Insurance Agencies & Brokerages
Description
Companies in this industry act as agents to sell insurance policies and annuities underwritten by insurance carriers. Major companies include Arthur J Gallagher & Co, Brown & Brown, and Marsh & McLennan (all based in the US), as well as Aon, Lloyd's, and Willis Towers Watson (all based in the UK).
The global insurance industry, which includes carriers as well as agents and brokers, generates about $8 trillion in 2024, according to Statista. The largest global insurance markets are still dominated by the US, followed by China, the UK, Japan, France, and Germany.
The US insurance agencies and brokerages industry includes about 140,000 establishments (single-location companies and units of multi-location companies) with annual revenue of about $140 billion.
Many companies that primarily offer insurance products to businesses function mainly as brokers. Captive agencies operate as a sales agent for a single insurer, working on its behalf; independent brokers sell products from several providers. Insurance carriers are covered in separate industry profiles.
COMPETITIVE LANDSCAPE
Low interest rates, sluggish premium growth, and rising catastrophe losses are putting downward pressure on margins for insurance agencies and brokerages. Soft market conditions drive consolidation in the industry as companies look to maximize revenue growth.
While the traditional intermediation model remains dominant worldwide, direct-to-consumer digital distribution of insurance policies threatens brokerage sales in many established and emerging markets. Companies also face growing competition from banks, financial advisers, and nontraditional distributors.
To win business, agencies rely on marketing, client referrals, and customer service. Name recognition, connections with more insurers, and the ability to craft more complex insurance packages are benefits of belonging to large brokerage networks. Small agencies may compete by specializing in a specific product line or customer group.
When the economy contracts, demand for insurance falls as consumer income and commercial activity decline. During periods of economic difficulty, smaller agencies may branch into more diversified fields to build business. Despite the prominence of large companies in the commercial segment, the US industry remains highly fragmented: the largest 50 firms account for about 30% of revenue.
Competitive Advantages:
Growth in Emerging Markets - Insurance agencies and brokerages looking to expand internationally are targeting China, India, and other emerging markets where market saturation is low and new sales opportunities are plentiful. Insurance can contribute to economic growth by enabling trade, commerce, entrepreneurship, resource allocation, and risk mitigation. Affordability, regulatory challenges, and lack of trust in the industry can be major barriers to growth in emerging markets.
Broad Reach - Having a broad geographic reach and a diversified product portfolio helps insurance brokerages gain ground against the competition. Avoiding concentrated risk from one area of business, such as selling coverage for classic cars during an economic downturn or life insurance in a manufacturing hub where employment is on the decline, can keep agencies from relying too heavily on one revenue stream.
Strong Brand Recognition - Agencies that represent trusted insurance brands have a greater chance of attracting and retaining customers. Agencies gain contracts to promote policies from recognizable names such as Progressive or MetLife. Representing well-thought-of brands can help agents bring the best value to clients with strong policies, support tools, and referral networks.
Companies to Watch:
Marsh & McLennan (MMC) is the top global insurance broker. The company grows through continual acquisitions and organic expansion, with increased revenue over the past several years. It made more than 120 acquisitions or investments between 2013 and 2019. MMC offers brokerage, consulting, risk management, and human resource services worldwide.
Aon is the second-largest global insurance broker, with about 50,000 associates in some 120 countries. The company relocated its headquarters from Chicago to London in 2012, converting to a public limited company. Its top markets are the US and Europe. The company recently sold its benefits outsourcing business to focus on its core brokerage and consulting operations.
Lemonade is an insurance technology (insurtech) company working to disrupt the insurance underwriting and brokerage markets by replacing paperwork and brokers with machine learning and bots. The company has backing from venture capital firms including GV (formerly Google Ventures) and SoftBank Group.
PRODUCTS, OPERATIONS & TECHNOLOGY
Major insurance products sold by agents and brokers include property and casualty (P/C), health and medical, and life. Insurance brokerage and agency services in the US include personal lines and commercial lines, which accounted for about 30% each of the industry revenue. Other revenue sources include health and medical insurance (about 15%), and life and accident insurance (about 10%).
