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Whitepaper | Insurance Broking 1
Insurance Broking Whitepaper
Whitepaper | Insurance Broking 1
Contents
Contents ...................................................................................................................................................................................................... 1
Insurance Brokers in the UK ................................................................................................................................................................. 2
Baby Boomers ............................................................................................................................................................................................ 2
Industry Profile .......................................................................................................................................................................................... 3
Industry size ............................................................................................................................................................................................... 3
Industry performance ............................................................................................................................................................................. 3
Industry trends .......................................................................................................................................................................................... 5
Industry forecast ....................................................................................................................................................................................... 6
Emerging Business Risks ....................................................................................................................................................................... 7
Exit Strategies ............................................................................................................................................................................................ 9
Business Succession & Exit Planning .............................................................................................................................................. 10
Employee Share Ownership Plans as a Business Succession Tool ....................................................................................... 11
Continuity .................................................................................................................................................................................................. 12
Employee Incentive ............................................................................................................................................................................... 12
Tax Benefits .............................................................................................................................................................................................. 12
A Strategic Approach to Remuneration ........................................................................................................................................ 12
Summary .................................................................................................................................................................................................. 13
Bibliography ............................................................................................................................................................................................ 14
Whitepaper | Insurance Broking 2
Insurance Brokers in the UK
The insurance brokerage industry is a fragmented one, with many insurance brokers competing to offer the
most attractive packages and services.
The UK is one of the leading countries for international traded insurance and reinsurance. It is the only country
where the World's 20 largest insurers have set up offices, and this acts as driving factor for the market. The
increase in demand for accidental insurance, vehicle insurance, and medical insurance are further driving the
market growth.
Brokers – What do they do?
(Source: Wholesale Insurance Broker Market Study; Financial Conduct Authority, February 2019)
Baby Boomers
There are an estimated 12 million Baby Boomers in the UK, and right now they are between the ages of 54-74
– that’s about 1/6th of the population.
In the UK, business owning Boomers will be disbursing half of the nation’s wealth as they retire. Most of these
entrepreneurs do not have a succession plan. This is especially alarming as by 2020, most will pass the official
retirement age of 65.
In 2013, the State of Owners Readiness Survey conducted by the Exit Planning Institute indicated that 49%
report having no transition plan at all and a further 34% report having a plan that was neither documented nor
communicated.
Most business owners depend on their business to fund their retirement. However, our blog ‘My business is
my pension – oops’ shows that, from research, “less than half of business owners successfully extract the value
of their business upon retirement.”
In our experience, we have come to realise that those who neglect to plan an exit until the last minute are
seldom successful and that rushed decisions are usually poor decisions.
Data and
analytics
services
Consultancy
Services
Designing new
products
Helping insurers
enter new
markets
Claims
processing
Risk
management/
mitigation
Placement
Non-placement
consultancy
Negotiator
on price/
coverage
Broker
Underwriting
through own-
MGAs/ facilities
Selling to
underwriters
Selling to
policyholders
and
intermediaries
Whitepaper | Insurance Broking 3
Industry Profile
Industry size
Globally, the insurance brokerage market is expected to grow by more than $19 billion between 2020 and
2024. Some of the most established companies have been in business for more than a century, but newer
companies are still holding their own.
The London Insurance Market (LIM) is one of the largest global centres for placing and underwriting large-
scale, complex commercial and specialty risk. In 2017, it controlled approximately £60bn in gross written
premium (GWP). (Wholesale Insurance Broker Market Study; Financial Conduct Authority, February 2019)
London remains the largest global hub for commercial and specialty risk insurance. Direct contribution of an
estimated £12bn to UK GDP, and a further £29.9bn indirectly. The UK domestic insurance market is the third
largest in the world, and in 2013 the sector employed 48,000 people. (Lloyds Bank, “The UK Insurance Broker
Market Report”)
Industry performance
According to the IBISWorld Industry Report, 2015-2020, average industry growth has been 1.2% per annum.
Smaller brokers often work on the slimmest of margins and, in the changing environment, it is becoming
harder to stay afloat. Mid-tier firms benefit from economies of scale as the diagram below shows in their
performance between 2012 and 2016:
(Source: FCA Analysis of broker data request.)
Mergers and acquisitions are common and are causing the industry to gradually become more concentrated.
Industry giants are acquiring smaller business to expand their global presence, but there have also been some
mergers between large corporations to consolidate their market shares.
