Big Box or Boutique?

It’s no secret that the world of insurance is consolidating. The number of insurance agency mergers and acquisitions in the first half of 2016 ranked as the second-most-active six-month period since 2008, according to a new report by Chicago-based investment banking and consulting firm OPTIS Partners.

But it’s not just the retail agency world experiencing consolidation. The wholesale community is merging right along with the rest. Wholesalers are becoming larger.

Jeremy Johnson, president, U.S. Commercial, AIG, thinks this can be a good thing.

“As wholesalers become larger they become more sophisticated and I think they have more value to offer their customers and frankly I think they have more value to offer their insurers as well,” he says.

Whether that value is through risk specialization or through data and analytics, opportunities arise when organizations get bigger.

Johnson is not alone in that view.

“I think ultimately it is good for the industry in a sense that larger brokers have access to virtually every market,” says Art Davis, president, Argo Group, Excess and Surplus Lines. “At the end of the day there are a lot of opportunities that come with consolidation. For example, a smaller, independent broker might have three, four or five markets where a larger wholesale shop might have 40 or more markets. What they can bring to the table is different.”

But wait. Smaller wholesalers aren’t going away.

Davis sees smaller wholesalers excelling in specialization. “Smaller brokers can add value by being a specialist. It’s harder to be a generalist if you are small,” he adds.

Davis believes that as specialists, smaller brokers can clearly define their value proposition as something different than what a generalist brings.

Everyone is looking for great advice so there will always be a place for the smaller broker, he says.

Both believe that consolidation is likely to continue.

“I don’t see any reason why it would slow down other than a little bit of exhaustion on the wholesale broker side. At the end of the day I think it’s going to be a big positive for the industry but it’s definitely a big change,” says Davis.

Johnsons agrees that the growing size of wholesale brokers is a good thing: “Whether it’s Lexington or AIG we very much value our distribution channel and we welcome the scale advantages that we think the emerging wholesaler landscape can bring to the industry.”