Australian brokers bullish for 2017 despite continued soft market

The bullish outlook is based on brokers’ confidence in their ability to win new business and grow revenues, as the majority did last year despite continued challenging macroeconomic conditions.

These are some of the key findings of an annual survey of some 200 Australian insurance brokers carried out by Macquarie Group, the provider of financial, advisory, investment and fund management services.

To compile the report, Macquarie Business Banking conducted a short ‘pulse check’ survey of insurance broking firms around the country.

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It asked brokers about the the state of play in insurance broking today, which firms are outperforming and why and how their business compares.

The pulse check was built on insights derived from its benchmarking studies carried out in 2011 and 2013.

Macquarie said its research found that the insurance broking market remains “highly competitive”, with softer premiums putting revenues under pressure.

But it also showed that most firms have remained resilient, with the majority well positioned to capitalise on better conditions during the next 12 months.

Some 69% of firms achieved revenue growth in FY2015, down from 83% in full-year 2013. On the flipside, 18% saw revenues fall—more than twice the proportion reported in the firm’s 2013 survey.

A healthy 75% of firms posted EBITDA margins of 10% or more in full-year 2015, which Macquarie described as an “impressive” result in a tough operating environment.

“Encouragingly, only 6% reported margins under 1%, suggesting that most firms remain profitable and well positioned to ride out difficult market conditions,” stated the advisory firm.

Industry consolidation in the broking sector continues in Australia, as in other mature insurance markets of the world. Macquarie said this indicates that many firms see scale as a key driver to achieve further growth and business efficiency.

The research found that the vast majority of respondents expect conditions to improve next year. Some 86% forecast a profit increase, four points higher than in 2013.

“New client growth is expected to be overwhelmingly the most important profit driver, while only one in five forecast hardening premiums to positively impact profit,” stated the firm.

Despite tightening conditions, around one in three firms achieved profit margins of 30% or more in full-year 2015. This was roughly the same proportion as in the 2011 and 2013 surveys.

“While these firms are clearly doing many things well, our pulse check points to a few key factors that set them apart. In particular, they are more likely to focus on business efficiency and staff development measures to boost performance—enabling them to deliver a higher quality service at a competitive price point, while keeping margins strong,” stated Macquarie.

The research found that high performing firms were more likely to emphasise improved efficiency, while low profit firms were more likely to rely on client growth.

“High performers also said they would benefit from improved economic conditions, suggesting many are well positioned to capitalise on opportunities created by a future upturn in activity across the economy,” concluded the firm.

Finding and keeping talented people is another key success factor, according to the research.

“Our pulse check confirms that high performing firms work harder than their peers to attract, retain and develop talent. Among other incentives, they are more likely to offer training and development, flexible working arrangements, career opportunities, and out-of-cycle salary rises,” concluded the report.