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6 Insurance Brokerage Stocks to Gain From Increased Demand

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Better pricing, prudent underwriting, demand for insurance products and global expansion have been driving revenues of Zacks Insurance Brokerage industry players. Fast-paced consolidations in this traditionally fragmented industry are expected to benefit Marsh & McLennan Companies (MMC - Free Report) , Aon plc (AON - Free Report) , eHealth (EHTH - Free Report) , Brown & Brown (BRO - Free Report) , Arthur J. Gallagher (AJG - Free Report) , and Willis Towers Watson (WLTW - Free Report) .

However, pandemic-related uncertainties will weigh on results. Nonetheless, increasing adoption of technology will help in smooth functioning of the industry.

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. Some of these companies are also involved in providing risk management, third-party administration, and managed health care services.

Technavio analysts forecast the global insurance brokerage market to rise by $13.84 billion or at a CAGR of more than 4% during 2020-2024, according to their market research report.

3 Trends Shaping the Future of Insurance Brokerage Industry

Increased Demand for Products to Drive Revenues: Industry players are continually expanding globally, cross selling products, increasing rates, tightening underwriting standards, and controlling expenses. Growth in aging population is driving demand for retirement benefit products while rising population of baby boomers and millennials is boosting demand for medical insurance, life insurance, accidental insurance and other forms of insurance. Nonetheless, the pandemic has been weighing on results. The operational results of the industry players are affected directly by clients’ level of business activity, which in turn, depends on the extent of economic activity in the industries and markets that they serve. The disruption caused by the COVID-19 pandemic rendered severe volatility in business operations. However, reopening of economic activities and likely availability of COVID-19 vaccines from 2021 should create growth opportunities.
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 need of the companies 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 lack of organic growth.
Increased Adoption of Technology: To maintain competitiveness in the industry, players are embracing technological change. The threat comes from new entrants, including technology companies like Insurtech, start-ups, and others. These players are focused on using technology and innovation, including artificial intelligence, robotics and blockchain, to simplify and improve client experience, increase efficiencies, alter business models and bring about other disruptive changes in industries in which the existing players operate. Per a WNS report, global spending on technology is estimated to increase 48% on a compound annual growth basis to $1.4 billion by 2021. While investments in technology help increase business efficiency, expenses associated with such investments increase operating costs.

Zacks Industry Rank Indicates Encouraging Prospects

The Zacks Insurance - Brokerage industry is housed within the broader Zacks Finance sector. It carries a Zacks Industry Rank #82, which places it in the top 32% of more than 250 Zacks industries.

The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, signifies solid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

The industry’s positioning in the top 32% of the Zacks-ranked industries is a result of 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. Estimates have moved up 4.7% since June end.

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 Outperforms Sector but Underperforms S&P

The Insurance Brokerage Industry has performed better than the Zacks Finance Sector over the past year but underperformed the Zacks S&P 500 composite.

The industry has lost 3.6% compared against the S&P 500's increase of 15%. The broader sector has declined 4.7% in the said time frame.

One-Year Price Performance

Industry's Current Valuation

On the basis of the trailing 12-month price-to-book (P/B), which is commonly used for valuing insurance stocks, the industry is currently trading at 6.21X compared with the S&P 500's 5.89X and the sector's 2.77X.

Over the last five years, the industry has traded as high as 2.93X, as low as 1.74X and at the median of 2.57X.

Trailing 12-Month Price-to-Book (P/B) Ratio


Trailing 12-Month Price-to-Book (P/B) Ratio

6 Insurance Brokerage Stocks to Keep an Eye On

Two stocks in the space currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

eHealth, Inc.: This leading online source of health insurance for individuals, families and small businesses should benefit from investments in Medicare-related marketing initiatives and expansion of telesales capacity and online sales.

The company delivered an average earnings surprise of 83.27% in the trailing four quarters.  The Zacks Consensus Estimate for current-year earnings has been revised 1.4% upward over the past 60 days. The expected long-term earnings growth rate is pegged at 21%, better than the industry average of 11.4%.

Price and Consensus: EHTH


Brown & Brown: This Daytona Beach, FL based company markets and sells insurance products and services in the United States, England, Canada, Bermuda, and the Cayman Islands. It is poised to benefit from strategic acquisitions and mergers as well as investments to boost organic growth and expand margin.

It delivered an earnings surprise in each of the last four reported quarters with the average beat being 13.91%. The Zacks Consensus Estimate for 2020 EPS indicates a 16.4% increase year over year. The consensus estimate has moved up about 5.8% in the past 60 days.

Price and Consensus: BRO


Here are four stocks that carry a Zacks Rank #3 (Hold)

Arthur J. Gallagher: This Rolling Meadows, IL-provider insurance brokerage, consulting, and third-party claims settlement and administration services in the United States, Australia, Bermuda, Canada, the Caribbean, New Zealand, and the United Kingdom should gain from organic growth at its Brokerage and Risk Management segments.

The Zacks Consensus Estimate for 2020 EPS indicates a 25.6% increase year over year. It delivered an earnings surprise in the last four reported quarters with the average being 15.79%. The expected long-term earnings growth rate is pegged at 8%. The consensus estimate has moved up 6% in the past 60 days.

Price and Consensus: AJG

Marsh & McLennan Companies: This New York-based company provides advice and solutions to clients in the areas of risk, strategy, and people worldwide. The company is well-poised to grow on significant investments and acquisitions made within its operating units, launch of products, enhanced digital capabilities and new businesses.

It delivered a four-quarter average surprise of 8.15%. The Zacks Consensus Estimate for 2020 earnings indicates 5.4% year-over-year increase. It has moved up 2.1% in the past 60 days. The expected long-term earnings growth rate is pegged at 5%.

Price and Consensus: MMC

Aon plc: Headquartered in London, this British multinational corporation offers risk management services, insurance and reinsurance brokerage, human resource consulting and outsourcing services worldwide.

The company delivered an average earnings surprise of 1.12% in the trailing four quarters.  The Zacks Consensus Estimate for 2020 indicates 5.5% year-over-year increase.

Price and Consensus: AON

Willis Towers Watson: This London-based leading global advisory, broking and solutions company should benefit from increasing organic commissions and fees, solid customer retention levels, growing new business, strong exchange business, and strategic acquisitions.

It delivered a four-quarter average surprise 5.61%. The Zacks Consensus Estimate for 2020 earnings indicates 4.9% year-over-year increase. It has moved up 0.3% in the past 60 days.

Price and Consensus: WLTW


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