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Has the consolidation of the Belgian broker market reached an inflection point?

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6 minute read 27 Mar 2024

The ongoing consolidation of the Belgian broker market is reaching an inflection point, with the emergence of multiple scalable players.

In brief

  • Despite a reduction from 8,000 to 5,000 brokers since 2012, the Belgian broker channel has demonstrated resilience, maintaining a dominant market share.
  • With commission revenues of around €2bn, the market now counts a sizable number of scalable platforms with 50+ brokers above €3m income.
  • Now is the time to act as interest in the market is heating up and EBITDA multiples are catching up with neighboring markets. 

The Belgian insurance broker market has been experiencing a massive consolidation, characterized by a significant decline from over 8,000 registered brokers in 2012 to approximately 5,000 in 2023. This trend has now reached an inflection point, with an increased number of brokers breaking the threshold of 3 million euros commission income, powered by sometimes aggressive roll-up strategies by mid-sized players.

As such scalable brokers emerge, we witness an intensified interest in the lucrative Belgian broker market by diverse types of investors. Judging by the precedent set by the more consolidated neighboring countries such as the Netherlands, France or the UK, the window of opportunity is now before valuations catch up with the towering levels seen in other markets.
 

How EY can Help

The Belgian broker market continues to be attractive

With about 2 billion euros of commission revenues, the Belgian broker market continues to demonstrate a robust potential. It’s not just about tradition, but also about the substantial trust that Belgian customers place in brokers to provide personalized advice tailored to their specific needs and to represent their best interests towards insurance companies.

Brokers hold a pivotal market share in the distribution of insurance products: 61% of premiums in Non-Life and 45% in Life insurance. The resilience of the broker channel in personal lines is evident, as they have managed to sustain their share at about 52% despite competition from bancassurance and multiple attempts to boost the direct channel. In commercial lines, the strength of brokers is remarkable with a share of premiums that remains above 80%. As evidenced in our latest EY Insurance Barometer, SME clients continue to value the advice and practical support that brokers bring.

Relative to other markets, commission ratios in Belgium are high, nearly 20% in retail Motor and even more for Household insurance. This enables well-managed brokers to achieve EBITDA margins of around 30%, and even more for certain specialized or particularly efficient players. This stands out positively when compared to other European markets. Furthermore, the presence of Portima as a shared utility has led to a high level of standardization of IT platforms used by brokers. This in turn paves the way for a reasonably straightforward achievement of operational synergies following mergers and acquisitions.

This combination of factors underlines Belgium's enduring lure as a brokers' market, primed for strategic investment and growth opportunities.

How EY can Help

Consolidation reaching an inflection point

Belgium's broker market has been witnessing a distinct shift in its landscape, characterized by a clear decrease in the number of brokers, which now stands at around 5,000 after shedding a couple of hundreds annually. Amidst this shrinking cohort, a notable inflection point has been reached in the ongoing consolidation process, leading to the emergence of numerous scalable platforms deserving the interest of discerning investors.

In 2020, there were roughly 30 brokers generating more than 3 million euros in commission income. By 2023, however, our research demonstrated that the landscape has changed dramatically. The tally rose to at least 50 brokers crossing the 3 million euro commission income threshold, with around 20 of these even surpassing 10 million euros. This shift presents a significantly expanded pool of potential platforms as opposed to a few years back, especially if one considers that several significant players were already subsidiaries of international entities or captives of insurance companies.

Among these brokers, some have deftly built robust merger and acquisition machinery, rapidly concluding a dozen acquisitions within a span of a couple of years. Alongside PE-backed acquisitions, international groups have also been contributing to this trend. Independent brokers have been actively acquiring a couple of broker businesses annually, further reinforcing the case for consolidation within this thriving market. Simultaneously, other brokers have chosen to build networks as viable alternatives to traditional consolidation, which have resulted in the rise of broker associations. Such networks employ the strategic sharing of operational and commercial expertise, thereby fortifying their negotiation capabilities with insurers.

The drivers of this consolidation, while remaining fundamentally unchanged since our latest publication, have continued to shape the market in significant ways:

  • Accelerating digitalization: Digital transformation has become an urgent requirement for brokers, with the COVID-19 lockdowns playing an accelerating role in that trend. Digitalization is propelled by the need to serve customers efficiently, especially in personal lines. A remarkable example is motor insurance where an average policy is 4% cheaper in 2023 compared to 2015, despite a remarkable 28% cumulative inflation over the same period.

  • Increasing sophistication of clients: Rising client sophistication demands brokers to provide a broader set of solutions, sometimes extending beyond local Belgian carriers. More advanced, tailored solutions have become a requirement, especially for premium clients, such as larger SMEs and corporates, as well as affluent individuals.

  • Continuing regulatory pressure: The increased expectations of the Financial Services and Markets Authority (FSMA) regarding the application of regulatory obligations, particularly those under the Insurance Distribution Directive (IDD) force brokers to deploy more financial and operational resources, which, in turn, drives further consolidation.

Time to reinforce the stance

The Belgian insurance broker market offers a golden window of opportunity for prospective investors and firms looking to scale or sell.

Roll-up consolidation strategies create value not only through an improvement of EBITDA margins with operational and commercial synergies, but also through multiples expansion as there is a strong correlation between price and size of brokers. The availability of scalable platforms has made such strategies much more executable as compared to a couple of years ago.

Currently, the market still presents the possibility of finding mid-sized players at attractive EBITDA multiples. As interest in the Belgian market is increasing, we would expect valuations to catch up with neighboring markets, where the more attractive targets command multiples in the higher teens. Hence, there is a pressing need for action – potential investors should mobilize now if they wish to act before it becomes prohibitively expensive.

Companies considering a sale or capital increase should ensure they demonstrate a clear vision on their target segments and how best to serve them, including through digitalization. A clear trajectory of top and bottom-line growth, including through acquisitions, needs to be laid out for potential acquirers. Additionally, presenting a clean balance sheet is an important selling point. EY’s research shows that a focused preparation for exit can significantly boost the final take, with a substantial increase in returns.

Potential buyers should be aware of the unique financial and accounting intricacies characterizing the Belgian broker market. This includes the treatment of premiums held on behalf of insurance companies, specificities in revenue recognition, and other related factors. They should also be aware of potential risks related to compliance with tax and labor laws, as well as consumer protection. And finally, the quality of the client portfolio, the relationships with the insurance companies and the distinctiveness of the product and service offering should also be assessed. Consequently, a comprehensive due diligence becomes vital in each potential deal.

In this fast-consolidating marketplace, your strategy should be informed while your approach should remain agile to seize the opportunities as they present themselves. At EY, we have been very active in that segment for many years, both in Belgium and internationally. We have invested in building relationships with both industry players and investors, and we have developed a unique set of proprietary insights to help our clients accelerate in that journey.

Summary

Belgium's broker market is at a historic juncture, demonstrating compelling investment opportunities amidst market consolidation. The commercial resilience, comfortable EBITDA margins, and the emergence of scalable platforms make it a prime prospect. However, with escalating interests and increasing multiples, early action is pivotal. Now is the time to set sail in this profitable yet fast-changing market. The window of opportunity won’t remain open indefinitely; hence, swift, strategic movement is essential.

About this article

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Related topics
Financial services
Insurance
Strategy and Transactions
Mergers and acquisitions

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