Growth in the insurance brokerage sector is expected to remain stable as the middle of the year approaches.

Moody’s expects growth to remain in the mid-single digits or higher as the economy stabilizes and the property and casualty (P&C) insurance rate increases.

At least one broker leader believes there is reason for cautious optimism amid the current market environment.

“From our perspective, there’s a lot of opportunity, and we’re seeing a lot of organic growth in a very healthy way,” said Eric Jost (pictured), COO of CAC Specialty, an insurance brokerage and risk solutions firm.

Sharing his outlook for the insurer, Jost pointed to growth opportunities available to brokers across a range of products, including real estate, casualty, financial lines and other specialty areas.

He explained that while larger brokerage firms may experience slower growth due to their size, the industry overall is experiencing impressive growth rates.

“Brokers do a lot of important things, and what we do isn’t quite easy, but I’m very optimistic about what’s coming in terms of how the insurance markets behave and our ability to create value for our clients,” Jost said.

What contributes to organic growth of brokerage firms?

According to Moody’s, favorable property and casualty pricing in most business lines, growth in insurable exposures, strong client retention, and new business generation will support organic revenue growth throughout 2024.

“Brokers will maintain strong EBITDA margins through 2024 and beyond through strong organic revenue growth and good expense controls,” the rating agency said in a March report. “Interest coverage for investment-grade and speculative-grade brokers has declined slightly over the past two years due to rising market interest rates.”

For its part, CAC Specialty achieved 40% organic growth last year without mergers or acquisitions, according to its chief operating officer. The company reported revenue of $200 million in 2023, a significant increase from the $135 million it recorded in 2022.

While Jost acknowledged that this organic growth rate may slow as the company expands, he remains optimistic about maintaining healthy growth rates moving forward.

He said one of the main factors contributing to this steady growth is the impact of changes in insurance premiums over the past few years.

“Customers are more active in listening to us because they have seen their costs rise significantly,” Jost said.

This increase in premiums has made clients more receptive to new ideas and solutions, creating opportunities for brokerage firms like CAC Specialty to prove their value.

The broader economic context also plays a crucial role in the growth trajectory of the insurance industry. Jost highlighted the relatively strong performance of the US economy, which has shown resilience despite global uncertainty.

Navigating shifts in lines of specialization

Looking to the future, Jost expressed cautious optimism about the macroeconomic environment. He noted that concerns about inflation and interest rates have diminished, and the focus has shifted from predicting a recession to understanding how the economy will grow in the coming quarters.

“I don’t expect any radical changes. While everything we do can be linked to these things, we don’t see an immediate necessity,” Jost said.

He stressed that although significant changes in interest rates could impact areas such as mergers and acquisitions and real estate markets, the general outlook points to slow and deliberate adjustments.

Regarding specific sectors, Jost identified areas poised for growth, including directors and officers liability, cyber insurance, and workers’ compensation. These lines are currently experiencing a lot of competition, which is a shift from two years ago when price increases were dominant.

However, he noted that many casualty lines are under pressure, as claims or loss ratios pressure prices in markets such as commercial auto.

Jost also highlighted the ongoing challenges in the real estate market, especially in areas prone to natural disasters. While there is some relief in the commercial real estate market, prices are still high compared to four years ago.

“The real estate market tends to have a consumer-facing component, which is seeing a lot of stress in areas like Florida and California due to storms or wildfires,” he said.

For brokers navigating this dynamic environment, Jost stressed the importance of staying flexible and informed.

“You have to stay smart for your client. There’s a lot of information out there, and as useful as it is, it’s important to put it in context for each client,” Jost said.

Do you agree with Joost’s brokerage forecasts for the rest of 2024? Please share your comments below.