractive category for private equity investment,the changing market co

56、nditions have necessitated a refresh in the playbooks for success.We believe that the market will disproportionately reward consolidators that deliver well-integrated and operationally efficient insurance brokerages.Brokerages that combine scale with a level of uniformity allow them to be nimbler an

57、d react to change as end insured demands and needs evolve.Get started with Oliver WymanOliver Wymans work for private equity investors is informed by the wide-ranging strategy,operations,risk and capital management,and actuarial work we do for industry incumbents and challengers across the property

58、and casualty,life and annuity,and accident and health industry segments.We offer unparalleled depth and breadth of experience to insurance sector investors.Please reach out to learn more.Oliver Wyman is a global leader in management consulting.With offices in more than 70 cities across 30countries,O

59、liver Wyman combines deep industry knowledge with specialized expertise in strategy,operations,riskmanagement,and organization transformation.The firm has more than 6,000 professionals around the world who work with clients to optimize their business,improve their operations and risk profile,and acc

60、elerate their organizational performance to seize the most attractive opportunities.For more information,please contact the marketing department by phone at one of the followinglocations:Americas EMEA Asia Pacific+1 212 541 8100+44 20 7333 8333+65 6510 9700 Copyright 2023 Oliver WymanAll rights rese

61、rved.This report may not be reproduced or redistributed,in whole or in part,without the written permission ofOliver Wyman and Oliver Wyman accepts no liability whatsoever for the actions of third parties in this respect.The information and opinions in this report were prepared by Oliver Wyman.This r

62、eport is not investment advice and should not be relied on for such advice or as a substitute for consultation with professional accountants,tax,legal or financial advisors.Oliver Wyman has made every effort to use reliable,up-to-date and comprehensive information and analysis,but all information is

63、 provided without warranty of any kind,express or implied.Oliver Wyman disclaims any responsibility to update the information or conclusions in this report.Oliver Wyman accepts no liability for any loss arising from any action taken or refrained from as a result of information contained in this repo

64、rt or any reports or sources of information referred to herein,or for any consequential,special or similar damages even if advised of the possibility of such damages.The report is not an offer to buy or sell securities or a solicitation of an offer to buy or sell securities.This report may not be sold without the written consent ofOliver Wyman.AUTHORSMatt LeonardPartner,Insurance&Asset Management and Private CViknesh SivalingamPartner,Private CBenedikt DietlPartner,Insurance&Asset Management and Private CCatherine PolaneczkyPrincipal,Private COliver Wyman A business of Marsh McLennan