S&P: Global insurance brokers positioned for a year of growth
A new S&P report suggests stabilizing global economies will boost brokers' profitability opportunities in 2021.
A newly-released analysis from S&P Global Ratings suggests a positive year ahead for global insurance brokers, as improving worldwide economies create a strong foundation for growth.
The report, “After Showcasing Resiliency During An Unprecedented Year, Global Insurance Brokers And Servicers Enter 2021 On Sound Footing,” notes how despite the stresses brought on by the COVID-19 pandemic, brokers, overall, can look back proudly at 2020 and look forward to a stable and profitable year in 2021.
In fact, what was expected to be a disastrous year for broking businesses turned out to be far better than anticipated. ”We now expect most brokers we rate to close out the year at flattish to slightly positive organic growth — light for a normal year but a win for 2020, in our view,” says S&P, which publically rates 45 insurance services companies, which includes insurance brokers, health services, and warranty and claims administrators.
According to the credit rating agency, specialty and excess & surplus market brokers had a solid year, with some players ending 2020 with organic growth in the high-single digits or even low-double digits.
The year ahead
S&P sees an environment rife with profitability opportunities for insurance brokers in 2021 that will be mainly driven by pricing and rising exposures; however, uncertainty remains surrounding the pandemic and economic recovery.
For the first three quarters of 2020, direct P&C insurance premiums in the U.S. increased 2.2% to mitigate exposure declines, says S&P. Now, in 2021, brokers should benefit from both rising exposures and insurance prices, which should continue in an upward, albeit slow, trajectory through the year. “With commissions earned as a percentage of rates multiplied by exposure units, brokers will certainly benefit from the continued pricing momentum,” S&P adds.
Regarding exposures, S&P predicts that rebounding economies will support the business exposures brokers face, including payroll and other risks. Considering President Biden’s recently announced plan to purchase an additional 200 million doses of the authorized COVID-19 vaccines to inoculate the entire adult U.S. population by the end of summer, businesses could see greater economic stability by mid-year.
As a result, organic growth should improve across the sector at an average of 2%-5% relative to 2020, S&P notes.
However, S&P does caution that each company’s success this year will hinge on individual traits, such as product diversification, geographic presence, new business and retention strategies, and more.
“In an increasingly complex business environment, the standouts will be those brokers that can differentiate themselves through value-added services and products, including enhanced data and analytical capabilities, and risk management expertise in existing and emerging risks (such as cyber risks, extreme weather, and social inflation),” says S&P.
Read S&P Global Ratings’ full report here.
Related: