The Declining Organic Growth and the M&A Slowdown
Interest rates are rising. Money is getting tighter. Additionally, deal activity decreased by almost 30% in the first eight months of 2024 compared to the same period in 2023, indicating that the once-frenzied M&A landscape is starting to cool. As the P & C rate increases, organic growth is also slowing.
M&A is still a vital strategy for remaining competitive in spite of these obstacles, especially for brokers trying to keep their power with insurers. However, there has never been a greater bar for success in private equity. In just four years, the revenue of the top 100 brokerages owned by private equity has almost doubled, indicating that larger, more intricate companies are required to produce the liquidity events that investors anticipate.
Brokerages must therefore ask themselves a crucial question when the tailwinds fade: How can we promote profitable growth in a more challenging market?
Let us examine four immediate victories to get things going right now as well as three long-term levers that progressive leaders are pulling.
1.Integration and Standardization: The Foundation of Scalable Growth
The time has come for brokerages that have historically functioned as loosely affiliated groups of separate agencies to come together. A federated paradigm promotes inefficiencies such as redundant technologies, inconsistent processes, patchy data, and brittle governance, even while it grants entrepreneurial flexibility.
Businesses need to start acting more like integrated operational companies rather than holding companies if they want to prosper in this new era. To establish a single source of truth, this entails centralizing data flows, standardizing technologies, and combining back-office operations like finance and human resources. Better visibility—and better decisions—come with improved integration.
When done correctly, this allows:
increased enterprise margins as a result of improved operational efficiency.
more intelligent procurement through the consolidation of software contracts and outside providers.
greater responsibility and clarity, enabling leaders to take data-driven decisions rather than gut feelings.
2.Opening Up New Growth Paths
Brokerages need to look for growth in more innovative ways as M&A deals become more difficult to find and rate-driven revenue declines. This comprises:
using generative AI to find chances for cross-selling and upselling that are concealed in their books of business.
putting money into skills that broaden product offerings, break into untapped markets, or provide deeper support for specialized industries.
expanding wholesale and specialty industries, especially in the rapidly expanding E&S sector, where brokers can access new sources of income across intricate lines.
Brokerages are increasingly setting themselves apart not by size but by depth, focusing on the industries they are most familiar with and partnering with affinity groups or MGAs to become necessary in those fields.
3.Putting Money Into Talent Designed for Change
It is imperative that the leadership profile change when integration becomes a strategic focus. Simply having producers who can sell is no longer sufficient. Brokerages require operators—leaders who can deliver long-term value across the company, unify disparate operations, and negotiate structural change.
This entails determining the gaps in operations management, data science, transformational leadership, and industry expertise—and coming up with a strategy to close them. Such expertise remains rare in many federated brokerages.
Four Easy Wins to Encourage Advancement
Although strategic reorganizations need time, the following four quick fixes can begin generating value immediately:
Select a handful of procedures to standardize. Start small by centralizing low-risk back-office functions like vendor payables and claims intake, or by harmonizing AMS workflows.
Review your M&A strategy. Make better choices. Every transaction should be in line with long-term strategic objectives, and in order to raise money, non-core assets should be sold.
Examine your data ecology. Recognize your reporting gaps, the connections (or lack thereof) between systems, and the adjustments that must be made to guarantee accurate, easily available insights.
Identify the most important talent gaps. Many brokerages now lack the capabilities necessary for transformation. Determine the positions you will need to fill in order to prepare your company for the future.
Final Thoughts: From Tailwinds to Strategies
Insurance brokerages still have strong levers to pull, even though the heyday of easy wins is coming to an end. The most resilient companies will not only survive this next chapter, but also write it by streamlining operations, investing in talent and technology, and redefining what growth looks like.
