Consolidation in the Irish insurance broker market

The Irish insurance sector has experienced an unprecedented level of consolidation recently, as national and international companies seek to increase their market share in what has historically been a fragmented marketplace.

The key drivers of M&A activity across the sector.

1. The Importance of scale
The ability to deliver scale is an important competitive factor for an insurance brokerage. Commission rates negotiated with underwriters will be largely contingent on the level of business that the broker is placing. A larger broker will therefore be in a stronger position to offer attractive terms to its customers, as their margin on placing a premium will be more lucrative than a smaller broker’s.

In addition, larger brokers will operate a leaner business model as economies of scale can be generated from a cost perspective. 
This has led to a significant degree of merger activity in the industry as brokers have identified the benefits of pooling collective resources to improve their competitiveness.

2. Product offering
Strategic mergers between brokers who service complimentary business lines have also been a factor. Many smaller or regional brokers are unable to service all their clients’ needs and therefore use larger urban brokers for specific lines (often giving away significant commission). There is scope for these smaller brokers to merge with a similarly sized broker with an alternative policy specialism and therefore reduce the reliance on wholesale brokers. Through consolidation, brokers can gain access to new markets, business lines and policy types, leading to growth in activity.

3. Regulation
As a financial intermediary, all brokers operating in Ireland must be regulated by the Central Bank of Ireland. Regulation plays a critical role in ensuring integrity and quality of service across the industry.

The cost and time investment required to ensure and maintain full compliance with Central Bank requirements has made operating a smaller brokerage more challenging from an efficiency perspective. This has resulted in such brokerages either seeking exit routes from the market or consolidating their business.

4. Private equity influence
The insurance industry represents an attractive proposition for private equity investment. The broker market is asset-light and liquid, making scaling of operations and future divestment relatively straightforward. 

While the market was impacted by COVID-19, particularly across hospitality and retail businesses, it has held up comparably well in the face of significant challenges. The insurance sector is seen as a robust market and has benefited from being a “safe haven” for liquidity in volatile times. 

Private-equity-backed M&A activity has accounted for a significant level of deal flow in 2021 to date. With unprecedented levels of liquidity still to be deployed by private equity, we expect further levels of activity arising.

5. International Brokers
The Irish brokerage market traditionally centred on relatively small independent operators that serviced the needs of a loyal and local customer base. As consumer needs have evolved, there has been natural restructuring to larger corporate brokers that operate on a global scale.

Ireland is one of the six largest insurance markets in the EU. In addition, it is the only English-speaking country in the EU, which provides a sound platform for US multinationals to enter the EU market.

The composition of the Irish market represented a prime opportunity for market entry and consolidation. We expect further expansion from global players in the coming years. 

What does a purchaser value?

It is evident that there isn’t one definitive driver of the increased levels of M&A activity in the market. Equally, each individual purchaser will have their own checklist of requirements when looking to buy or invest in your business and this is largely driven by their current positioning.

For an international broker with no Irish presence, there will be significant value placed on the strength of the management team and a clear transition plan will be required to ensure effective succession is in place. “Boots on the ground” will be key where a solid foundation is looking to be established.

Conversely, a “bolt-on” acquisition for an acquirer already active in the market may look to the strength of your book as they look to increase their market share. 

A business line specialism can be attractive for existing brokers who are looking to grow through product diversification. For example, a commercial broker may wish to acquire a life and pensions brokerage.  

Should you consider an exit strategy?

The question remains, what does the future look like for your brokerage? It is important that you take an objective view of the standing of your business and make a determination on what the optimal strategy is to protect value.

The best time to optimise the value of your business is when it is either in a growth phase or fully matured with strong and consistent revenues. 

If you are experiencing a deterioration or plateau in levels of business, it may be time to consider a strategic merger or disposal before value erodes.

The level of personal service and local knowledge that an independent operator can provide will be difficult to replicate by larger brokers. Notwithstanding this, as customer needs evolve, the value placed on this bespoke service may not be sufficient to bridge the potential pricing efficiencies that can be generated with scale.

The market dynamic is clearly changing and there is strong appetite from both local and international viewpoints. 

Crowe has worked on a number of recent M&A deals within the sector, advising NFP in their recent acquisition of Aiken Insurances Limited, and supporting Crotty Insurance Brokers on its recent acquisition of Martin Insurance, after advising them on their sale to Global Risk Partners last year. 

Conclusion

The factors that have driven M&A transactions across the sector are tangible and are likely to continue to fuel activity in the market. There remains significant opportunity for further consolidation as family-owned independent operators seek to either divest and exit the market or invest with a view towards deploying an inorganic growth strategy.

Crowe has an excellent understanding of the market and panoramic experience across the industry, providing buy-side and sell-side support to local and international clients who have been active in the space over the last 12 months. If you are considering the sale or purchase of a business, we can help you maximise your investment. Talk to our corporate finance team today