Economies of Scale Within Insurance and Benefits

June 18, 2025

by an investor in New York, NY, USA

Does anyone have guidance on rules of thumb for preliminarily underwriting insurance and benefits savings in a roll-up consolidation strategy within a typical business services company? What degree of cost take-out typically exists, and where are the primary savings within the specific insurance policies (workers comp, auto, GL, cyber)? Are there rules of thumb based on headcount? Separately, how does the legal structure of entities impact the ability to share insurance policies? For example, if we kept two similar acquisitions under distinct holding company structures for debt financing purposes... would this eliminate our ability to drive insurance synergies? If there is a solution to ring-fenced acquisitions that share insurance policies, any guidance would be appreciated. Thanks!

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Reply by a searcher
from Harvard University in San Juan, Puerto Rico

I'm an insurance agent currently doing a roll up of insurance agencies. Short answer: It doesn't scale much. Long answer: Insurance rates are highly regulated and not usually discounted much. For example, you can expect a policy covering $1 million in structure to have a rate not too different from the policy covering $10 million in structure. There may be some discounting, but it usually won't be more than 5% or so. Advantages in insurance that come from scale are more on less admin burden on your team to manage a handful of policies vs 100 policies, and also on flexibility and access to your carrier. When you bring a lot of business to a carrier, they will provide you more service and will accomodate hard to place risks. I.e., that wooden structure right on the water that nobody would insure? When you pay $750k in premiums for everything else, they'll slide that structure right in there without much issue. Also as you become bigger, you become a bigger target, and your liability limits should increase accordingly too, which works as a counterbalance to the cost savings.

Reply by a searcher
from University of Maryland at College Park in Havre De Grace, MD 21078, USA

Roll-up insurance is a bit nuanced due to state & fed regulations and customer contract requirements. While you can have a master policy and then local policies in some areas and maybe even some savings with captives, items like WC might be difficult to incorporate into those policies as some state laws are wonky. The biggest part of insurance underwriting when looking at roll-ups is not to understand how much they pay for insurance - but rather how much you will be paying. Some insurance companies change their risk assessments with new management especially if you don't have direct experience in the industry. The other part is excellent coding in the ledgers so you can work to reduce premiums in the future and also understand if certain contracts are worth it. For example, if one customer requires a cyber policy up to $5M but all your other contracts are $1M - you really want to be able to understand if the additional premium is worth the additional business.

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