Large firms
(average GWP above £1.5Bn)
Mid-size firms
(average GWP above £250M)
Small firms
(average GWP below £250M)
Revenue/GWP Cost/GWP Profit/GWP
Whitepaper | Insurance Broking 4
Changes in technology and customer behaviour, particularly in the micro-SME segment, are leading to rapid
commoditisation of the lower end of the market. This commoditisation is being accelerated by investment in a
new entrant to the market, Insurtech.
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
200
190
180
170
160
150
140
130
120
110
100
90
80
(Source: Business Population for the UK and Regions 2017, Department for Business, Energy & Industrial Strategy, 30 November 2017)
200
Medium Employers
Small Employers
Large Employers
126
123
101
Small (10-49) Small (50-249) Large (250+) Base year 2000=100
Whitepaper | Insurance Broking 5
Industry trends
According to a trends report from WNS, the industry is being lead by brokers who act on:
• Investment in digital technologies
• Facilitating risk leadership
• Changing the role of advisors
• Managing regulatory change
• Understanding Data Management
Investment in Digital Technologies
As digital technologies evolve, insurance broking firms are finding new ways to optimize processes, reduce
costs and most importantly connect with their customers. Brokers are continuing to boost investments in
Artificial Intelligence (AI), automation and big data while expanding the use of mobile devices.
Facilitating Risk Leadership
From consumer lifestyle alteration to climate change, disruptions are leading to stark changes in the way
people buy and use insurance. Companies need to build meaningful relationships by radically changing the
customer’s approach towards risks.
As more customers are empowered to effectively handle standardised risks, there is tremendous potential and
opportunities for insurance brokers in the area of emerging risks. Insurance brokers are thus becoming risk
facilitation leaders to address the need for profitability. Innovative client service models now include the shift
to automated underwriting.
Changing the Role of Advisors
Technology is providing personalised offers that are increasingly more accurate than the ones recommended
by the most experienced brokers. In addition, digital interventions and automation are ensuring reduced
intermediary commissions and fees for customers. It also means expanding consultancy work with
underwriters and others in the industry to diversify income sources.
Managing Regulatory Change
Even as insurance broking firms leverage advanced technologies to deliver greater value at reduced costs, the
dynamic nature of regulatory and compliance requirements creates significant challenges. Over the last five
years, the broking channel has seen dynamic changes in the regulatory landscape in the areas of data and
privacy with General Data Protection Regulation (GDPR), sales standards, market conduct, Solvency II, fraud,
and third-party risk management. While Brexit’s long-term impact on insurers doing business in Europe is still
uncertain, many companies have already taken steps to adapt to a post-Brexit scenario. Broking firms are
positioning regulatory and compliance risk management programs as competitive differentiators of agility.
Understand Data Management
“The Internet of Things” (IoT) is already generating significant volumes of client data, and broker systems are
getting ready to innovate and provide additional value-added services through advanced data analysis and
management. For insurance brokers, this calls for better knowledge and understanding of IoT and its impact
on risk handling. Sophisticated data analytical tools can help brokers glean customer footprint data and
develop a competitive edge through superior sales and market segmentation strategies, and improved
underwriting and claims operations.
Whitepaper | Insurance Broking 6
Industry forecast
Insurance markets in developed countries are becoming saturated, but there are still many growth
opportunities in developing countries such as India and China. Despite approaching a saturation point, North
America is expected to be a source of growth for the market over the next few years, though at a slower rate
than APAC, MEA, and South America.
According to the market research report by Global Information Inc. the UK Insurance Brokerage market is
expected to surpass $19.9 billion by 2024. The steady growth rate can be attributed to the increase in
opportunities for healthcare insurance, accidental insurance, and many others. Also, the rise of the small and
medium enterprises (SME) in the country is boosting the demand for insurance products.
The competitive landscape is still very active as the diagram below shows.
Insurance brokers are being
forced to re-think their existing
services and offerings while
simultaneously evolving from
their role as experts and trusted
advisors who predict and
mitigate risks. Global insurers
are confident in business growth
over the next 3 years despite a
widespread recognition that
they must change from within,
embrace culture change,
technology transformation and
greater customer focus. (KPMG
CEO Outlook Report, 2019).
Market Concentration
Consolidated – Market dominated by 1-5 major players
European Insurance Brokerage Market
Fragmented – Highly competitive market without dominant players
Marsh & McLennan Co.
Willis Towers Watson PLc
AON PLc
Arthur J. Gallagher & Co.
