Profits up but big brokers taking the lion’s share

2013 was a banner year for the insurance broking industry, with revenue up almost across the board but it’s the biggest firms that have boosted profits the most.

Figures from the Macquarie Business Banking’s 2013-2014 Insurance Broking Benchmark Report show a distinct and growing size advantage when it comes to profitability.

Although 94% of firms generated a profit last financial year, profit growth in large firms far outstripped that in small firms.

More than three-quarters of large firms have net profit margins of more than 20%, up from less than half two years ago, while just 31% of small firms can boast the same margin.

“These figures suggest that smaller firms are finding it increasingly more difficult to achieve significant profit growth than their larger peers,” the report states.

“For many businesses, profit growth has come from efficiency gains and reduced costs as much as business growth.

When asked why profits have increased, brokers were most likely to say that higher efficiency was the primary driver, followed by increased sales and marketing activity.

However, it’s also apparent that high revenue and high profit businesses have more options available to help develop and grow the business. When asked what significant changes they had made to the business over the last 12 months, 20% of high profit businesses said they have reduced staff, compared to 13% across all firms.”

Macquarie Insurance Broking Head Rachael Lavars says the figures point to continued acquisition activity.

“We may see this disparity in performance leading to ongoing consolidation among smaller firms, as they work to become more competitive by adding scale,” she says.

“The number of firms willing to either buy or sell has increased, showing that the appetite for mergers and acquisitions is alive and well, up from 14% in 2011 to 22% in this year’s report.”

To download the report, click here.