Has the consolidation of the Belgian broker market reached an inflection point?

The Belgian broker market continues to be attractive

With about 2 billion euros of commission revenues, the Belgian broker market continues to demonstrate a robust potential. It’s not just about tradition, but also about the substantial trust that Belgian customers place in brokers to provide personalized advice tailored to their specific needs and to represent their best interests towards insurance companies.

Brokers hold a pivotal market share in the distribution of insurance products: 61% of premiums in Non-Life and 45% in Life insurance. The resilience of the broker channel in personal lines is evident, as they have managed to sustain their share at about 52% despite competition from bancassurance and multiple attempts to boost the direct channel. In commercial lines, the strength of brokers is remarkable with a share of premiums that remains above 80%. As evidenced in our latest EY Insurance Barometer, SME clients continue to value the advice and practical support that brokers bring.

Relative to other markets, commission ratios in Belgium are high, nearly 20% in retail Motor and even more for Household insurance. This enables well-managed brokers to achieve EBITDA margins of around 30%, and even more for certain specialized or particularly efficient players. This stands out positively when compared to other European markets. Furthermore, the presence of Portima as a shared utility has led to a high level of standardization of IT platforms used by brokers. This in turn paves the way for a reasonably straightforward achievement of operational synergies following mergers and acquisitions.

This combination of factors underlines Belgium's enduring lure as a brokers' market, primed for strategic investment and growth opportunities.
 

Consolidation reaching an inflection point

Belgium's broker market has been witnessing a distinct shift in its landscape, characterized by a clear decrease in the number of brokers, which now stands at around 5,000 after shedding a couple of hundreds annually. Amidst this shrinking cohort, a notable inflection point has been reached in the ongoing consolidation process, leading to the emergence of numerous scalable platforms deserving the interest of discerning investors.

In 2020, there were roughly 30 brokers generating more than 3 million euros in commission income. By 2023, however, our research demonstrated that the landscape has changed dramatically. The tally rose to at least 50 brokers crossing the 3 million euro commission income threshold, with around 20 of these even surpassing 10 million euros. This shift presents a significantly expanded pool of potential platforms as opposed to a few years back, especially if one considers that several significant players were already subsidiaries of international entities or captives of insurance companies.

Among these brokers, some have deftly built robust merger and acquisition machinery, rapidly concluding a dozen acquisitions within a span of a couple of years. Alongside PE-backed acquisitions, international groups have also been contributing to this trend. Independent brokers have been actively acquiring a couple of broker businesses annually, further reinforcing the case for consolidation within this thriving market. Simultaneously, other brokers have chosen to build networks as viable alternatives to traditional consolidation, which have resulted in the rise of broker associations. Such networks employ the strategic sharing of operational and commercial expertise, thereby fortifying their negotiation capabilities with insurers.

The drivers of this consolidation, while remaining fundamentally unchanged since our latest publication, have continued to shape the market in significant ways:

• Accelerating digitalization: Digital transformation has become an urgent requirement for brokers, with the COVID-19 lockdowns playing an accelerating role in that trend. Digitalization is propelled by the need to serve customers efficiently, especially in personal lines. A remarkable example is motor insurance where an average policy is 4% cheaper in 2023 compared to 2015, despite a remarkable 28% cumulative inflation over the same period.
• Increasing sophistication of clients: Rising client sophistication demands brokers to provide a broader set of solutions, sometimes extending beyond local Belgian carriers. More advanced, tailored solutions have become a requirement, especially for premium clients, such as larger SMEs and corporates, as well as affluent individuals.
  
• Continuing regulatory pressure: The increased expectations of the Financial Services and Markets Authority (FSMA) regarding the application of regulatory obligations, particularly those under the Insurance Distribution Directive (IDD) force brokers to deploy more financial and operational resources, which, in turn, drives further consolidation.