Small Ripple

It looks like “small” might, again, be the next big thing.

There is certainly no shortage of merger and acquisition activity involving brokers these days, be they large or small.

In a report released in August, consulting firm Optis Partners predicted there would be “robust” M&A activity involving insurance operations in both Canada and the United States.

“From the historic high level of M&A activity in 2012, followed by a very slow start in 2013, 2014 has emerged as an extremely active period for agent-broker acquisitions,” notes the report.

“The first six months of 2014 was the most active first-half period since tracking began in 2008, and second only to the 181 deals announced in the second half of 2012,” Optis adds.

Of the buyers involved in the 165 transactions during the first half of 2014, 67 were firms backed by private equity, 54 were privately owned, 27 were public brokers, nine were banks and eight were other.

But trumpeting the benefits of the individual – and smaller – parts of the whole seem to be getting more play.

Merging and acquiring can certainly make good business sense, with this “size advantage” likely equating to more market share, economies of scale, perhaps enhanced control over distribution, and greater risk diversification.

As well, a larger entity is unlikely to go unnoticed by insurers, something that is sure to prove quite handy when brokers are trying to secure the best they can for their customers.

In this sense, big is likely better, but looking small may ultimately prove most mighty.

In an ever-changing environment – where technology advances have contributed to catapulting customer demand, choice and interaction to heights not previously seen – it may be that doing everything possible online or by personal device is losing some appeal.

Of course, this new world of self-service is not going anywhere – and brokers would be foolish not to be prepared for what is surely part of the new normal – but having a chat with someone capable of explaining things (particularly as insurance needs grow more complicated) looks to be getting more attractive.

Also receiving more play is talk of independence. Clearly, there are still plenty of independent brokers, but ongoing consolidation can change the traditional face.

To combat that, consider a recent merger involving two independent insurance brokerages that came together to form a new national brokerage network, Navacord Inc. Jones DesLauriers Insurance Management Inc. and Lloyd Sadd Insurance Brokers, as well as Fairfax Financial Holdings Ltd., are looking to capitalize on the appeal of local and independent.

The network argues its business model goes against the trend of broker consolidation that has led to local mid-sized independent firms struggling to compete. Its partners remain majority broker-owned.

The network “will invest in and form a nationwide partnership of entrepreneurial brokers with deep roots in local business communities,” notes a statement from the founding brokerages.

“Each broker will maintain their regional focus, but will benefit from a wealth of expertise, innovation, buying power, and enhanced talent management that will help keep them in the game,” the statement continues.

Service on demand is appealing, but effort should be taken to ensure it does not sacrifice a local feel that may pay dividends in terms of customer loyalty and retention down the road.

Recent research from J.D. Power – based on 3,525 responses from insurance decision-makers in businesses with 50 or fewer employees – notes 63% of respondents at businesses that bought coverage from “personal lines-focused” insurers reported meeting their agents in person. “All insurers benefit from providing a highly satisfying customer experience with increased customer loyalty and advocacy,” J.D. Power notes in a statement.

Beyond incorporating technology advances meant to answer customer demands and making it easy to have one-to-ones (should customers want these), brokers should also consider offering a specialized experience as part of the mix.