Property and casualty agencies sell policies that cover homes, cars, and other personal property. Agents sell commercial lines to businesses that are designed to cover company assets and industrial properties. Standard personal lines include auto, home, and property coverage; for businesses standard lines may cover property, medical malpractice, workers compensation, and product liability. Specialty business lines may cover specific industries such as aviation and marine, or special products such as kidnap and ransom, computer theft, or directors and officers. Agencies may specialize in serving certain groups with specific needs such as wealthy clients, farmers, or car club members.
Health insurance includes HMO (closed system), PPO (open access), and POS (limited network) medical plans. HMOs require primary care doctors to act as gatekeepers for other medical services. PPO and POS plans give consumers various levels of provider choice but can come with higher deductibles. Plans are typically sold as employer group policies. Individual health policies are growing under Affordable Care Act mandates. Individual supplemental health policies such as disability and long-term care insurance are also increasing in popularity. Supplemental health policies cover the policyholder for medical services not covered by standard group insurance plans or programs like Medicare.
Life insurance agencies sell single or joint policies, whole life, term life, or variable life policies, among other products. Term policies are the most straightforward life insurance product because a premium is paid solely in exchange for the possibility that the insurance holder will die during the term of the policy; any investment income is kept by the insurance company. Most other life insurance policies include some type of investment feature and therefore have higher premiums. Annuities (fixed, variable, deferred, and payout) are almost entirely an investment product, with a large upfront premium and investment-type returns every year.
More insurance agents are selling financial planning services to their clients following deregulation of the market through the Gramm-Leach-Bliley Act of 1999, which allowed the insurance industry to sell financial products. Agents can become licensed to sell mutual funds, variable annuities and other securities, and many captive agents were encouraged to branch out into this area by the carriers they represented. As insurance and financial products have become more complex, agents have become an important source of information regarding these products.
Agency agreements with insurance companies allow agents to bind insurance coverage on the company's behalf and specify the commission the agency receives from policies. Agencies usually have agreements with multiple insurance companies, although some work exclusively with one company and are essentially franchisees. Typically, agencies receive a large percentage of the initial premium from a new policy and a smaller percentage from renewal premiums, but the compensation formula varies according to the policy premium schedule. Brokers work on behalf of their clients, primarily businesses, soliciting bids from several insurers; brokers operate extensively in the commercial segment of the industry.
The global insurance industry, which includes carriers as well as agents and brokers, generates about $8 trillion in 2024, according to Statista. The largest global insurance markets are still dominated by the US, followed by China, the UK, Japan, France, and Germany.
The US insurance agencies and brokerages industry includes about 140,000 establishments (single-location companies and units of multi-location companies) with annual revenue of about $140 billion.
Many companies that primarily offer insurance products to businesses function mainly as brokers. Captive agencies operate as a sales agent for a single insurer, working on its behalf; independent brokers sell products from several providers. Insurance carriers are covered in separate industry profiles.
COMPETITIVE LANDSCAPE
Low interest rates, sluggish premium growth, and rising catastrophe losses are putting downward pressure on margins for insurance agencies and brokerages. Soft market conditions drive consolidation in the industry as companies look to maximize revenue growth.
While the traditional intermediation model remains dominant worldwide, direct-to-consumer digital distribution of insurance policies threatens brokerage sales in many established and emerging markets. Companies also face growing competition from banks, financial advisers, and nontraditional distributors.
To win business, agencies rely on marketing, client referrals, and customer service. Name recognition, connections with more insurers, and the ability to craft more complex insurance packages are benefits of belonging to large brokerage networks. Small agencies may compete by specializing in a specific product line or customer group.
When the economy contracts, demand for insurance falls as consumer income and commercial activity decline. During periods of economic difficulty, smaller agencies may branch into more diversified fields to build business. Despite the prominence of large companies in the commercial segment, the US industry remains highly fragmented: the largest 50 firms account for about 30% of revenue.
Competitive Advantages:
Growth in Emerging Markets - Insurance agencies and brokerages looking to expand internationally are targeting China, India, and other emerging markets where market saturation is low and new sales opportunities are plentiful. Insurance can contribute to economic growth by enabling trade, commerce, entrepreneurship, resource allocation, and risk mitigation. Affordability, regulatory challenges, and lack of trust in the industry can be major barriers to growth in emerging markets.
