Broker Consolidation Is Good News for Insureds. Well, Maybe.

With broker consolidation comes more depth. But there are still pros and cons to this M&A growth that insureds should know.
By: | September 14, 2018 • 6 min read

The frenzy of wholesale brokerage consolidation continued at a rapid pace in 2017 and 2018, driven by a large capital surplus, advancements in technology and aging owners. Just look at the recent consolidation announced Sept. 18 between Marsh & McLennan and JLT Group — an 11-day deal in which Marsh agreed to acquire insurance broker JLT for $5.7 billion.


Wholesalers are also coming under increasing pressure to merge by large retail brokers seeking to reduce their pool of intermediaries to drive volume, increase commission and fee income and control premium flow.

There is also the need to keep up with the growing sophistication of distribution systems and the appetites of hungry private-equity firms entering the market. Added to that is the increasing consolidation of retail brokerages, meaning fewer companies for wholesalers to do business with as the Big Three global brokers continue to snap up more targets.

Steady Growth in M&As

Last year alone was the highest in recorded history for U.S. insurance broker mergers and acquisitions (M&A) at 536, as well as the largest number of deals closed in the fourth quarter for six years, according to M&A advisory firm MarshBerry.

David Blades, senior industry analyst, A.M. Best

The top 10 acquirers accounted for 50 percent of announced deals in 2017, with Acrisure, HUB International, BroadStreet Partners and Arthur J. Gallagher comprising the top four.

Futhermore, consolidation in the specialty brokering space broadly mirrors M&A among insurers, many of whom have been buying up specialty teams to help manage their underwriting cycle in a low-rate environment.

But as companies are acquired or merge, new start-ups are springing up in their place, often formed by previous owners who have sold up, adding to the competition.

David Bresnahan, executive vice president, Berkshire Hathaway Specialty Insurance, said the current surge in wholesale brokerage consolation was the result of profitable wholesaler business and retailer capital surplus. It also stems from the larger retail brokers forcing smaller wholesalers to sell up by not doing business with them, he said.

“Generally, their margins are much better than the underwriters and insurers can generate; so, it’s an attractive and profitable business,” he said. “There also continues to be a surplus of capital interested in owning and investing in insurance brokers and encouraging growth and M&A.

“Third, the larger retail brokers are forcing many smaller wholesalers to sell if they choose not to allow their firms to trade.”

But what does all this mean for the insurance buyer at the end of the insurance value chain?

Benefits of Consolidation

One immediate advantage is that, as larger brokers take on the specialist expertise of small wholesalers, they can scale up their operations, bringing specialty capability to a wider market. David Blades, senior industry analyst, A.M. Best, said the key benefit of brokerage consolidation for insureds is working with a company with more efficiencies and economies of scale as part of a larger organization. It also provides them with a greater knowledge base and product range, he said.

“From a buyer’s perspective, there may be fewer wholesalers to choose from, but they have the advantage of being able to access stronger and better capitalized organizations with more depth and the ability to move quickly in the market place,” he said.  “It also exposes them to a greater expertise and geographical and product reach.”


Robert Raber, associate director, A.M. Best, said that despite the change, buyers will still have access to the same channels for placing their business. He added that as long as there is demand for E&S, there will always be well-capitalized companies with a strong financial rating willing to provide it.

“[The insurance buyer] may actually pick up some gains as a result,” he said. “At the end of the day, they will still be able to deal with the same insurance carrier [as] in the past.”

James Drinkwater, president of AmWINS Group, said consolidation enhances the technological capabilities available to insurance buyers. If anything, having this technology at their disposal puts added pressure on wholesale brokers to be more efficient in their delivery, he said.

“The larger acquiring wholesale brokers have greater sophistication and capacity,” Drinkwater said. “There’s more specialization of product, market access and technological capabilities.”

Brady Kelley, executive director of the Wholesale & Specialty Insurance Association, said that as an insurance buyer itself, the Association benefited from the competitive environment that is driving brokerage consolidation.

“During my tenure, we have seen a big shift in the premium structure, including dramatic changes to the limits we can get and the enhancements we can negotiate,” he said. “In certain cases, we have been able to enhance our coverage with very little change in our premium. I believe that consolidation for the purpose of acquiring best practice, advancing technology and enhancing depth of talent and expertise delivers far more value to the insurance buyer.”

