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Observations on Property & Casualty (P&C) Industry Consolidation

September 4, 2015

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The P&C industry has been consolidating for at least twenty years. From a business perspective this has made a lot of sense. Books of business and staff can be integrated into the acquiring brokerage relatively easily. This results in more profits, which leads to the high prices currently being paid. As long as the bases of insurance distribution remain the same, the market participants will be comfortable with the current prices and terms being offered and accepted.

Looking Glass

We see some signs that this state of market equilibrium is changing. How it will affect the market place is uncertain, but when the inputs are different, there will be a new outcome. In no particular order, here are a few examples:

Small brokers have lost their marketsBrokers who distribute less than $2 million in premiums are finding it increasingly difficult to find markets, especially for commercial lines. For the most part these small brokers are depending on the mutual companies, Intact or MGAs to place business. The potential acquisition of RSA by Zurich may make things worse.

CPC is following volumeOn average, one to two percent of Canadian annual premiums are returned to brokers in the form of contingent profit commissions. While small brokers can and do qualify for these payments based on good underwriting results, there is a significant shift to the larger brokerages that can deliver premium volume and or growth.

Online distribution is hereOnline brokers are getting the critical mass and are starting to become profitable. While still rare, there are a few online players that are making significant inroads in terms of volume and profitability. This is especially evident with specialized and narrowly focused product lines.

Bigger is betterIn addition to market clout, national and regional consolidators are becoming better managed, more profitable, and are improving customer service. More importantly, they are becoming comfortable and adept in being able to acquire smaller entities.

Commissioned producer relationships changing – While there will never be a lack of demand for individuals that can produce sales, we have seen many changes over the last few years including:

  • Fewer brokerages are willing to pay the same level of commission splits as in the past;
  • Limited markets are increasingly tying producers to their brokerage;
  • Brokerages are more aware of producer overall profit contribution; and
  • Compensation models are evolving.

There are more specialized brokerages – This may relate to consolidation of the industry in that a new broker has to bring specialized knowledge to their customers if they are to compete with their larger competitors.

We are currently planning our 2015 P&C benchmark study. Brokers who participate will receive the report which includes aggregated results and information on M&A, producer compensation and regional results. If you are interested in taking part, please contact me at

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