BGL Group
Source: Mordor Intelligence
Major Players
Whitepaper | Insurance Broking 7
Emerging Business Risks
The following challenges will see the scope of the role of Insurance Brokers start to shift to meet new market dynamics:
• Brexit uncertainty
• The rise of technology
• Self-insurance and commoditisation
• New entrants and M&A activity
The Uncertainty Surrounding Brexit
Brexit might be considered a risk for some but given London’s historical reputation and specialist skills, it is unlikely to be
affected by the withdrawal from the EU, at least for larger, more complex risks. Brokers will be forced to implement
contingency plans to mitigate risk should we lose trading rights between the EU and the UK. This period of uncertainty will
demand that brokers work to strengthen client relationships and add value to their service by helping clients to map out
their dependence on EU markets and examining alternatives.
The Rise of Artificial Intelligence
Robots may not have replaced brokers thus far, but according to data from the CII (Chartered Insurance Institute), 40
percent of account executives at broker level think their jobs are at risk from artificial intelligence (AI) and technological
developments. However, if leveraged by insurance brokers in the right way, this cutting-edge technology also offers the
opportunity to free up their time and allow for more focus on personalised client management services.
Considering the role of an insurance broker is to assess clients’ coverage needs in order to negotiate the best terms and
pricing options with insurers, access to these answers, at the click of a button, could help brokers to revolutionise the client
service by identifying and mitigating risks instantaneously. This sentiment was echoed in a recent study by Accenture, who
found that 79 percent of insurance executives agreed that AI will revolutionise the way they interact with customers.
Whitepaper | Insurance Broking 8
Self-Insurance and Commoditisation
One of the major challenges for the UK Insurance Brokerage market is the direct purchase of insurance policies by
customers. Developments in technology, such as smartphones and the Internet, leads to direct sales of insurance policies.
With a growing number of insurance sales taking place online, 2018 saw brokers grapple with the rise of self-insurance and
online aggregator sites where consumers can compare insurance premiums and switch from one company to another
without the use of a broker. Keeping costs to a minimum through forward planning, insurance brokers can still contend
despite not being the cheapest. Further, brokers should focus their efforts on highlighting the distinguishing advantages of
their personalised client service to attract and retain a steady volume of policyholders.
New Entrants and M&A Activity
According to a report from Startupbootcamp, Insurtech and PwC, there are currently more than 1,300 start-ups from
across the world focusing on the insurance industry. In 2019, the trend for new technology entrants (Insurtech) to the
market continues in line with the rise in demand for digital insurance platforms that deliver seamless, consistent customer
experiences. On the surface, the surge in innovative competitors doesn’t look good for insurance brokers. However, rather
than seeing new start-ups as a threat, brokers should be open to partnerships and integration and embrace the innovation
that these technology-lead companies can offer.
The evolving regulatory and competitive landscape mean that scale is becoming increasingly important and national
brokers are expected to remain acquisitive, even though the rate of M&A activity has been dropping, as the London 100
report shows in the diagram below.
20%
42%
4%
Please indicate any M&A activity to your company is planning
Percentage of respondents
2014 survey
2013 survey
Source: Towers Watson
Merger
51%
Divestment
51%
Acquisition
51%
Whitepaper | Insurance Broking 9
Exit Strategies
According to the Mazars 2019 report, “many brokers feel that consolidation levels and multiples are high, it is
predicted that these multiples will remain stable and the majority of brokers will consider acquiring in the next
12 months. It is also accepted thinking that external money (e.g. PE investment) can be a positive introduction
for a broking business”.
(Source: Mazars Insurance M&A Broker Outlook 2019)
Consolidators continued to acquire, and market consolidators continued their strategic acquisition through
2019. Nearly 40% of all acquisitions were performed by a “consolidator” in 2018 and were subject to post-
acquisition integration into the investor’s portfolio.
The three types of exit strategies most commonly exercised in Insurance Brokerage are: Liquidate, Outside
buyer and Sell to employees (not often considered).
According to Aldrich, "The objective of an exit strategy is really determined by the needs of the exiting owner.
The objective should be aligned with exiting owner’s goals and long-term goals of the business. It is important
to create a plan that will not disrupt the balance sheet of the business so ongoing work can continue to be
funded." The key questions should be:
• When is the owner(s) looking to exit the business?
• Are there key employees capable of taking over the business and do they have the capital required for
the transition?
• What is the financial condition of the business and is the owner(s) dependent on the equity in the
business for retirement?
• What are the future growth opportunities for the company?