Jeremy Chaseley, head of specialty wholesale, Zurich North America, said an advantage of being moved to an acquisitive larger wholesale broker for the insured is their ability to benchmark coverage, pricing and claims more effectively. By strengthening in this way, they can also reinvest in these capabilities, he said.

“The larger and more sophisticated wholesale brokers are joining the data and analytics revolution not just in the insurance industry but in wider business,” Chaseley said. “This has given them the capability to benchmark coverage, claims and pricing for those unique and complex risks they are acquiring.”

Rising Premiums

Bresnahan, however, said one of the potential downsides of brokerage consolidation is that it could result in higher premiums. With brokers looking for higher commissions and fees, that will put even greater pressure on insurers to increase rates.

“There may be fewer wholesalers to choose from, but they have the advantage of being able to access stronger and better capitalized organizations with more depth.” — David Blades, senior industry analyst, A.M. Best

“Arguably, in the longer run, it could lead to [higher premiums] as more wholesalers and retailers look to the insurance carriers for higher commissions and fees,” he said. “There is not much margin in the underwriting results, so eventually premiums will have to reflect these higher acquisition expenses.


“All of these factors require the larger wholesalers to focus on providing their client with far greater resources. That way they can add real value to the insurance buyer.”

As far as continuity of service, he said: “All of the issues relative to the service continuing at a high or satisfactory level need to be managed at a local level by the customer. Naturally, if an insured values the service provided by both the retailer and the wholesaler at the local level, then the main risks relative to retailer RFPs and following wholesale consolidation are when that wholesale broker could be foreclosed to continuing to work with the retailer and customer, or the wholesale broker leaves or is let go post-merger.”

On balance, the advantages of M&A for the insurance buyer outweigh the disadvantages. But it remains to be seen how long this consolidation feeding frenzy will last and whether benefits for insureds will continue. &

Alex Wright is a U.K.-based business journalist, who previously was deputy business editor at The Royal Gazette in Bermuda. You can reach him at

More from Risk & Insurance

More from Risk & Insurance

High Net Worth

High Net Worth Clients Live in CAT Zones. Here’s What Their Resiliency Plan Should Include

Having a resiliency plan and practicing it can make all the difference in a disaster.
By: | September 14, 2018 • 7 min read

Packed with state-of-the-art electronics, priceless collections and high-end furnishings, and situated in scenic, often remote locations, the dwellings of high net worth individuals and families pose particular challenges when it comes to disaster resiliency. But help is on the way.


Armed with loss data, innovative new programs, technological advances, and a growing army of niche service-providers aimed at addressing an astonishingly diverse set of risks, insurers are increasingly determined to not just insure against their high net worth clients’ losses, but to prevent them.

Insurers have long been proactive in risk mitigation, but increasingly, after the recent surge in wildfire and storm losses, insureds are now, too.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy,” said Laura Sherman, founding partner at Baldwin Krystyn Sherman Partners.

And especially in the high net worth space, preventing that loss is vastly preferable to a payout, for insurers and insureds alike.

“If insurers can preserve even one house that’s 10 or 20 or 40 million dollars … whatever they have spent in a year is money well spent. Plus they’ve saved this important asset for the client,” said Bruce Gendelman, chairman and founder Bruce Gendelman Insurance Services.

High Net Worth Vulnerabilities

Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

As the number and size of luxury homes built in vulnerable areas has increased, so has the frequency and magnitude of extreme weather events, including hurricanes, harsh cold and winter storms, and wildfires.

“There is a growing desire to inhabit this riskier terrain,” said Jason Metzger, SVP Risk Management, PURE group of insurance companies. “In the western states alone, a little over a million homes are highly vulnerable to wildfires because of their proximity to forests that are fuller of fuel than they have been in years past.”

Such homes are often filled with expensive artwork and collections, from fine wine to rare books to couture to automobiles, each presenting unique challenges. The homes themselves present other vulnerabilities.

“Larger, more sophisticated homes are bristling with more technology than ever,” said Stephen Poux, SVP and head of Risk Management Services and Loss Prevention for AIG’s Private Client Group.

“A lightning strike can trash every electronic in the home.”

Niche Service Providers

A variety of niche service providers are stepping forward to help.

Secure facilities provide hurricane-proof, wildfire-proof off-site storage for artwork, antiques, and all manner of collectibles for seasonal or rotating storage, as well as ahead of impending disasters.

Other companies help manage such collections — a substantial challenge anytime, but especially during a crisis.

