Brokers optimistic about growth, but support for 2 key M&A strategies declines

While property and casualty (P&C) insurance brokers in Canada said they’re optimistic about the future, Canadian Underwriter‘s 2023 National Broker Survey shows declining support for two key brokerage growth strategies, including M&A.

When asked about expected financial performance in 2023, 13% of brokerage principals and owners said they expected things to be much better than last year, while 60% called for them to be somewhat better. That compares with 12% (much better) and 45% (somewhat better) of brokers who were asked to predict their financial performance in 2022.

Twenty-seven per cent said 2023’s financial performance will match 2022 (roughly in line with the most recent five years). None of this year’s respondents said performance will be somewhat poorer or much poorer than last year. Most of the optimism (80%) rested with those who’ve been in the business for 16 or fewer years and at brokerages with 100 or more employees (86%).

Canadian Underwriter’s 2023 National Broker Survey surveyed more than 150 brokers nationwide about challenges facing the broker distribution channel and business strategies. The survey, fielded in February 2023, was made possible with the support of Sovereign Insurance.

This year’s survey showed declines for two popular brokerage growth strategies.

Appetite for geographic expansion slipped to 24%, its lowest in the past five years and 7% below 2022. Likewise, eagerness to conduct mergers and acquisitions as a means to grow the business fell to 23%, just slightly ahead of the pre-pandemic 21% and below the 26%-to-31% range between 2020 and 2022.

Geographic expansion and M&A activity was most popular among firms with 100 or more employees – 43% and 41% of owners respectively said those two strategies strengthened their businesses.

Or, as one respondent at a large brokerage put it, “merging with a large brokerage and acquiring more insurance markets,” has been most beneficial to strengthening his business.

In terms of what motivates brokers, respondents reported good results from performance-based compensation – 69% called it beneficial in 2023. That was in line with a range of 63%-to-72% between 2019 and 2023.

Performance-based compensation was also more popular with women (86% credited it with improvements) compared to men (64%), and with younger workers (80%).

Despite the general trends, there were outliers.

“Up to this point, good bonuses and individual performance-based compensation has been effective,” noted a woman at a smaller brokerage. “It’s becoming less so in today’s marketplace.”

Over the most recent four years, support for profit-sharing plans averaged in the mid-30% range (34% in 2023). Not surprisingly, they’re more popular with longer-serving employees (37%) than with newer hires (20%). And, while employee ownership plans slipped in popularity to 14% in 2023 from 22% in 2022, they were more popular with women brokerage employees (29%).

When asked about changes that strengthened their businesses, 37% of brokerage owners said changing the carriers they worked with helped, compared with 31% in both 2022 and 2021. The change was most popular among brokers with 16-to-30 years in the business (43%) and those with 16 or fewer years (41%) under their belts.

Feature image courtesy of iStock.com/Anatoly Kireev