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5 Stocks From the Thriving Insurance Brokerage Industry
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The Zacks Insurance Brokerage industry is likely to benefit from better pricing, prudent underwriting, rising demand for insurance products and global expansion. Industry players like Marsh & McLennan Companies (MMC - Free Report) , Aon plc (AON - Free Report) , Arthur J. Gallagher & Co. (AJG - Free Report) and Willis Towers Watson plc (WTW - Free Report) and Brown and Brown, Inc. (BRO - Free Report) are poised to grow from consolidations in this traditionally-fragmented industry.
The increasing adoption of technology and higher spending on technology will help the industry to function smoothly.
About the Industry
The Zacks Brokerage Insurance industry comprises companies that primarily offer insurance and reinsurance products and services. Insurance brokers act on behalf of their clients and offer advice, keeping in mind clients' interests, against brokerage fees. Their business is directly linked with clients’ level of business activity. Some of these companies are also involved in providing risk management, third-party administration and managed healthcare services. Per a report by Zion Market Research, the global insurance brokerage market is predicted to reach to around $278.30 billion by 2030 or at an eight-year (2022-2030) CAGR of 16.1%. Research Dive estimates the industry players to generate $515.3 billion in revenues by 2028 at a seven-year (2021-2028) CAGR of 5.4%. Increased digitization has been helping to improve operational performance.
3 Trends Shaping the Future of the Insurance Brokerage Industry
Increased Demand for Products to Drive Revenues: The operational results of the industry players are dependent on clients’ level of business activity, which, in turn, depends on the extent of economic activity in the industries and markets they serve. Thus, growth of insurance brokers depends on the demand for insurance products driven by increased awareness. Keeping this in mind, industry players are continually expanding globally, cross-selling products, improving pricing, tightening underwriting standards and designing products that are more appealing to customers and match their risk appetite. Better pricing ensures higher commissions for the industry players. An increase in the aging population is driving demand for retirement benefit products, while the rising population of baby boomers and millennials and increasing awareness are boosting the demand for medical insurance, life insurance, accidental insurance as well as other forms of insurance.
Mergers and Acquisitions: The insurance brokerage industry is witnessing fast-paced consolidation. The industry has been traditionally fragmented, with a number of small players. One of the factors driving mergers and acquisitions is the companies’ need to become specialized in their businesses. Some other factors driving M&A are the interest shown by private equity firms in this sector, growing competition and slow organic growth.
Increased Adoption of Technology: Industry players are focused on leveraging technology and innovation, including artificial intelligence, robotics and blockchain, to simplify and improve client experience, increase efficiencies and alter business models. Accelerated digitization, robotic process automation, cognitive intelligence and blockchain should help insurers curb operational costs and aid margin expansion. Increased automation is expected to drive premium growth and boost efficiency. However, expenses associated with such investments increase costs and, in turn, the expense ratio.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Insurance - Brokerage industry is housed within the broader Zacks Finance sector. It carries a Zacks Industry Rank #35 which places it in the top 14% of more than 252 Zacks industries.
The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, signifies encouraging near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is the result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are upbeat about this group’s earnings growth potential. The industry’s earnings estimate has moved up 3.2% for 2024 in a year.
Before we present a few insurance broker stocks that you may want to consider for your portfolio, let's take a look at the industry's recent stock-market performance and valuation picture.
Industry Underperforms Sector and S&P 500
The Insurance Brokerage industry has underperformed the Zacks Finance Sector in the past year, as well as the Zacks S&P 500 composite.
The stocks in this industry have collectively gained 7.5% compared with the S&P 500's increase of 23.8% and the broader sector’s increase of 21% in the said time frame.
One Year Price Performance
Current Valuation
On the basis of a trailing 12-month price-to-book (P/B), commonly used for valuing insurance stocks, the industry is currently trading at 6.74X compared with the Zacks S&P 500 composite’s 6.29X and the sector’s 3.02X.
Over the past five years, the industry has traded as high as 7.26X, as low as 6.21X and at the median of 6.86X.
