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

Revenues for the U.S. insurance brokers and agencies industryshould begin picking up by the second quarter of next year andexpand 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 forecastsrevenue and profit volatility will be moderate as the primaryinsurance market hardens and then softens. The firm projected toughtimes ahead for small brokerages.

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

It forecasts 2.5 percent revenue growth for 2010, 7.4 percent in2011, 4.5 percent for 2012 and 1.3 percent for 2013.

IBISWorld said this will occur as demand in the primaryinsurance markets recovers, stimulating an increase in premiumpricing, and higher prices motivate consumers to use agents andbrokers in finding the best deals.

However, the firm said it expects an immediate negative impactfrom the recession with the contracting economy weighing downdemand for insurance and lowering volume for agents andbrokers.

IBISWorld said cheaper policy pricing is seeing more consumerspurchase insurance directly from underwriters, instead of throughinsurance intermediaries.

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

The price cutting, said IBISWorld, will see revenue contract for2009 and margins deteriorate beyond existing low levels.

Providing a positive tailwind for larger concerns, IBISWorldsaid, is the fact that insurance underwriters will extendoutsourcing of noncore activities to large brokerage firms in aneffort to manage costs. "But, for the majority of industryparticipants (small scale operators), there is little positive newsfor 2009."

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

The IBISWorld projections also include an expectation of mergeractivity in the brokerage sector "as well as substantial industryexits."

According to the research firm's analysis, the large insurancebrokerage houses are well positioned to cope with the recession asthey are less dependent on policy sales to generate revenue thanindividual brokers and agents.

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