Five Arrows, the investment partnership pipe of merchant bank Rothschild, takes 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) is growing from 50 million in 2017 to over 200 million in 2022 through mergers and acquisitions. A recent example of international expansion on Dutch soil is the acquisition of VLC & Partners (formerly owned by De Goudse) by Howden Insurance, which operates in fifty (!) countries. Sweden's Soderberg & Partners is also a successful international player, on balance now good for a place in the Top Five of the Netherlands' largest intermediaries.

What actually makes the intermediary market so interesting for consolidation? And why are investors willing to invest large sums in it? First, intermediaries generally have a loyal customer base with annual recurring revenues, which makes them relatively insensitive to business cycles or economic crises, such as the corona pandemic. Profit margins are still generous compared to other industries. In addition, graying at the intermediary plays a significant role, both among consultants and owners. The average lifespan is over 50 years. Finally, many smaller intermediaries in particular are wary of necessary in-depth investments in digitalization and increasing regulation in the areas of transparency and data privacy. Larger, more powerful merged companies have an advantage here, at least that is the general opinion of many buyers and sellers.

More than 900,000 intermediaries still operate in Europe today. This amounts to an average of one intermediary for every 600 inhabitants in Europe. There are big differences: in the Netherlands it is one intermediary for every 2,953 inhabitants, in the United Kingdom one for every 6,650 inhabitants, in Germany one for every 442 and in Italy one for every 250 inhabitants.

These figures from BIPAR - the interest group of the intermediary at the Euro pees 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 behind. To consolidate literally means to merge. For example, the United Kingdom now has 4,000 intermediaries and Germany still has 45,000 intermediaries, while both markets are roughly equivalent in terms of premium volume. Both the Netherlands and the UK, unlike other countries, already have strict regulations (such as a ban on commission for life) and both countries are leading the way in digitalization. These are two other trends that will continue and that many consolidators are looking to anticipate with the goal of turning inefficiencies into return on investment.

There are now many international Private Equity (PE) funds operating in the European intermediary market, such as Blackstone, Rothschild, Hg Capital, and KKR. They all follow a recognizable buy-and-build strategy, taking a financial stake in an appealing regional intermediary and using that as a platform company to add smaller intermediaries. This "stringing of beads" almost automatically creates value, because large companies have ho gere multiple over revenue than small 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 Local Hero, they have the power to choose their own path amidst the global Global Players. However, maintaining independence and entrepreneurship requires smart strategies and flexible business models. Herewith some workable options:

1. Work on strategic positioning

Identify your firm's unique strengths. If these are still diffuse, consider differentiating into a niche or specialization in the market and build a loyal client base. Building a strong brand and corporate identity is key. Clear positioning can attract customers even in the midst of 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 houses have to offer and focus not only on the back office, but especially on a better digital customer journey. This requires a continuous focus on constantly improving your data quality. A strong online presence (website, social media) increases competitiveness, even and v66ral if you operate locally. Stay alert to innovative developments in the industry such as the rise of AI.

3. Collaboration and networking

Seek strategic collaboration with fellow intermediaries and insurance partners to achieve economies of scale without complete consolidation. Selec te service providers who offer products that align with your strategy and are at the forefront of digitalization.

4. Ensure talent development and team spirit

Invest in staff development to build ex pertise not only professionally but also in emerging areas such as digitalization, ri sk management and compliance. Consider how to turn your star players into a winning team. Start by establishing an inspiring ambition (mission, vision) for your office.

5. Strengthen customer relationships, minimize bleeders, maximize feeders

Focus on building lasting customer relationships by providing excellent service and delivering true customer-focused solutions. After all, satisfied customers are essential for organic growth. First, however, determine who your feeders & bleeders are. Fee ders are the customer seg ments that are profitable to your office. Bleeders cost you money on balance because the handling costs (visits, mail, phone, mu tations, claims handling) are higher than the revenue on commission or service subscription.

6. Combine different business models

In the trend of increasing transparency, the commission model no longer seems future-proof. Be agile. In addition to the service subscription, there are alternatives such as:

• Hourly bill: the more specialized and unie ker, the higher the hourly rate.

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

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

• Embedded insurance: offering insurance as a seamless integration into a product or sales process. Well-known examples: travel insurance with a travel agency, car insurance with a dealer or warranty insurance with an appliance purchase.

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

7. Arrange your own financial planning

Financial stability provides greater control over stra tegic decisions. Be prepared for econom ic fluctuations and strive for a solid fi nancial base. Benchmark and continuously monitor your firm's key KPIs. Discuss with M&A experts how they view 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 company.

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

Creative Dwarf

Groot is natuurlijk niet altijd beter en soms wint een creatieve dwerg het van een industriele reus. Een inspi­ rerend voorbeeld van buiten de verzekeringsbranche is Pixar Animation Studios, <lat onder de leiding van de visionair Steve Jobs de gevestigde orde van Disney trotseerde met baanbrekende computergeanimeerde films zoals Toy Story en Finding Nemo. Het hoogtepunt van de strijd tussen deze David en Goliath kwam in 2006, toen Disney Pilar overnam voor meer dan zeven miljard dollar. Deze samenwerking tussen ogenschijn­ lijk ongelijke krachten was meer dan een zakelijke transactie en leidde tot een creatieve synergie en bui­tengewone groei in de entertainmentindustrie. ■

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