BY CAROLINE MCDONALD
A blockbuster acquisition in June marks a mergers and acquisitions landscape among brokerages that is still at record 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.
One of the largest ones in recent history occurred in June when Brown & Brown Inc. announced the $336.5 million acquisition of Beecher Carlson Holdings Inc.
While the acquisition whittles down the size of the brokerage field, 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.
However, there are concerns that an industry with too many big brokers will have some drawbacks for insurance buyers.
William J. Montanez, director of risk management at Ace Hardware in Oak Brook, Ill., said with this and other broker acquisitions, "It appears that we're getting several 800-pound gorillas in the room that are fighting for market share."
The worry, he added, is a lack of competition, resulting in similar pricing and reduced service.
That is not yet the case in the insurance broker community, he said, but "if things keep going the way they're going, it could happen."
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," Montanez said.
Insurance buyers may also find their organizations back with a broker they left previously, he said.
Overall, broker acquisitions in 2012 were down 7.9 percent, Conning reported.
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. registered 12 and Aon Corp. reported three acquisitions.
Advantages of an M&A for a brokerage may be access to new markets and more influence with insurers, said Andrew Colannino, vice president, Property Casualty Ratings at A.M. Best Co.
"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," he said.
September 1, 2013
Copyright 2013© LRP Publications