Five Arrows, the investment firm of investment bank Rothschild, is taking a stake in insurance company Voogd & Voogd Groep. The headline of this 2017 press release was about one of the first internationally operating investors to enter the Dutch intermediary market. The turnover of Voogd & Voogd (now Alpina) grew through mergers and acquisitions from 50 million in 2017 to over 200 million in 2022. A recent example of international expansion in the Netherlands is the acquisition of VLC & Partners (formerly owned by De Goudse) by Howden Insurance, which is active in fifty (!) countries. Soderberg & Partners from Sweden is also a successful international player, now ranked in the Top Five of the largest Dutch intermediaries.

What makes the intermediary market so interesting for consolidation? And why are investors willing to invest large sums here? First of all, intermediaries generally have a loyal customer base with annual recurring revenues, making them relatively insensitive to economic cycles or crises like the coronavirus pandemic. The profit margins are still considered generous compared to other industries. Additionally, aging plays a significant role in the intermediary field, both among advisors and owners. The average age is over 50 years. Finally, many smaller intermediaries are particularly daunted by the necessary deep investments in digitalization and increasing regulations regarding transparency and data privacy. Larger, stronger merger companies have an advantage here, at least that is the general opinion of many (selling) parties.

Currently, there are still more than 900,000 intermediaries active in Europe. This equates to an average of one intermediary for every 600 inhabitants in Europe. There are major differences: in the Netherlands, it's an average of one intermediary for every 2,953 inhabitants, in the United Kingdom one for every 6,650, in Germany one for every 442, and in Italy one for every 250 inhabitants.

These figures from BIPAR, the association of intermediaries at the European level, confirm that in the United Kingdom the consolidation trend manifested itself much earlier than in the Netherlands, but that countries such as Germany and Italy are lagging. Consolidation literally means merging. The United Kingdom has now 4,000 intermediaries and Germany still has 45,000 intermediaries, while both markets are approximately equal in terms of premium volume. Both the Netherlands and the United Kingdom, unlike other countries, already have strict regulations (such as a ban on commission for life insurance) and both countries are leading in digitalization. These are two other trends that will continue and on which many consolidation parties want to anticipate, aiming to turn inefficiency into efficiency.

There are now many international Private Equity funds (PE) active in the European intermediary market, such as Blackstone, Rothschild, Hg Capital, and KKR. They all follow a recognizable buy and build strategy, where they take a financial stake in a prominent regional intermediary and use it as a platform company to add smaller intermediaries. This 'stringing pearls' almost naturally creates value, as larger companies simply have higher multiples over revenue than smaller companies.

'Maintaining independence requires smart strategies and flexible business models'

Local heroes have the power to choose their own path.

In this dynamic time of consolidation, Dutch intermediaries face both challenges and opportunities. As a Local Hero, they have the power to choose their own path amidst the global players. However, maintaining independence and entrepreneurship requires smart strategies and flexible business models. Here are some workable options:

1. Work on strategic positioning

Identify the unique strengths of your office. If these are still diffuse, consider distinguishing yourself in a niche or specialization in the market and thus build a loyal customer base. Building a strong brand and corporate identity is of great importance. Clear positioning can attract customers, even amidst consolidation.

2.  Accelerate digital transformation

Invest at least six to eight percent of your revenue in digitalization to operate more efficiently. Look at what software providers have to offer and focus not only on the back office but especially on a better digital customer journey. This requires continuous attention to constantly improving your data quality. A strong online presence (website, social media) increases competitiveness, especially if you are active locally. Stay alert to innovative developments in the sector such as the emergence of AI.

3. Collaborate and network

Seek strategic partnerships with fellow intermediaries and insurance partners to achieve scale advantages without full consolidation. Select service providers that offer products in line with your strategy and are leaders in digitalization.

4. Focus on talent development and team spirit

Invest in the development of staff to build expertise, not only in technical areas but also in emerging fields such as digitalization, risk management, and compliance. Consider how you can turn your key players into a winning team. Start with establishing an inspiring ambition (mission, vision) for your office.

5. Strengthen customer relationships, minimize bleeders, maximize feeders

Focus on building sustainable customer relationships by providing excellent service and delivering true customer-oriented solutions. Satisfied customers are essential for organic growth. However, first determine who your feeders & bleeders are. Feeders are the customer segments profitable for your office. Bleeders cost you money, as handling costs (visits, emails, phone calls, modifications, claims handling) are higher than the revenue from commission or service subscription.

6. Combine different business models

The commission model no longer seems future-proof in the trend towards increasing transparency. Ensure that you are agile. Besides the service subscription, there are alternatives such as:

• Hourly invoice: the more specialized and unique, the higher the hourly rate.

• The platform model: bringing together supply and demand (in line with your specialization) on a digital marketplace.

• The freemium model: a free basic product or service to attract customers in order to upgrade them to premium offerings based on their needs.

• Embedded insurance: seamlessly offering insurance as part of a product or sales process. The best-known examples include travel insurance at a travel agency, car insurance at a dealer, or warranty insurance with a purchase of equipment.

• Outsourcing: Outsourcing certain activities to specialized service providers so you can focus on your core activities. Consider outsourcing specialist pension advice, absence management, or your own ICT services.

7. Manage your own financial planning

Financial stability offers more control over strategic decisions. Be prepared for economic fluctuations and strive for a solid financial foundation. Continuously benchmark and monitor the key KPIs of your office. Engage with M&A ('merger & acquisition') experts to discuss their views on the value development of your company and how you can optimize it to become an attractive merger or acquisition partner in the future. A good understanding of the legal aspects is essential to safeguard the interests of your business.

Jack Vos: 'Commission model no longer seems future-proof.'

Creative Dwarf

Bigger isn't always better, and sometimes a creative dwarf can outshine an industrial giant. An inspiring example outside the insurance industry is Pixar Animation Studios, which under the leadership of visionary Steve Jobs challenged the established order of Disney with groundbreaking computer-animated films such as Toy Story and Finding Nemo. The peak of the battle between this David and Goliath came in 2006 when Disney acquired Pixar for more than seven billion dollars. This collaboration between apparently unequal forces was more than a business transaction and led to creative synergy and extraordinary growth in the entertainment industry. ■

Jack Vos is a member of the WP Entrepreneurs Panel, a former intermediary, and founder of the high-tech data science company Onesurance.