How key trends on the insurance market are driving broker consolidation

Brokers remain the preferred distribution channel for insurance in Belgium but market forces are driving consolidation.

To this day, brokers remain Belgian consumers’ preferred channel when it comes to buying insurance products. Moreover, they have proven very resilient over the last years and especially during the COVID-19 pandemic. Many of them have been able to keep up with the pace of digitalization and ever tighter regulatory requirements. However, these changes in the market have increased pressure on brokers with a very clear consequence: consolidation is picking up.

Brokers remain the main distribution channel

Insurance brokers come along a wide variety of business models. Some are mostly focused on individual (retail) clients and professionals, often operating in smaller structures with limited personnel. Others are targeting SMEs and Corporates, which typically requires more specialization of larger offices. The mix between Retail, SME and Corporate clients varies from broker to broker, just as the product focus (Life vs Non-Life), the role of digital tools in the management of their business, or their geographical spread.

But, regardless of their size, brokers remain the most important channel in Belgium both for Non-Life, which is the broker channel’s main revenue driver, and for Life. According to the latest Assuralia reports, their market share is indeed significant, representing 61% of premiums collected in Non-Life and 45% in Life. Beyond the best prices, what many customers are still looking for is to receive tailored advice from a professional whom they trust and who understands their needs.

A dominant position in both retail and commercial Non-Life insurance

Overall, Non-Life represents around 75% of brokers’ revenues. For retail Non-Life products, they remain the largest distribution channel despite a relatively slow growth. In commercial lines, brokers have even been slowly gaining market share and remain by far the most important channel.

After several years of faster growth, Non-Life Bancassurance has slowed down while keeping a strong position in Home insurance thanks to banks’ mortgage proposition. The share of Direct sales remains rather limited in Belgium as compared to some other markets, even if there have been some signs of momentum during the pandemic.

Second in Individual Life, first in Group Life

While Bancassurance had historically been the largest distribution channel in Individual Life insurance, brokers have closed the gap and became the most important channel in 2020. Banks’ decreased interest in the market over the last few years has certainly played a role while broker-based players have aggressively developed their unit-linked offering and investment proposition. Meanwhile, the direct channel is still of very limited importance in this area. For Group Life insurance distribution (which includes also self-employed pension savings products), brokers remain largely dominant, be it as intermediaries or as advisors for the fee-based business.

Digital is increasingly important, with COVID-19 accelerating the trend

In EY VODW’s Insurance Barometer, Belgian consumers showed a significantly higher willingness to buy Motor or Home insurance online in 2021 as compared to 2018. Nearly one out of three would definitely or probably do so, convinced by simplicity, the coverage of diverse risks and a good follow-up after a claim. On the other hand, those who are more reluctant point out an impersonal approach, the difficulty to get details and the lack of trust.

Despite these concerns, digital expectations from clients are increasing and brokers are adapting their operations, with 92% of them already present online. New technologies are evolving the way brokers do business in various ways:

• During the COVID-19 crisis, chat and videoconference replaced some of the traditional face-to-face interactions between clients and their intermediaries. And, while personal contact remains important, over 50% of respondents indicate they will use chat regularly or even frequently after the crisis.
• While only 22% of Belgian brokerage offices is leveraging software or InsurTech applications to work more efficiently, a growing number of comparison websites is helping brokers develop an offering that better matches client needs.
• Brokerage firms are becoming increasingly paperless, with two-thirds of them claiming to have already reached this goal.
  
  

Consolidation is accelerating

Many smaller brokers are still active, but a gradual consolidation is taking place. Between 2010 and 2021, the number of registered brokers decreased by about one-third, now representing less than 6,000 entities. During the first eight months of 2021, 485 insurance brokers ceased their activity while and only 142 new registrations were recorded. This suggests an acceleration of the trend due to COVID-19.

In this context, consolidation continues at a sustained pace, driven by a variety of factors.

• An aging broker population: many brokers are approaching retirement age and looking to hand over their businesses. In this context, the need to consolidate with another broker arises due to the difficulty to attract new generations into the field.
• The need to scale up: entities consider consolidation because a higher headcount allows for more specialization and efficiency (up to a certain point). This, in turn, allows brokers to strengthen their position as  trusted advisors.
• The cost of new technologies: the digitalization process can be costly, leading smaller players to search for partners with more financial means.
• The increasingly complex regulatory environment: regulations on distribution, financial requirements and more frequent controls by the FSMA push brokers to professionalize further, grow or stop their activity.

Consolidation happens mostly at both ends of the market, the smaller retail portfolios and the larger brokers focused on SMEs and Corporate clients:

• Some of the smaller brokers experience more difficulty adapting to the increased regulatory requirements and investing in the new digital technologies necessary to interact with their customers and the insurance companies in an effective way. Smaller broker transactions are often facilitated by insurance companies and/or federations; the sales process tends to be relatively informal and pragmatic.
• Larger brokers seek more specialization to enrich the palette of services they can offer to their clients, thereby accelerating the growth of their business. The transaction process goes through a more professional, structured process with the help of specialized advisors, in order to find the best possible buyer at the most attractive price.