Brown and Brown: Brown & Brown, with a market capitalization of $23.6 billion and headquartered in Daytona Beach, FL, markets and sells insurance products and services primarily in the United States, as well as in London, Bermuda, and the Cayman Islands. New businesses, better customer retention, premium rate increases across the majority of business lines, strategic acquisitions and a strong financial position should continue to drive growth for this Zacks Rank #1 insurer.
The Zacks Consensus Estimate for BRO’s 2024 EPS indicates a 26.3% increase year over year. The expected long-term earnings growth rate is 9.4%. The consensus estimate has risen 2.8% for 2024 in the past 30 days. BRO delivered a four-quarter average earnings surprise of 11.90%.
Price and Consensus: BRO
Marsh & McLennan Companies: New York-based Marsh & McLennan, with a market capitalization of $99.3 billion, provides advice and solutions to clients in the areas of risk, strategy and people worldwide. This Zacks Rank #3 insurance broker is well poised to grow on significant investments and acquisitions made within its operating units, product launches, enhanced digital capabilities and new businesses.
Marsh & McLennan delivered a four-quarter average earnings surprise of 6.53%. The Zacks Consensus Estimate for 2024 earnings indicates an 8.1% year-over-year increase. The expected long-term earnings growth rate is 6.9%. The consensus estimate has inched up 0.9% for 2024 in the past 30 days.
Price and Consensus: MMC
Aon: Dublin, Ireland-based Aon, with a market capitalization of $61.8 billion, offers risk management services, insurance and reinsurance brokerage, human resource consulting and outsourcing services worldwide. The divestiture of non-core operations to streamline its business and deepen its focus on more profitable operations generates a higher return on equity. This, along with cost-curbing measures, bodes well for growth. Aon has an impressive inorganic story. This Zacks Rank #3 insurer broker mainly looks to expand in the health and benefits business, flood insurance solutions and risk and insurance solution operations.
The Zacks Consensus Estimate for Aon’s 2024 earnings indicates an 11.8% year-over-year increase. The expected long-term growth rate is pegged at 10.5%, better than the industry average of 9.6%.
Price and Consensus: AON
Arthur J. Gallagher & Co.: Headquartered in Itasca, IL, Arthur J. Gallagher, with a market capitalization of $51.9 billion, is the world’s largest property/casualty third-party claims administrator and the fourth largest globally among insurance brokers based on revenues. This Zacks Rank #3 insurance broker is poised to benefit from the growing contribution of its Brokerage and Risk Management segments, which, in turn, are driving organic revenues.
Given the number and size of its non-U.S. acquisitions, the company expects an increase in international contribution to total revenues. New business production and retention bode well for consistent growth. AJG estimates organic growth to be between 7% and 9% in the Brokerage segment, while the same for the Risk Management segment is expected to be between 9% and 11%. Margins are expected to be around 20% in 2024.
The Zacks Consensus Estimate for AJG’s 2024 EPS indicates a 14.8% year-over-year increase. The expected long-term earnings growth rate is 10.6%, better than the industry average of 9.6%. AJG delivered a four-quarter average earnings surprise of 1.83%.
Price and Consensus: AJG
Willis Towers: Based in London, the United Kingdom, Willis Towers Watson plc, with a market capitalization of $26.9 billion, is a leading global advisory, broking and solutions company. Growing healthcare premiums, increased consulting work and software sales, strategic buyouts and effective capital deployment bode well for growth. Willis Towers’ growth strategy focuses on core opportunities with the highest growth and returns. The broker innovated and developed its offerings in markets and boosted its abilities in faster-growth markets.
Willis Towers has a solid track record of beating earnings estimates in three of the last four quarters and missing in one, the average being 0.27%. The Zacks Consensus Estimate for 2024 earnings indicates an 11.8% year-over-year increase. The expected long-term earnings growth rate is 10.8%, better than the industry average of 9.6%.
