Shocking Truths About Mergers and Acquisitions in Insurance coverage

This put up is a part of a collection sponsored by AgentSync.

Mergers and acquisitions (M&A) are at all times a scorching subject in insurance coverage. From small companies hoping to get acquired, giant companies hoping to get bigger, or carriers trying to develop into new geographies or traces of enterprise, there are a large number of causes firms think about mergers and acquisitions.

Because it’s such a standard incidence throughout the insurance coverage business, it’s no shock that we’ve written about insurance coverage mergers and acquisitions earlier than. Interested by studying about why you should prioritize compliance in the business acquisition process? Completed. Or questioning how one can avoid getting stuck with a lemon in an insurance coverage acquisition? Completed. How about an argument for why your tech stack matters before you even consider selling your insurance coverage company? Completed!

However in the event you’re simply on the lookout for some fundamentals – particularly what’s all this discuss of M&A within the insurance coverage business about anyway – then you definately’ve come to the proper place. On this weblog we’ll cowl the foundations like:

  • What are mergers and acquisitions?
  • How are mergers and acquisitions totally different from each other?
  • Why are there so many mergers and acquisitions in insurance coverage?
  • Why do some insurance coverage companies purchase others?
  • Why would you need your insurance coverage company to be acquired?

Earlier than you learn on, do not forget that we’re consultants in producer license compliance administration however we’re not your lawyer or accountant. Earlier than contemplating any insurance coverage M&A exercise for your self, be sure to get knowledgeable recommendation from a trusted skilled. For simplifying and automating your company’s, provider’s, or MGA’s compliance, see how AgentSync might help.

What does M&A imply in insurance coverage?

The time period M&A stands for mergers and acquisitions: the method by which a number of separate enterprise entities turn into one. The phrase mergers and acquisitions can embody a number of totally different particular actions, every with totally different meanings and implications.

What’s an insurance coverage merger?

An insurance coverage merger is when two separate firms kind into one new firm. For instance, insurance coverage provider A and insurance coverage provider B determine they’d be in a greater place collectively forming a brand new firm: insurance coverage provider C.

What’s an insurance coverage acquisition?

An insurance coverage acquisition is when one firm acquires a number of different firms, thus bringing the acquired firm beneath the umbrella of the buying firm. The buying firm, additionally referred to as a mum or dad firm, doesn’t have to purchase 100% of the corporate it needs to accumulate. Usually, an organization solely wants to accumulate greater than 50 p.c of one other enterprise to realize management.

How do mergers and acquisitions differ?

Fairly merely, a merger normally refers to a “merger of equals” wherein two firms mutually agree that it’s a sensible enterprise transfer to mix into one, newly shaped firm. An acquisition normally refers to a bigger firm buying all or a part of a smaller firm and changing into its new proprietor or mum or dad firm. Acquisitions might be voluntary or involuntary (generally often known as a takeover or hostile takeover if the corporate being acquired isn’t mutually prepared).

How widespread is M&A inside insurance coverage?

Mergers and acquisitions occur often throughout the insurance coverage business, encompassing insurance coverage companies, carriers, MGAs/MGUs, and insurance coverage expertise firms (insurtechs).

Over the past 20 years, insurance coverage M&A deal values (how a lot every deal is value) and deal quantity (the variety of offers performed) have grown and remained excessive: wherever from slightly below $40 billion across about 80 deals in 2003 to a record high of $57.5 billion across 869 deals in 2021. We should always be aware that the precise variety of offers and deal quantity differ by sources however everybody agrees 2021 was a report 12 months.

Because the economic system slowed in 2022, insurance coverage business mergers and acquisitions additionally cooled off. Nonetheless, the industry “remained resilient” in comparison with M&A exercise in different sectors of the economic system – with company and brokerage exercise fueling insurance coverage M&A at a far larger charge than insurance coverage carriers.

Why do insurance coverage carriers take part in M&A exercise?

The largest purpose an insurance coverage provider will endure mergers and acquisitions is to extend market share. They’ll accomplish this by merging with or buying an insurance coverage provider with a footprint in a complete new geographic area, new traces of enterprise, or each. Generally insurance coverage carriers will look to accumulate others in an try to swallow up an organization they see as beneficial competitors, which they’d fairly have beneath their very own roof than to compete in opposition to.

Insurance coverage firms additionally see alternatives to scale back working prices and overhead by way of M&A.

Why do insurance coverage companies take part in M&A exercise?

In lots of instances, insurance coverage company homeowners see acquisition as the most effective exit technique after they’re able to retire. If an insurance coverage agent has constructed a profitable company with a big and beneficial e book of enterprise over the course of their profession, promoting the company to a bigger company might be a gorgeous proposition. From the opposite aspect, bigger companies typically wish to develop their attain into new states and new traces of enterprise, and the simplest method to do that is commonly to accumulate an present insurance coverage company that brings the specified qualities into the combo.

Why are mergers and acquisitions enticing in comparison with natural development?

Natural development could be the gold commonplace of a wholesome enterprise however mergers and acquisitions might help an organization develop and hit the bottom working shortly with out having to employees up, prepare, or implement new expertise. In a greatest case state of affairs, the buying firm can begin to see a nearly-immediate return on their funding with an already worthwhile firm now beneath its umbrella.

What are some down sides to insurance coverage mergers and acquisitions?

Generally M&A creates redundancies, each in folks and techniques. Spending money and time to type out how the newly-created enterprise entity will operate when combining two beforehand unbiased firms, or how one firm will take in the operations of one other, is usually a draw back of mergers and acquisitions.

Having the proper insurance coverage expertise in place can result in extra profitable mergers and acquisitions

This won’t appear apparent however when present process a merger or acquisition, insurtech issues. For firms trying to be acquired, already utilizing trendy insurance coverage infrastructure means potential patrons have a transparent view of what they’ll be getting from operational, monetary, and compliance views. With AgentSync, for instance, an insurance coverage company trying to be acquired can present potential patrons with a full, real-time, correct view of the compliance standing of each producer working beneath that company.

For firms trying to purchase or merge, having the proper tech stack will imply spending a lot much less time transferring knowledge over by hand. Geared up with the proper techniques in place already means integrations and automation might help take the load off human staff who’d fairly be doing extra necessary work all through the merger and acquisition course of.

Whether or not you’re contemplating M&A at your group or not, check out AgentSync’s suite of options to modernize your insurance coverage enterprise.

Mergers & Acquisitions