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The insurance arms of Eastern Bank and Salem Five announced within the same week that they were acquiring independent insurance firms, prompting a curiosity about whether the insurance industry might be facing consolidation pressures not totally dissimilar to those felt in the banking industry.

Salem Five continued its expansion into Middlesex County with its purchase of the Otis Brown Insurance Agency in Lexington, while Eastern Insurance acquired BBS Employee Benefits in Newton. The BBS acquisition was Eastern’s second this year. Last year it purchased three agencies, and it has acquired 37 agencies in total since its inception in 1989. Twenty-three of those deals have happened since 2002, and Eastern Insurance has more than $70 million in total revenues, making it the largest Massachusetts-headquartered insurance agency.

Meanwhile, the Otis Brown deal was Salem Five’s fourth acquisition of a smaller agency in a decade, over which time it’s nearly tripled its insurance business to nearly $60 million in total premiums. Speaking with Banker & Tradesman shortly after the deal was announced, Salem Five Insurance President Gerard Boyle Jr. said that he had joined the organization a decade ago when it acquired the Boyle Insurance Agency.

“There’s definitely industry consolidation happening and for a myriad reasons,” said Jay Sarzen, a senior analyst at Aite Group.

Sarzen specializes in property and casualty insurance at Aite and has previously worked for major insurance carriers like The Hartford and MassMutual.

He also recently penned a report for Aite Group, “Brick-and-Mortar Counterpunch: Fighting Technology with Technology,” and the picture he paints is not totally dissimilar to some of those pressures being felt in the banking industry.

The Independent Insurance Agents and Brokers of America (IIABA) backs up that claim. Nationwide, the number of agencies has shrunk from 41,000 in 1995 to 37,500 last year, but the organization also notes that that is less than 10 percent of the entire population and that the remaining agencies are materially larger. In addition to low interest rates, aging agency owners and a volatile stock market, the IIABA says that technology is part of the cause.

Technology is shifting consumers’ expectations where their insurance needs are concerned, Sarzen said. They want omnichannel experiences, the ability to conduct business wherever and whenever they want, and increasingly they demand more personalized outreach and greater transparency around products and prices.

Technological advances have also introduced a new competitive element into the insurance market, from peer-to-peer insurance to sleek, online comparison tools.

“You’re looking at some carriers that are going direct. You see the advent of online insurance agencies. You’re seeing the comparative raters, like Google Compare. You’re seeing all kinds of options emerging for property casualty,” Sarzen said. “A lot of those folks are calling for the demise of the traditional brick-and-mortar agency.”

Moreover, those smaller, mom-and-pop insurance firms might be struggling with a lack of scale, and like certain segments of the banking industry, some folks are just aging out of the game, he said.

“There’s a lack of scale, but there’s also a lack of business continuity planning,” Sarzen said. “A lot of these agency principals are getting out of the game and their children don’t really want to have anything to do with it, but the business folks want to keep things rolling along, so they will shop their book of business.”

Buy, Sell or Partner Up 

Independent insurance agencies are responding to those pressures in myriad ways. Some might decide to shop around a book of business or sell off certain business lines that either are no longer profitable for the agency or no longer fit its direction, Sarzen said.

Others have come to rely on technology vendors – many of them agency management systems – to keep up with shifting consumer expectations.

“I think there’s plenty of opportunity for agencies to continue to evolve and the point of this counterpunch is that there are so many technology vendors that are helping the traditional brick-and-mortar agencies be competitive with the primary offerings of these online competitors,” Sarzen said.

The IIABA said that independent agencies still write about 58 percent of all premiums in the United States, and a representative of the organization told Banker & Tradesman via email that they expect to eventually see M&A slow down for various reasons, including a shrinking pool of available larger agencies that have not already been involved in M&A and anticipated increases in ROI in other sectors and marketplaces.

Still others have chosen to go the consolidation route, accepting the offers of larger agencies seeking to expand geographically via acquisitions. That this is happening at a time when banks are diversifying their offerings and expanding into new business lines in an effort to battle margin pressures means there may be more deals still to come this year and next.

A spokesperson for Eastern Bank said that Eastern Insurance was active in the acquisition space and still considering other deals later this year, and Boyle told Banker & Tradesman that Salem Five has a strong preference for independent, family-owned agencies.

Meanwhile, Sarzen thinks that technological advances may also mean there could be other partnership opportunities between the banking and insurance sectors further down the road.

“There’s a lot of interesting things going on in the bank channel, and there are a lot of untapped opportunities to sell property and casualty insurance,” he said. “Banks are already collecting so much data on people and that makes it very easy for insurers.”

Editor’s Note: This article was updated on Tuesday, May 31, to include comments from the IIABA.