Price and Consensus: WTW
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5 Stocks From the Thriving Insurance Brokerage Industry
The Zacks Insurance Brokerage industry is likely to benefit from better pricing, prudent underwriting, rising demand for insurance products and global expansion. Industry players like Marsh & McLennan Companies (MMC - Free Report) , Aon plc (AON - Free Report) , Arthur J. Gallagher & Co. (AJG - Free Report) and Willis Towers Watson plc (WTW - Free Report) and Brown and Brown, Inc. (BRO - Free Report) are poised to grow from consolidations in this traditionally-fragmented industry.
The increasing adoption of technology and higher spending on technology will help the industry to function smoothly.
About the Industry
The Zacks Brokerage Insurance industry comprises companies that primarily offer insurance and reinsurance products and services. Insurance brokers act on behalf of their clients and offer advice, keeping in mind clients' interests, against brokerage fees. Their business is directly linked with clients’ level of business activity. Some of these companies are also involved in providing risk management, third-party administration and managed healthcare services. Per a report by Zion Market Research, the global insurance brokerage market is predicted to reach to around $278.30 billion by 2030 or at an eight-year (2022-2030) CAGR of 16.1%. Research Dive estimates the industry players to generate $515.3 billion in revenues by 2028 at a seven-year (2021-2028) CAGR of 5.4%. Increased digitization has been helping to improve operational performance.
3 Trends Shaping the Future of the Insurance Brokerage Industry
Increased Demand for Products to Drive Revenues: The operational results of the industry players are dependent on clients’ level of business activity, which, in turn, depends on the extent of economic activity in the industries and markets they serve. Thus, growth of insurance brokers depends on the demand for insurance products driven by increased awareness. Keeping this in mind, industry players are continually expanding globally, cross-selling products, improving pricing, tightening underwriting standards and designing products that are more appealing to customers and match their risk appetite. Better pricing ensures higher commissions for the industry players. An increase in the aging population is driving demand for retirement benefit products, while the rising population of baby boomers and millennials and increasing awareness are boosting the demand for medical insurance, life insurance, accidental insurance as well as other forms of insurance.
Mergers and Acquisitions: The insurance brokerage industry is witnessing fast-paced consolidation. The industry has been traditionally fragmented, with a number of small players. One of the factors driving mergers and acquisitions is the companies’ need to become specialized in their businesses. Some other factors driving M&A are the interest shown by private equity firms in this sector, growing competition and slow organic growth.
Increased Adoption of Technology: Industry players are focused on leveraging technology and innovation, including artificial intelligence, robotics and blockchain, to simplify and improve client experience, increase efficiencies and alter business models. Accelerated digitization, robotic process automation, cognitive intelligence and blockchain should help insurers curb operational costs and aid margin expansion. Increased automation is expected to drive premium growth and boost efficiency. However, expenses associated with such investments increase costs and, in turn, the expense ratio.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Insurance - Brokerage industry is housed within the broader Zacks Finance sector. It carries a Zacks Industry Rank #35 which places it in the top 14% of more than 252 Zacks industries.
The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, signifies encouraging near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is the result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are upbeat about this group’s earnings growth potential. The industry’s earnings estimate has moved up 3.2% for 2024 in a year.
Before we present a few insurance broker stocks that you may want to consider for your portfolio, let's take a look at the industry's recent stock-market performance and valuation picture.
Industry Underperforms Sector and S&P 500
The Insurance Brokerage industry has underperformed the Zacks Finance Sector in the past year, as well as the Zacks S&P 500 composite.
The stocks in this industry have collectively gained 7.5% compared with the S&P 500's increase of 23.8% and the broader sector’s increase of 21% in the said time frame.
One Year Price Performance
Current Valuation
On the basis of a trailing 12-month price-to-book (P/B), commonly used for valuing insurance stocks, the industry is currently trading at 6.74X compared with the Zacks S&P 500 composite’s 6.29X and the sector’s 3.02X.
Over the past five years, the industry has traded as high as 7.26X, as low as 6.21X and at the median of 6.86X.
