Canadian commercial brokerages are primed to consolidate, according to new research by Finaccord, a market research consultant specializing in financial services.
The study looks at broker markets in Canada, Australia and South Africa. It notes that commercial brokers in Canada achieved the highest growth rate of brokers in the three countries studied, at 1.8% (adjusted for inflation), ahead of South Africa at 1.2% and 0.2% in Australia.
Collectively, the markets for commercial non-life insurance broking in the three markets studied by Finaccord are estimated to be worth nearly US$5 billion in terms of broking revenues in 2012. Canadian brokers’ revenues from commercial non-life insurance in 2012 are estimated to be US$2.42 billion.
But based on commercial brokers’ “unimpressive” growth rate over the past four years, Finaccord predicts more mergers and market consolidation for all three countries. In Canada, major competitors driving the trend towards market concentration are Hub International, Western Financial Group and BFL Canada, Finaccord reported.
Historically, only a moderate degree of competition from agents exists in commercial lines, said Bernd Bergmann, a consultant at Finaccord. Online and other direct providers have so far not made much progress in undermining the dominance of brokers among business customers.
The Finaccord study notes that Canada has a fairly low market concentration compared to that of Australia, South Africa and other European countries.
Finaccord’s research about commercial non-life insurance brokers in 20 European countries published in July 2012 revealed that the top 10 brokers command an average of 67.0% of broking revenues in these markets combined. The equivalent figures are 63.1% for Australia, 56.8% for South Africa and only 43.5% for Canada.
“But while brokers can defend their share, there is little room for them to grow further collectively as a distribution channel,” he said. “Combined with the fact that growth in the underlying market for commercial insurance has been mostly unimpressive since 2008, the most obvious way for individual brokers to grow in these three markets is through mergers and acquisitions.”
“The general strength of the broker channel has tended to coincide with a relatively high degree of fragmentation in all three markets,” Bergmann said. “In the case of Australia, and even more so in Canada, this phenomenon has also been the result of regional specialisation. In Canada, it is quite common for brokers to focus on clients in one province only.”
