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6 Insurance Brokerage Stocks to Benefit From Rising Demand
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Better pricing, prudent underwriting, rising 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 Erie Indemnity (ERIE - Free Report) .
However, pandemic-related uncertainties will weigh on results. Nonetheless, increasing adoption of technology and higher spending on 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.
Per a report by Allied Market Research, the global insurance brokerage market is projected to grow at a eight year (2020-2027) CAGR of 7.3%. 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 led to severe volatility in business operations. However, reopening of economic activities and vaccinations 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 #96, which places it in the top 38% 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 50% 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 nearly 2% since May 2020 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 Underperforms Both S&P and Sector
The Insurance Brokerage industry has underperformed both the Zacks Finance Sector and the Zacks S&P 500 composite over the past year.
The industry has gained 37.2% compared with the S&P 500's increase of 48.1% and the broader sector’s rally of 48.6% 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 6.38X compared with the S&P 500's 7.11X and the sector's 3.22X.
Over the last five years, the industry has traded as high as 6.85X, as low as 3.64X and at the median of 4.84X.
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
One stock in the industry sports a Zacks Rank #1 (Strong Buy) while two stocks in the space currently carry a Zacks Rank #2 (Buy). Three stocks carry a Zacks Rank #3 (Hold)
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. It sports a Zacks Rank #1.
The company delivered an average earnings surprise of 67.93% in the trailing four quarters. The Zacks Consensus Estimate for current-year and 2022 earnings has been revised 4.1% and 4.4% upward, respectively over the past 60 days, indicating 15.6% and 61.6% year-over-year increase.
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. This Zacks Rank #2 company 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 16.55%. The Zacks Consensus Estimate for 2021 and 2022 EPS indicates a respective increase of 7.8% and 7.7% year over year.
Price and Consensus: BRO
Erie Indemnity Company: Erie, PA Erie Indemnity Company operates as a managing attorney-in-fact for the subscribers at the Erie Insurance Exchange in the United States as well as provides sales, underwriting, policy issuance, and renewal services for the policyholders on behalf of the Erie Insurance Exchange. This Zacks Rank #2 company should continue to benefit from strong growth in renewal business, focus on expanding agency force, and growing its customer base.
The Zacks Consensus Estimate for 2021 and 2022 earnings indicates a respective year-over-year increase of 4.6% and 8.9%.
Price and Consensus: ERIE
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 company carries a Zacks Rank #3.
The Zacks Consensus Estimate for 2021 and 2022 EPS indicates a respective 4.5% and 3% increase year over year. It delivered an earnings surprise in the last four reported quarters with the average being 17.51%. The expected long-term earnings growth rate is pegged at 12%, better than the industry average of 9.5%.
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. This Zacks Rank #3 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 9.03%. The Zacks Consensus Estimate for 2021 and 2022 earnings indicates 7% and 10.1% year-over-year increase, respectively. The expected long-term earnings growth rate is pegged at 6.8%.
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. Divestiture of its non-core operations to streamline business and focus on more profitable operations, thereby generating higher return on equity, strengthening of its position in the evolving commercial insurance market for small and medium-sized businesses, and cost savings from its restructuring programs bode well for growth.
This Zacks Rank #3 company delivered an average earnings surprise of 1.12% in the trailing four quarters. The Zacks Consensus Estimate for 2021 and 2022 indicates respective year-over-year increase of 11.6% and 11.4%.
Price and Consensus: AON
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Image: Bigstock
6 Insurance Brokerage Stocks to Benefit From Rising Demand
Better pricing, prudent underwriting, rising 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 Erie Indemnity (ERIE - Free Report) .
However, pandemic-related uncertainties will weigh on results. Nonetheless, increasing adoption of technology and higher spending on 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.
Per a report by Allied Market Research, the global insurance brokerage market is projected to grow at a eight year (2020-2027) CAGR of 7.3%. 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 led to severe volatility in business operations. However, reopening of economic activities and vaccinations 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 #96, which places it in the top 38% 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 50% 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 nearly 2% since May 2020 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 Underperforms Both S&P and Sector
The Insurance Brokerage industry has underperformed both the Zacks Finance Sector and the Zacks S&P 500 composite over the past year.
The industry has gained 37.2% compared with the S&P 500's increase of 48.1% and the broader sector’s rally of 48.6% 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 6.38X compared with the S&P 500's 7.11X and the sector's 3.22X.
Over the last five years, the industry has traded as high as 6.85X, as low as 3.64X and at the median of 4.84X.
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
One stock in the industry sports a Zacks Rank #1 (Strong Buy) while two stocks in the space currently carry a Zacks Rank #2 (Buy). Three stocks carry a Zacks Rank #3 (Hold)
You can see the complete list of today’s Zacks #1 Rank 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. It sports a Zacks Rank #1.
The company delivered an average earnings surprise of 67.93% in the trailing four quarters. The Zacks Consensus Estimate for current-year and 2022 earnings has been revised 4.1% and 4.4% upward, respectively over the past 60 days, indicating 15.6% and 61.6% year-over-year increase.
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. This Zacks Rank #2 company 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 16.55%. The Zacks Consensus Estimate for 2021 and 2022 EPS indicates a respective increase of 7.8% and 7.7% year over year.
Price and Consensus: BRO
Erie Indemnity Company: Erie, PA Erie Indemnity Company operates as a managing attorney-in-fact for the subscribers at the Erie Insurance Exchange in the United States as well as provides sales, underwriting, policy issuance, and renewal services for the policyholders on behalf of the Erie Insurance Exchange. This Zacks Rank #2 company should continue to benefit from strong growth in renewal business, focus on expanding agency force, and growing its customer base.
The Zacks Consensus Estimate for 2021 and 2022 earnings indicates a respective year-over-year increase of 4.6% and 8.9%.
Price and Consensus: ERIE
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 company carries a Zacks Rank #3.
The Zacks Consensus Estimate for 2021 and 2022 EPS indicates a respective 4.5% and 3% increase year over year. It delivered an earnings surprise in the last four reported quarters with the average being 17.51%. The expected long-term earnings growth rate is pegged at 12%, better than the industry average of 9.5%.
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. This Zacks Rank #3 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 9.03%. The Zacks Consensus Estimate for 2021 and 2022 earnings indicates 7% and 10.1% year-over-year increase, respectively. The expected long-term earnings growth rate is pegged at 6.8%.
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. Divestiture of its non-core operations to streamline business and focus on more profitable operations, thereby generating higher return on equity, strengthening of its position in the evolving commercial insurance market for small and medium-sized businesses, and cost savings from its restructuring programs bode well for growth.
This Zacks Rank #3 company delivered an average earnings surprise of 1.12% in the trailing four quarters. The Zacks Consensus Estimate for 2021 and 2022 indicates respective year-over-year increase of 11.6% and 11.4%.
Price and Consensus: AON
Zacks' Top Picks to Cash in on Artificial Intelligence
In 2021, this world-changing technology is projected to generate $327.5 billion in revenue. Now Shark Tank star and billionaire investor Mark Cuban says AI will create "the world's first trillionaires." Zacks' urgent special report reveals 3 AI picks investors need to know about today.
See 3 Artificial Intelligence Stocks With Extreme Upside Potential>>