• Is the owner(s) willing to accept the terms of the exit? (Aldrich, 2015)
The diagram below is one Succession Plus uses with clients when helping them design an appropriate Business
Succession & Exit Plan.
Co
mp
lexi
ty a
nd
eff
ort
Potential sale price/value
IPO listing
Strategic sale & sale to listed co.
Family and friends
Sell to database only
Sell to other shareholders
Partial sale
Employee share plan
Internal sale or management buy-out
Trade sale
Private equity/venture capital
Whitepaper | Insurance Broking 10
Business Succession & Exit Planning
Succession Plus UK runs a customised advisory programme over a period of 12 to 24 months. During the
bespoke programme, an accredited advisor project manages the work to review strategic exit options and
advise the most appropriate strategy given the client’s time frame and financial position. It’s not just about the
business, the business owner is an important factor in the process and this is a key differentiator for
Succession Plus UK.
BUSINESS
SUCCESSION
AND EXIT
PLAN
Stage One:
Identify
Value
STEP 1: Goals and Outcomes
STEP 2: Fact Find
STEP 3: Stage One Report – INSIGHTS
Stage Two: Protect
Value
STEP 4: Financial Planning
STEP 5: Unplanned Events
STEP 6: De-risking
Stage Three:
Maximise
Value
STEP 7: Exit Options
STEP 8: Strategic Planning Business Model
STEP 9: Strategic Financials
STEP 10: Systems and Procedures
STEP 11: Marketing and Sales
STEP 12: Corporate Governance
STEP 13: Ownership Mindset
STEP 14: Peak Performance
STEP 15: Management Succession
Stage Four: Extract
Value
STEP 16: Tax Planning
STEP 17: Documentation
STEP 18: Liquidity Event
Stage Five: Manage
Value
STEP 19: Ongoing Investment Planning
STEP 20: Asset Protection
STEP 21: Estate Planning
Whitepaper | Insurance Broking 11
Employee Share Ownership Plans as a Business
Succession Tool
In our book, Build It, we explore the reasons why Employee Share Ownership Plans (ESOPs) are very popular in
the United States, UK and Europe. ESOPs benefit private businesses by:
The myth that business ownership is automatically diluted the moment a company creates an ESOP is just that,
a myth. ESOP members are involved in management decisions and strategies to grow market share however,
they do not directly manage business operations or oversee the day-to-day running of a business.
Given the right circumstances, an ESOP can be highly beneficial. There are a number of options in the UK,
including Employee Ownership Trusts (“EOT” - The “John Lewis” effect)**. This is especially true for businesses
reliant on a knowledge-based skilled workforce such as modern day Insurance Brokers.
Funding an exit
Delivering improvements
in financial performance
Achieving business continuity
after the owners’ exit
Allowing tax effective
transfer of ownership
Whitepaper | Insurance Broking 12
Some advantages of establishing an ESOP are having an effective incentive plan to retain key employees and
the potential to enhance the financial wherewithal of the business.
Continuity
According to the National Centre of Employee Ownership (NCEO), many closely held companies have no plans
or incomplete plans for business continuity after the departure or retirement of the founder or major
shareholder (Wrixon, 2005). This is a notable risk for the business if an incident happens to the owner or key
person. An ESOP solves this problem as it provides a platform for shares to be readily purchased from
controlling shareholders or owners as part of a business continuity plan. Furthermore, if there is liquidity or
debt capacity in the ESOP to purchase the shares of a major shareholder(s), the adverse financial impact to the
company is minimised.
Employee Incentive
Our book, ‘Build It’, details how ESOPs encourage employees to think and act as business owners. As our blog
‘ESOPs – An Employee Retention Strategy’ details, ESOPs are a significant incentive for employees to stay
within the business and display peak performance. The retention of key employees is also important for
business continuity as it ensures that customer support and projects are completed and properly staffed with
appropriate skills. Furthermore, staff retention is imperative due to the on-going skills shortages and constant
innovations inherent in this industry which results in labour shortages being a common occurrence.
Additionally, this incentive aligns the company’s goals with employees’ interests which will result in higher
profits and benefit major shareholders within the company as well as maximising the value of your business.
The ESOP is especially favourable for companies whose rapid growth has required the reinvestment of profits,
resulting in a shortage of assets available to reward employees. However, ESOPs are not an inferior option to
wages and bonus systems, as it is an effective remuneration strategy for other reasons including it being self-
funded and that it involves equity which exposes employees to the benefits of capital gains on the value of the
company.