Broad Reach - Having a broad geographic reach and a diversified product portfolio helps insurance brokerages gain ground against the competition. Avoiding concentrated risk from one area of business, such as selling coverage for classic cars during an economic downturn or life insurance in a manufacturing hub where employment is on the decline, can keep agencies from relying too heavily on one revenue stream.
Strong Brand Recognition - Agencies that represent trusted insurance brands have a greater chance of attracting and retaining customers. Agencies gain contracts to promote policies from recognizable names such as Progressive or MetLife. Representing well-thought-of brands can help agents bring the best value to clients with strong policies, support tools, and referral networks.
Companies to Watch:
Marsh & McLennan (MMC) is the top global insurance broker. The company grows through continual acquisitions and organic expansion, with increased revenue over the past several years. It made more than 120 acquisitions or investments between 2013 and 2019. MMC offers brokerage, consulting, risk management, and human resource services worldwide.
Aon is the second-largest global insurance broker, with about 50,000 associates in some 120 countries. The company relocated its headquarters from Chicago to London in 2012, converting to a public limited company. Its top markets are the US and Europe. The company recently sold its benefits outsourcing business to focus on its core brokerage and consulting operations.
Lemonade is an insurance technology (insurtech) company working to disrupt the insurance underwriting and brokerage markets by replacing paperwork and brokers with machine learning and bots. The company has backing from venture capital firms including GV (formerly Google Ventures) and SoftBank Group.
PRODUCTS, OPERATIONS & TECHNOLOGY
Major insurance products sold by agents and brokers include property and casualty (P/C), health and medical, and life. Insurance brokerage and agency services in the US include personal lines and commercial lines, which accounted for about 30% each of the industry revenue. Other revenue sources include health and medical insurance (about 15%), and life and accident insurance (about 10%).
Property and casualty agencies sell policies that cover homes, cars, and other personal property. Agents sell commercial lines to businesses that are designed to cover company assets and industrial properties. Standard personal lines include auto, home, and property coverage; for businesses standard lines may cover property, medical malpractice, workers compensation, and product liability. Specialty business lines may cover specific industries such as aviation and marine, or special products such as kidnap and ransom, computer theft, or directors and officers. Agencies may specialize in serving certain groups with specific needs such as wealthy clients, farmers, or car club members.
Health insurance includes HMO (closed system), PPO (open access), and POS (limited network) medical plans. HMOs require primary care doctors to act as gatekeepers for other medical services. PPO and POS plans give consumers various levels of provider choice but can come with higher deductibles. Plans are typically sold as employer group policies. Individual health policies are growing under Affordable Care Act mandates. Individual supplemental health policies such as disability and long-term care insurance are also increasing in popularity. Supplemental health policies cover the policyholder for medical services not covered by standard group insurance plans or programs like Medicare.
Life insurance agencies sell single or joint policies, whole life, term life, or variable life policies, among other products. Term policies are the most straightforward life insurance product because a premium is paid solely in exchange for the possibility that the insurance holder will die during the term of the policy; any investment income is kept by the insurance company. Most other life insurance policies include some type of investment feature and therefore have higher premiums. Annuities (fixed, variable, deferred, and payout) are almost entirely an investment product, with a large upfront premium and investment-type returns every year.
More insurance agents are selling financial planning services to their clients following deregulation of the market through the Gramm-Leach-Bliley Act of 1999, which allowed the insurance industry to sell financial products. Agents can become licensed to sell mutual funds, variable annuities and other securities, and many captive agents were encouraged to branch out into this area by the carriers they represented. As insurance and financial products have become more complex, agents have become an important source of information regarding these products.
Agency agreements with insurance companies allow agents to bind insurance coverage on the company's behalf and specify the commission the agency receives from policies. Agencies usually have agreements with multiple insurance companies, although some work exclusively with one company and are essentially franchisees. Typically, agencies receive a large percentage of the initial premium from a new policy and a smaller percentage from renewal premiums, but the compensation formula varies according to the policy premium schedule. Brokers work on behalf of their clients, primarily businesses, soliciting bids from several insurers; brokers operate extensively in the commercial segment of the industry.
Table of Contents
- Industry Overview
- Quarterly Industry Update
- Business Challenges
- Business Trends
- Industry Opportunities
- Call Preparation Questions
- Financial Information
- Industry Forecast
- Web Links and Acronyms
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