Insurance broking is a classic example of a ‘long tail’ strategy. The most common risks are handled by low-margin commodity businesses dominated by consumer-facing insurance giants. Not so the less-common risks – art, terrorism and obscure wholesale liabilities. Insuring these is still a people business where brokers have an advantage.
It’s the nature of long tails to be long, which means that even successful, established brokers – think of Aon, Gallagher and Willis Towers Watson – have their own long tails. In any given region or risk specialty, there are small broker networks with an edge over more generalist incumbents, a situation guaranteed to persist as new risks like AI appear.
Now bring in private equity, which over a decade ago spotted an opportunity. Without the capital or regulatory constraints of underwriting, broking is ripe for consolidation and scale. US broker Alliant was first, bought by Blackstone in 2007 and then KKR, but the process only took off from around 2017, when rock-bottom credit spreads made issuing junk-rated debt an attractive means of fuelling growth.
