Can brokers be optimistic amid stable growth rates?

Can brokers be optimistic amid stable growth rates? | Insurance Business America

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Can brokers be optimistic amid stable growth rates?

COO shares his mid-year outlook

Growth in the insurance brokerage sector is forecast to remain stable as the mid-year mark approaches.

Moody’s has predicted that growth will remain in the mid-single digits or higher as the economy stabilizes and property & casualty (P&C) insurance rate increases level out.

At least one broker leader believes there’s cause for cautious optimism amid the current market environment.

“From our perspective, there’s a lot of opportunity, and we’re seeing a lot of organic growth in a very healthy way,” said Eric Joost (pictured), COO of CAC Specialty, an insurance brokerage and risk solutions firm.

Sharing his outlook with Insurance Business, Joost pointed to growth opportunities for brokers across a spectrum of products, including property, casualty, financial lines, and other specialized areas.

He explained that while larger brokerages may experience slower growth due to their size, the industry overall is seeing impressive growth rates.

“Brokers do a lot of important things, and largely what we’re doing is not easy, but I’m very optimistic about what’s ahead in terms of how the insurance markets are behaving and our ability to create value for our clients,” Joost said.

What’s contributing to organic growth for brokerages?

According to Moody’s, favorable P&C pricing in most lines of business, growth in insurable exposures, strong client retention, and new business generation will support organic revenue growth throughout 2024.

“Brokers will maintain solid EBITDA margins through 2024 and beyond through strong organic revenue growth and good expense controls,” the ratings agency said in a March report. “Interest coverage for investment-grade and speculative-grade brokers declined slightly over the past couple of years because of higher market interest rates.”

CAC Specialty, for its part, achieved 40% organic growth last year without mergers and acquisitions, according to its COO. The business reported $200 million in revenue in 2023, a marked increase from the $135 million it recorded in 2022.

While Joost acknowledged that this rate of organic growth might slow down as the company expands, he remains optimistic about maintaining healthy growth rates moving forward.

One key factor contributing to this steady growth, he said, is the effect of premium changes over the past few years.

“Clients are much more energetic about listening to us because they’ve seen their costs rise substantially,” Joost said.

This increase in premiums has made clients more receptive to new ideas and solutions, creating opportunities for brokerages like CAC Specialty to demonstrate their value.

The broader economic context also plays a crucial role in the insurance industry’s growth trajectory. Joost highlighted the relatively strong performance of the US economy, which has shown resilience despite global uncertainties.

Navigating shifts in specialty lines

Looking ahead, Joost expressed cautious optimism about the macroeconomic environment. He noted that concerns about inflation and interest rates have toned down, and the focus has shifted from predicting a recession to understanding how the economy will grow in the coming quarters.

“I don’t expect any dramatic changes. While all of what we do can be linked to these things, we don’t see immediacy,” Joost said.

He emphasized that while significant changes in interest rates could impact areas like the M&A and real estate markets, the overall expectation is for slow and measured adjustments.

In terms of specific segments, Joost identified areas poised for growth, including directors and officers liability, cyber insurance, and workers’ compensation. These lines are currently seeing a lot of competition, a shift from two years ago when price increases were dominant.

However, he pointed out that many casualty lines are under stress, with claims or loss ratios putting pressure on prices in markets like commercial auto.

Joost also highlighted ongoing challenges in the property market, particularly in regions prone to natural disasters. While there is some relief in the commercial property market, prices remain elevated compared to four years ago.

“The property market tends to have a consumer-facing component, which sees a lot of stress in areas like Florida and California due to storms or wildfires,” he said.

For brokers navigating this dynamic environment, Joost emphasized the importance of staying agile and informed.

“You’ve got to stay nimble for the benefit of your client. There’s a lot of information out there, and as much as it’s helpful, it’s essential to contextualize it for each client,” said Joost.

Do you agree with Joost’s outlook for brokerages for the rest of 2024? Please share your comments below.

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