The Australian economy has slowed as sustained high interest rates take their toll, but it’s a different story for brokers and other insurance intermediaries.

Macquarie Bank’s latest report on the sector says intermediaries churned out “healthy” profits in 2022 and last year amid the softer economic conditions. Increases in gross written premium drove year-on-year revenue and earnings growth in the 2022-23 fiscal period.

The bank commissioned a survey of 226 broking businesses and underwriting agencies between last October and December, and 57% of respondents reported profit margins of 30% or higher for 2022-23.

“This is a high-water mark for our research and a significant uplift from 30% in FY2018,” the report says. “It’s compelling evidence of the insurance industry’s enduring strength.”

Nine out of 10 intermediaries grew revenues over 2022-23, benefiting from pricing tailwinds. The strategic implementation of technology and strong client retention rates also contributed. 

“Remarkably, the businesses in our survey were universally profitable, achieving a 31% average profit margin, up from 24% in FY2018,” the report says. “Over the past six years, they have maintained steady growth.

“As a whole, intermediaries are in a position of confidence and strength for the future … the insurance intermediary industry is highly profitable, and well positioned to navigate a softer economic landscape.”

Macquarie Business Banking national head of insurance Andrew Knowles says intermediary business has been strong “in an environment of hardening premiums, strong retention rates and heightened risks”.

The report says direct insurers’ challenges around legacy software and skill shortages, combined with the emergence of underwriting agencies as complicated risk problem-solvers, have bolstered the intermediary sector’s growth.

“Underwriting agencies in particular have been able to capitalise on growth in the market, positioning themselves as nimble operators that can efficiently provide support to the broking market, and have a specialist ability to assess and underwrite more complex risks,” the report says.

The proportion of intermediaries concerned about the competitive impact of direct insurers has decreased significantly, falling to 10% last year from 69% in 2018.

However, intermediaries are taking nothing for granted, even if momentum is on their side. About 42% of survey respondents are worried about the state of the economy and are taking action to protect their businesses.

Forward-thinking intermediaries are looking to invest, rather than harvest, their profits, taking extra steps through organic and inorganic means to consolidate for future resilience and success.

The report says they are investing in areas that boost productivity, optimise client service and accelerate profits, laying foundations for growth and scale.

“Our 2024 research shows a high proportion of industry leaders are increasingly concerned by a weakened economic outlook, spurring many to invest profits to innovate and build their business, with the goal of sustaining performance through industry cycles,” Mr Knowles said.

“Our research also suggests that most businesses see ongoing opportunities to increase revenue and profitability, either by growing their client base or by increasing efficiency through investment in systems, technology and talent.

“For those that can successfully capture this potential while navigating the ebbs and flows of the market, the outlook is for continued revenue growth and profitability.”

Click here for the report.

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