“Knowing where it is, is a huge part of mitigating the risk,” said Eric Kahan, founder of Collector Systems, a cloud-based collection management company that allows collectors to monitor their collections during loans to museums, transit between homes, or evacuation to secure storage.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy.” — Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

Insurers also employ specialists in-house. AIG employs four art curators who advise clients on how to protect and preserve their art collections.

Perhaps the best known and most striking example of this kind of direct insurer involvement are the fire teams insurers retain or employ to monitor fires and even spray retardant or water on threatened properties.

High-Level Service for High Net Worth

All high net worth carriers have programs that leverage expertise, loss data, and relationships with vendors to help clients avoid and recover from losses, employing the highest levels of customer service to accomplish this as unobtrusively as possible.

“What allows you to do your job best is when you develop that relationship with a client, where it’s the same people that are interacting with them on every front for their risk management,” said Steve Bitterman, chief risk services officer for Vault Insurance.

Site visits are an essential first step, allowing insurers to assess risks, make recommendations to reduce them, and establish plans in the event of a disaster.

“When you’re in a catastrophic situation, it’s high stress, time is of the essence, and people forget things,” said Sherman. “Having a written plan in place is paramount to success.”


Another important component is knowing who will execute that plan in homes that are often unoccupied.

Domestic staff may lack the knowledge or authority to protect the homeowner’s assets, and during a disaster may be distracted dealing with threats to their own homes and families. Adequate planning includes ensuring that whoever is responsible has the training and authority to execute the plan.

Evaluating New Technology

Insurers use technologies like GPS and satellite imagery to determine which homes are directly threatened by storms or wildfires. They also assess and vet technologies that can be implemented by homeowners, from impact glass to alarm and monitoring systems, to more obscure but potentially more important options.

AIG’s Poux recommends two types of vents that mitigate important, and unexpected risks.

“There’s a fantastic technology called Smart Vent, which allows water to flow in and out of the foundation,” Poux said. “… The weight of water outside a foundation can push a foundation wall in. If you equalize that water inside and out at the same level, you negate that.”

Another wildfire risk — embers getting sucked into the attic — is, according to Poux, “typically the greatest cause of the destruction of homes.” But, he said, “Special ember-resisting venting, like Brandguard Vents, can remove that exposure altogether.”

Building Smart

Many disaster resiliency technologies can be applied at any time, but often the cost is fractional if implemented during initial construction. AIG’s Smart Build is a free program for new or remodeled homes that evolved out of AIG’s construction insurance programs.

Previously available only to homes valued at $5 million and up, Smart Build recently expanded to include homes of $1 million and up. Roughly 100 homes are enrolled, with an average value of $13 million.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work.” — Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“We know what goes wrong in high net worth homes,” said Poux, citing AIG’s decades of loss data.

“We’re incenting our client and by proxy their builder, their architects and their broker, to give us a seat at the design table. … That enables us to help tweak the architectural plans in ways that are very easy to do with a pencil, as opposed to after a home is built.”

Poux cites a remote ranch property in Texas.

Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“The client was rebuilding a home but also installing new roads and grading and driveways. … The property was very far from the fire department and there wasn’t any available water on the property.”

Poux’s team was able to recommend underground water storage tanks, something that would have been prohibitively expensive after construction.

“But if the ground is open and you’ve got heavy equipment, it’s a relatively minor additional expense.”

Homes that graduate from the Smart Build program may be eligible for preferred pricing due to their added resilience, Poux said.

Recovery from Loss

A major component of disaster resiliency is still recovery from loss, and preparation is key to the prompt service expected by homeowners paying six- or seven-figure premiums.

Before Irma, PURE sent contact information for pre-assigned claim adjusters to insureds in the storm’s direct path.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work,” said Curt Goetsch, head of underwriting for Ironshore’s Private Client Group.


“If you’ve got custom construction or imported materials in your house, you’re not going to go down the street and just find somebody that can do that kind of work, or has those materials in stock.”

In the wake of disaster, even basic services can be scarce.

“Our claims and risk management departments have to work together in advance of the storm,” said Bitterman, “to have contractors and restoration companies and tarp and board services that are going to respond to our company’s clients, that will commit resources to us.”

And while local agents’ connections can be invaluable, Goetsch sees insurers taking more of that responsibility from the agent, to at least get the claim started.

“When there is a disaster, the agency’s staff may have to deal with personal losses,” Goetsch said. &

Jon McGoran is a novelist and magazine editor based outside of Philadelphia. He can be reached at