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Valuation and Value Creation of Insurance Intermediaries


Claudia Max

The book offers a comprehensive analysis of insurance intermediaries from a capital markets perspective. It presents an up-to-date market perspective, drawing the attention to the important trends and developments in the industry and recommends strategies to secure future growth. Further, it offers a detailed description of a valuation approach specifically tailored to small and mid-sized brokers. Research on insurance intermediary M&A reveals that positive abnormal returns are achieved for acquirers. The author points out which factors lead to value creation and investigates performance drivers in the tied agent channel.
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3 Valuation of Small and Medium-Sized Insurance Brokers: Establishing a Valuation Approach for Business Succession


3.1 Introduction

Over the last years multiple developments emerged or aggravated which have increased the pressure for small and medium-sized brokers to sell their business. These include tightened competition as well as the current economic environment with stagnating growth (Adams 2011, p. 1). But in particular, this is caused by the demographic development and regulatory pressure (Adams 2011; Lueth 2012; Barth 2014a; Gaertner et al. 2014, p. 4). More than 40 per cent of brokers in the German market, holding a total business portfolio of more than EUR 10 billion26, are older than 50 years. On top of that, industry experts estimate that 20 up to 30 per cent of brokers will not meet the increased regulatory requirements on advice (Beenken 2010). And this does not yet incorporate further encroachments into the compensation system27, which is very likely to strongly affect the broker business model28.

For most brokers internal perpetuation is the clearly preferred option compared to third-party sale (Lieblein, Szollosy 2009, p. 10). Only 13 per cent of brokers in a recent survey express their willingness for a sale (Steria Mummert 12/12/2013; Hutfleß 2014, p. 110)29. However, the option of internal perpetuation is often not available (Lieblein, Szollosy 2009, p. 10; Gaertner et al. 2014, p. 8–11; Schmidt-Kasparek 2014, p. 17–18). In fact, the job as broker becomes increasingly less attractive for young professionals (Beenken 2013a, p. 206; Terliesner 2014, p. 25; Wichert 2014b). The question for brokers, therefore, increasingly...

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