Tax Benefits
Businesses owners can considerably reduce their tax liability and increase net worth by using ESOP’s. By selling
to an EOT, owners are able to extract cash, with significant personal tax benefits. An ESOP’s earnings can also
be tax deferred – participants do not recognise taxable income until they receive benefits in the form of
“vested” stock or cash, when they leave the company. (Nicholson & West, Build It, 2020)
A Strategic Approach to Remuneration
Offering Employee Ownership (EO) incentives through ESOP’s, instead of providing higher salaries, would also
promote a business’ cash flow and thus, overall financial position.
Employees in Employee Ownership Trust (EOT) companies tend to perform 17% more effectively than those
employees at traditionally owned companies according to the Employee Ownership Association. Enhanced
employee motivation and work morale as well as a reduction in employee turnover rates occur in EOT
companies, saving the costs associated with resignation and recruitment. EOT members are involved in
management decisions and strategies to grow market share however, they do not directly manage business
operations or oversee the day-to-day running of a business. Hence, EOTs not only advance employees’
financial positions, but also the companies’, resulting in higher rates of staff retention.
**Find out more about ESOPs and Employee Ownership Trusts in our white paper “Building Value with
Employee Ownership” at SuccessionPlus.co.uk.
Whitepaper | Insurance Broking 13
Summary
The UK’s Baby Boomer entrepreneurs are rapidly
reaching retirement age without a succession plan in
place while expecting to have a secure retirement.
Most Baby Boomers will have turned 65 by 2020.
Insurance Brokers have the opportunity to build
value through innovation in service delivery, long
term recurring income and automation. De-risking
with employee engagement and investment in
training and skills adds to the attractiveness to
potential buyers, investors and employees alike.
It is never too early to plan your Business Succession
& Exit – leaving it to the last minute tends to
produce poor results in our experience.
ESOPs, which carry a range of advantages including
staff retention, improved productivity and
profitability and tax benefits, could be the suitable
succession plan for your business. Additionally, key
advantages of establishing an ESOP in view of
mitigating risks include business continuity, staff
retention and the potential to enhance the financial
wherewithal of the business.
Whitepaper | Insurance Broking 14
Bibliography
Lloyds Bank “The UK Insurance Broker Market Report” sourced
https://resources.lloydsbank.com/WorkArea/DownloadAsset.aspx?id=4294970200
“Top Insurance Brokers Leading the Global Market in 2020”; Technavio market research report
“5 Trends in Insurance Broking -- A WNS Perspective”; sourced:
https://www.wns.com/insights/articles/articledetail/725/5-trends-in-insurance-broking
“UK Insurance Brokerage Market - Forecast (2020 - 2025)” - Market Research Report by Global Information Inc.
sourced https://www.giiresearch.com/report/ina850080-uk-insurance-brokerage-market-by-offering-type.html
IBISWorld Industry report 2015-2020
KPMG CEO Outlook Report, 2019
“The Future of Commercial Insurance Broking”; CII Research Report December 2017
Global Insurance Industry Insights - An in-depth perspective; McKinsey Global Insurance Pools—seventh
edition, 2017
Optimising opportunity in a dynamic environment (The UK insurance broker market); London 100 White paper
in association with Lloyds Bank Plc
Insurance Broker M&A Outlook 2019; Mazars.
Wholesale Insurance Broker Market Study; Financial Conduct Authority February 2019
Europe insurance brokerage market | growth, trends, and forecast (2020-2025) sourced:
https://www.mordorintelligence.com/industry-reports/europe-insurance-brokerage-market
Emerging challenges for insurance brokers in 2019; sourced: https://heatrecruitment.co.uk/blog/emerging-
challenges-for-insurance-brokers-in-2019/
“Enhancing business insights using data analytics and AI”; sourced https://www.accenture.com/gb-
en/insights/strategy/insurance-intelligent-broker
Startupbootcamp Insurtech and PwC 2018 Trend Report: How Insurtech is breaking boundaries and moving
beyond insurance; sourced: https://www.startupbootcamp.org/blog/2018/07/insurtech-breaking-boundaries-
moving-beyond-insurance/
Whitepaper | Insurance Broking 15
Prepared by:
Succession Plus UK
International House
24 Holborn Viaduct
London EC1A 2BN
CONTACT US
P: 020 8088 7857
E: info@successionplus.co.uk
W: successionplus.co.uk
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linkedin.com/company/succession-plus-uk/
facebook.com/successionplusuk/
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