Downturn in Insurance Distribution M&A – Why and What’s Next?
March 2026There has been a marked increase in mergers and acquisitions (M&A) activity within the insurance distribution sector over the past several years fuelled, in the main, by private equity (PE) investment flooding into the market.
However, consultancy firm MarshBerry, recently reported that the total number of M&A transactions announced in this sector in 2025 fell to its lowest level since 2017, evidencing that the M&A trend is perhaps starting to level out. So what is causing this current climate?
Market and economic conditions
The substantial sales figures generated by broking house disposals in recent years have started to look less attainable amid current economic and market conditions. Specifically:
- Insurance rates softened in 2025, resulting in a decline in revenue to insurance brokers. This may have resulted in diminishing the sector’s appeal to potential PE investors, especially those seeking short-term returns on their investments.
- Interest rates have risen, thereby increasing the cost of borrowing. Those PE investors who themselves rely on finance to back their investments will have had to factor this increased cost into their decision-making.
- The global geopolitical environment is currently extremely turbulent, and uncertainty abounds. Not only has the UK entered a(nother) period of growth reduction and high inflation, but global economic instability has added further unpredictability. Investors are naturally becoming more cautious.
Loss of confidence in Economies of Scale model?
Historically, PE acquisitions have been based on the theoretical ‘economies of scale’ model, which is founded on increasing top line income through greater distribution whilst pegging costs by centralising in-house functions. This is a robust and effective model in theory, but evidence of this model being deployed is mixed in terms of its success; undeniably some have done very well, but others have struggled.
Some of the recent failures may have fuelled a drop in investor confidence in the viability of the model, meaning that those who wanted a short-term cash injection may currently struggle to secure favourable terms for fear that the returns may take longer to materialise.
Shift in buyer focus
PE investors are starting to look elsewhere for their returns, including in the technology/AI sectors.
Economic focus in 2025 shifted from growth towards consolidation; buyers are deciding against the purchase of new assets, and instead concentrating on integration of past acquisitions, refinancing or overseas expansion.
Supply issues
Much of the mid-market broking sector has been subject to M&A activity over recent years, leaving a relative dearth of options for those looking to acquire/expand.
Regulatory influence
Distribution consolidation continues; however, increasing regulatory expectations around compliance, data governance, AI use and consumer‑duty obligations add operational cost and complexity, which may dampen the appetite of PE investors.
Specialty intermediaries remain resilient
Feedback from market updates suggests that ‘specialty distribution’ – including Lloyd’s brokers and Managing General Agents (MGAs) – is one of the few areas with sustained activity. This sector continues to attract interest from PE and overseas investors, as well as consolidators.
The reasons for this include:
- They hold expertise in niche, complex risks (such as cyber, W&I, international D&O, property, specialty casualty), and remain in demand even during softer market cycles.
- There are new entrants to this market representing continued growth potential (in contrast with the shortage of mid-sized brokers).
Implications going forward
PE-funded M&A has long been viewed as a valuable growth mechanism for MGAs and brokers, particularly by senior brokers seeking to break away from established players and form boutique start-ups as a vehicle to extract maximum value from their expertise before retirement.
However, with the growth of large publicly-traded brokers starting to stagnate, the future of the PE model for delivering short-term gain is definitely under threat. As stated in the MarshBerry report – “Creating lasting value has become more difficult, which has introduced increased caution around acquisitions and renewed scepticism of the “pile ‘em high” M&A strategies that have characterised the recent record-breaking years of deal activity.”.
Notwithstanding the above, however, those funders already invested in the insurance industry are showing no sign of moving out. Instead, we are starting to see extended hold periods, more conservative leverage and stronger focus on recurring revenue businesses. Insurance distribution, therefore, remains a viable option for longer term PE investment.
And, whilst it seems unlikely that deal activity will return to the levels seen in 2023/24 over the next year or two, PE funds do remain available for boutique and specialised operations, particularly those engaging technology to bolster their offerings.
Key takeaways
Inward investment into the insurance market has definitely taken a hit over the past year or so. However, despite this being disconcerting to some, there is reason for optimism. Specialty distributors are still attracting PE funding, smaller broker acquisitions (less than £5million) are still ongoing, and overseas interest in the UK insurance distribution sector remains buoyant.
The insurance distribution industry is robust. Despite the recent downturn, the underlying attributes that make this sector so appealing remain unchanged. The traditional short‑term‑gain PE model is undeniably under strain, but insurance distribution remains one of PE’s most resilient and attractive targets. The difference now is how (until – and if – economic and market conditions fall back in line with previous years) PE creates value. Investors are increasingly adopting slower, more operationally intensive strategies, enhanced technology, and the application of patience.
If you have any questions relating to the information discussed in this article or wish to understand how these apply to your business practices, please contact Joe Bryant.
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