Consolidation a threat to broking, says heavyweight

The head of one of the world’s largest broker networks has lamented ongoing broker consolidation, saying it can create poorer outcomes for clients.

Speaking at the Asia Insurance Brokers Summit earlier this month, Brokerslink Chairman Jose Manuel Fonseca said consolidation was a major challenge for the industry, with buyers the ultimate losers through reduced choice.

“Even insurers, who rely on brokers for their product distribution, are often heard lamenting the fact that the ‘alphabet’ brokers, in particular, control too much of the world premium volumes,” he said.

Fonseca said although the large broking firms cited their size as a factor in their ability to get better deals for clients, this is not always the case, with underwriters often seeking out independent brokers to build collaborative relationships with.

“I do not dispute that (the large brokers’) approach can provide economies of scale, but clients should be offered a choice of independent specialist service providers, separate from the insurance purchasing transaction,” he said.

“Reinsurance and employee benefits, for example, are areas where conflicts of interest can be an issue.”

Fonseca said many independent brokers were banding together in networks to remain competitive with the large broking firms, the underlying business fundamentals of many of these networks need to change radically if they are going to survive.

“There are alternative business models, which not only allow addressing the shortcomings of both mega brokers and networks, but that will do so with growing levels of effectiveness,” he said.

“Aspects such as the fee structure, membership criteria and ownership structure deserve rethinking.

“In the future the generation of inward premium income, selective membership and giving members an equity stake may be among the features to seek.”