Macquarie releases findings of inaugural insurance broking survey

03 September 2007

Macquarie Relationship Banking has released the results of its inaugural nationwide survey of insurance broking businesses, providing valuable insight into trends and issues impacting the industry in Australia.

The survey of 118 insurance broking business owners revealed that whilst these are challenging times for insurance brokers, they continue to maintain an optimistic outlook this year.

“There’s no doubt that softening insurance markets have had a significant impact on the broking sector, yet one of the most interesting findings of the survey is the general expectation of moderate to strong growth across the industry,” said Paul Cilia, Division Director for Macquarie Relationship Banking.

“The majority of insurance brokers are remaining positive about the future with few looking to exit their business within the next six years, despite an ageing demographic and speculation of industry consolidation.

“Most insurers have made public statements to the effect that they have minimal direct exposure to the US sub-prime market. The insurance sector is not a large user of debt finance as debt is afforded limited usage under APRA and ratings agencies' capital adequacy frameworks. They may however have some indirect exposure through their corporate bond and equity holdings.

“To the extent that corporate bond spreads have blown out across the credit spectrum, they may have incurred some unrealised losses on corporate paper for which there is no question about credit quality. These investments are typically a relatively small component of insurers' overall fixed interest holdings and are held until maturity - therefore any valuation downturn should eventually be recouped.

“Insurers will be sitting on unrealised losses on equities in the past quarter, however, equity weightings today are significantly lower than they were a few years ago and should not in any way threaten the solvency of an industry that is presently extremely well capitalised. At worst, recent equity market weakness will mean a period of short term earnings volatility,” Mr Cilia explained.

“According to our research, Insurance brokers are focusing on operating efficiencies, business acquisition and organic growth to improve profitability and combat softening premiums.

“Staff recruitment and training are seen as key challenges with over 80% of respondents finding it quite difficult to source quality people,” Mr Cilia added.

Other key findings of the survey include:

• An overwhelming majority of brokers (85.3%) believe insurers will continue to buy broker businesses over the next few years, and that this will cause issues of conflict;
• Most insurance brokers (59%) expect moderate to strong growth in revenues over the next 12 months, despite the expectation of the continued soft market;
• Anticipated growth is driving increased demand for new staff (across Australia);
• Nearly half of the respondents said they don’t have a succession plan in place despite the attention consolidation has received in the last few years.

“Succession planning has been one of the most talked about issues in the industry over the past few years so it’s surprising that so few brokers have a succession plan in place. It’s a worrying statistic,” concluded Mr Cilia.

To download a copy of the report, please visit our website at www.macquarie.com.au/insurancebrokers

About Macquarie Relationship Banking

Macquarie Relationship Banking specialises in providing innovative banking services and products to a select range of professional services industries including insurance broking.

For further information, please contact:

Michelle Jacobs
Communications Manager
Macquarie Relationship Banking
Tel: (61 2) 8232 6550
Email: michelle.jacobs@macquarie.com