Trailing 12-Month Price-to-Book (P/B) Ratio
Trailing 12-Month Price-to-Book (P/B) Ratio
5 Insurance Brokerage Stocks for Better Returns
We are presenting one stock from the space currently sporting a Zacks Rank #1 (Strong Buy) and four stocks carrying a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
Brown and Brown: Brown & Brown, with a market capitalization of $23.6 billion and headquartered in Daytona Beach, FL, markets and sells insurance products and services primarily in the United States, as well as in London, Bermuda, and the Cayman Islands. New businesses, better customer retention, premium rate increases across the majority of business lines, strategic acquisitions and a strong financial position should continue to drive growth for this Zacks Rank #1 insurer.
The Zacks Consensus Estimate for BRO’s 2024 EPS indicates a 26.3% increase year over year. The expected long-term earnings growth rate is 9.4%. The consensus estimate has risen 2.8% for 2024 in the past 30 days. BRO delivered a four-quarter average earnings surprise of 11.90%.
Price and Consensus: BRO
Marsh & McLennan Companies: New York-based Marsh & McLennan, with a market capitalization of $99.3 billion, provides advice and solutions to clients in the areas of risk, strategy and people worldwide. This Zacks Rank #3 insurance broker is well poised to grow on significant investments and acquisitions made within its operating units, product launches, enhanced digital capabilities and new businesses.
Marsh & McLennan delivered a four-quarter average earnings surprise of 6.53%. The Zacks Consensus Estimate for 2024 earnings indicates an 8.1% year-over-year increase. The expected long-term earnings growth rate is 6.9%. The consensus estimate has inched up 0.9% for 2024 in the past 30 days.
Price and Consensus: MMC
Aon: Dublin, Ireland-based Aon, with a market capitalization of $61.8 billion, offers risk management services, insurance and reinsurance brokerage, human resource consulting and outsourcing services worldwide. The divestiture of non-core operations to streamline its business and deepen its focus on more profitable operations generates a higher return on equity. This, along with cost-curbing measures, bodes well for growth. Aon has an impressive inorganic story. This Zacks Rank #3 insurer broker mainly looks to expand in the health and benefits business, flood insurance solutions and risk and insurance solution operations.
The Zacks Consensus Estimate for Aon’s 2024 earnings indicates an 11.8% year-over-year increase. The expected long-term growth rate is pegged at 10.5%, better than the industry average of 9.6%.
Price and Consensus: AON
Arthur J. Gallagher & Co.: Headquartered in Itasca, IL, Arthur J. Gallagher, with a market capitalization of $51.9 billion, is the world’s largest property/casualty third-party claims administrator and the fourth largest globally among insurance brokers based on revenues. This Zacks Rank #3 insurance broker is poised to benefit from the growing contribution of its Brokerage and Risk Management segments, which, in turn, are driving organic revenues.
Given the number and size of its non-U.S. acquisitions, the company expects an increase in international contribution to total revenues. New business production and retention bode well for consistent growth. AJG estimates organic growth to be between 7% and 9% in the Brokerage segment, while the same for the Risk Management segment is expected to be between 9% and 11%. Margins are expected to be around 20% in 2024.
The Zacks Consensus Estimate for AJG’s 2024 EPS indicates a 14.8% year-over-year increase. The expected long-term earnings growth rate is 10.6%, better than the industry average of 9.6%. AJG delivered a four-quarter average earnings surprise of 1.83%.
Price and Consensus: AJG
Willis Towers: Based in London, the United Kingdom, Willis Towers Watson plc, with a market capitalization of $26.9 billion, is a leading global advisory, broking and solutions company. Growing healthcare premiums, increased consulting work and software sales, strategic buyouts and effective capital deployment bode well for growth. Willis Towers’ growth strategy focuses on core opportunities with the highest growth and returns. The broker innovated and developed its offerings in markets and boosted its abilities in faster-growth markets.
Willis Towers has a solid track record of beating earnings estimates in three of the last four quarters and missing in one, the average being 0.27%. The Zacks Consensus Estimate for 2024 earnings indicates an 11.8% year-over-year increase. The expected long-term earnings growth rate is 10.8%, better than the industry average of 9.6%.
Price and Consensus: WTW