The insurance broking industry is a resilient one with many meeting the challenges of a soft market and even growing revenues, according to a recent Macquarie Business Banking 2016 Insurance Broking benchmarking report.
What’s more: “The vast majority of firms expect revenue and profits to continue to grow in 2017 albeit at lower rates than prior surveys. 87 per cent forecast of firms were forecasting higher revenues in FY2016 with new client growth and improved operational efficiencies again the two most commonly cited factors expected to drive revenues and profits. 76 per cent expect profits to rise in FY17 compared to 82 per cent in 2013.”
Using data from a survey of approximately 200 insurance broking firms across Australia, Macquarie research found 63 per cent grew revenues in 2016, and over half attributed this to increased marketing and sales activity, diversifying revenue streams and acquisitions.
Some 25 per cent reported revenue declines in the last 12 months, compared to less than 10 per cent in 2013 survey. Median GWP of firms fell from $10.8 million to $7.9 million, and median revenues dropped from $1.7 million to $1.5 million, the report notes.
Structural reforms are underway in the industry, for example, staff numbers per firm have come down (from 12 to 10 between 2013 and 2016), with firms tightening operational costs, and market consolidation. More consolidation is expected in the year ahead too.
“Successful insurance broking firms are seeing the opportunity in a challenging market, and are looking to adjust their business model, utilising new technology and tools to stay at the forefront of the market and deliver an exceptional experience to clients,” says Eoghan Trehy, division director for Macquarie Business Banking.
And there’s plenty of opportunity, Trehy observed, since only 5 per cent of new business comes via an insurance broker’s website, while only one in 10 offer full quote, bind and pay capabilities online.
“Utilising new technologies to automate lower value transactions and on-boarding processes can free up staff to focus on higher value opportunities and delivering personalised experiences for clients.”
However, the expectation is that the market is due for an upswing. “The firms surveyed are more positive on the premium rate outlook compared to 2013 with circa 40 per cent of firms indicating they expected hardening of premiums to positively impact performance in 2017,” Macquarie reports.
It points to insurers walking away from unprofitable business, reducing discounts and lifting rates, all suggesting a hardening of the SME market, and increasingly favourable industry conditions in the second half of 2017 and full year 2018.