NU Online News Service, April 8, 4:06 p.m. EDT

Revenues for the U.S. insurance brokers and agencies industry should begin picking up by the second quarter of next year and expand by 3.4 percent per year over the five years ending 2014, according to a business research firm.

IBISWorld also said that over that outlook period it forecasts revenue and profit volatility will be moderate as the primary insurance market hardens and then softens. The firm projected tough times ahead for small brokerages.

The firm said it expects the industry to benefit from a recovery in demand and prices and to experience a recovery in revenue and profitability from the second quarter of 2010 and beyond.

It forecasts 2.5 percent revenue growth for 2010, 7.4 percent in 2011, 4.5 percent for 2012 and 1.3 percent for 2013.

IBISWorld said this will occur as demand in the primary insurance markets recovers, stimulating an increase in premium pricing, and higher prices motivate consumers to use agents and brokers in finding the best deals.

However, the firm said it expects an immediate negative impact from the recession with the contracting economy weighing down demand for insurance and lowering volume for agents and brokers.

IBISWorld said cheaper policy pricing is seeing more consumers purchase insurance directly from underwriters, instead of through insurance intermediaries.

It noted that brokers and agents are currently facing a business "headwind," experiencing policy volume declines as economic conditions deteriorate. And premiums per policy sold are also falling, as intensifying competition within the insurance market leads to premium price cuts across nearly all lines.

The price cutting, said IBISWorld, will see revenue contract for 2009 and margins deteriorate beyond existing low levels.

Providing a positive tailwind for larger concerns, IBISWorld said, is the fact that insurance underwriters will extend outsourcing of noncore activities to large brokerage firms in an effort to manage costs. "But, for the majority of industry participants (small scale operators), there is little positive news for 2009."

Most brokerage industry participants, said IBISWorld, are small businesses "and competition is intense. With business volume on the decline and margins under pressure, it is an environment in which the weak will either put themselves up for sale or perish."

The IBISWorld projections also include an expectation of merger activity in the brokerage sector "as well as substantial industry exits."

According to the research firm's analysis, the large insurance brokerage houses are well positioned to cope with the recession as they are less dependent on policy sales to generate revenue than individual brokers and agents.

"However, individual operators and small firms are expected to suffer as they face cash flow problems and intensifying competition. Industry participants will shed staff in order to cut costs, but for some it will not be enough."

Special Reports /

Insurance Brokers' Business Will Pick Up, Says Research Firm

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