BY CAROLINE MCDONALD
The number of mergers and acquisitions of U.S. brokerages are at record high levels.
In 2011, there were 351 broker transactions -- the highest number ever recorded. In 2012, there were 323, the second highest number ever recorded, according to Global Insurance Mergers & Acquisitions in 2012, a 2013 report by Conning Inc.
Earlier this month, one of the largest ones in recent history occurred when Brown & Brown Inc. announced the $336.5 million acquisition of Beecher Carlson Holdings Inc.
While the acquisition whittles down the number of available brokers, this particular move could benefit buyers, said Dave Bradford, president, Research & Editorial at Advisen Ltd.
"Brown and Brown and Beecher Carlson are different and complementary enough organizations, where this creates an organization more interesting and compelling to the buyer than the individual parts," he said.
"They could provide greater skills and more breadth, but still not be a mega broker that a client could get lost in," he said.
William J. Montanez, director of risk management at Ace Hardware in Oak Brook, Ill., said that, with this and other broker acquisitions, "It appears that we're getting several 800-pound guerillas in the room that are fighting for market share."
The issue, he added, is competition.
In the banking and airlines industries, which have seen a number of mergers, there are fewer and fewer banks and airlines to choose from, he said. "Consumers can begin to see similar pricing across the board and an impact on services, because where are you going to go?"
That is not yet the case in the insurance broker community, he said, "If things keep going the way they're going, it could happen."
What's more, buyers who have left a broker could end up back with the same broker, "presenting new circumstances to deal with," he said.
While larger brokers offer advantages, such as additional services, there is also value in being "smaller and more nimble, as far as a broker is concerned," Montanez said.
"There are niche players, and depending on what niche you're in, they might be able to provide better value, which might be sacrificed with a large broker," he said. The key is that enough healthy brokers and carriers remain.
In total, broker transactions in 2012 were down 7.9 percent, Conning reported, although there was "marked acceleration" of broker M&A activity in the fourth quarter of that year.
By comparison, the number of insurance industry-related deals in 2012, in which a U.S. firm was a buyer or a target, dropped by 19 percent from 2011, Conning found. There were 478 U.S. transactions in 2012, down from a record 592 in 2011.
In 2012, the top "serial acquirers" of brokers were Arthur J. Gallagher & Co., with 38; Brown & Brown Inc., with 14; and Hub International Ltd., with 20, according to Conning. Marsh & McLennan Cos. Inc. had 12 and Aon Corp. had 3 acquisitions.
For some brokers, M&As offer strategic opportunities for growth, giving them avenues into the regional and middle markets, according to Deloitte's Top 10 Issues for Insurance M&A in 2013.
One advantage of an M&A for brokers may be access to new markets, said Andrew Colannino, vice president, property casualty ratings at A.M. Best Co.
Such transactions also can put brokers in a better position with insurers.
"These brokers have control of more business they are placing with the insurers so they have more leverage," Colannino said. "The effect of that is, there could be more efficiency of operations for the brokers."
Caroline McDonald has written about risk management and insurance for 15 years.
June 17, 2013
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