Surprising Truths About Mergers and Acquisitions in Insurance

This submit is a part of a sequence sponsored by AgentSync.

Mergers and acquisitions (M&A) are at all times a sizzling subject in insurance coverage. From small companies hoping to get acquired, massive companies hoping to get bigger, or carriers seeking to develop into new geographies or traces of enterprise, there are a large number of causes corporations contemplate mergers and acquisitions.

Because it’s such a typical prevalence inside the insurance coverage business, it’s no shock that we’ve written about insurance coverage mergers and acquisitions earlier than. Eager about studying about why it’s best to prioritize compliance within the enterprise acquisition course of? Achieved. Or questioning how one can keep away from getting caught with a lemon in an insurance coverage acquisition? Achieved. How about an argument for why your tech stack issues earlier than you even contemplate promoting your insurance coverage company? Achieved!

However in the event you’re simply searching for some fundamentals – specifically what’s all this discuss of M&A within the insurance coverage business about anyway – you then’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 you get professional recommendation from a trusted skilled. For simplifying and automating your company’s, service’s, or MGA’s compliance, see how AgentSync will 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 develop into one. The phrase mergers and acquisitions can embody just a few 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 corporations kind into one new firm. For instance, insurance coverage service A and insurance coverage service B determine they’d be in a greater place collectively forming a brand new firm: insurance coverage service C.

What’s an insurance coverage acquisition?

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

How do mergers and acquisitions differ?

Fairly merely, a merger often refers to a “merger of equals” through which two corporations mutually agree that it’s a sensible enterprise transfer to mix into one, newly shaped firm. An acquisition often 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 will be voluntary or involuntary (typically often known as a takeover or hostile takeover if the corporate being acquired isn’t mutually prepared).

How frequent is M&A inside insurance coverage?

Mergers and acquisitions occur ceaselessly inside the insurance coverage business, encompassing insurance coverage companies, carriers, MGAs/MGUs, and insurance coverage know-how corporations (insurtechs).

Over the past 20 years, insurance coverage M&A deal values (how a lot every deal is price) and deal quantity (the variety of offers performed) have grown and remained excessive: anyplace from slightly below $40 billion throughout about 80 offers in 2003 to a report excessive of $57.5 billion throughout 869 offers in 2021. We must always word that the precise variety of offers and deal quantity differ by sources however everybody agrees 2021 was a report yr.

Because the economic system slowed in 2022, insurance coverage business mergers and acquisitions additionally cooled off. Nonetheless, the business “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 fee than insurance coverage carriers.

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

The most important motive an insurance coverage service will endure mergers and acquisitions is to extend market share. They’ll accomplish this by merging with or buying an insurance coverage service with a footprint in an entire new geographic area, new traces of enterprise, or each. Typically insurance coverage carriers will look to accumulate others in an try to swallow up an organization they see as precious competitors, which they’d somewhat have below their very own roof than to compete in opposition to.

Insurance coverage corporations additionally see alternatives to scale back working prices and overhead by means 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 one of the best exit technique after they’re able to retire. If an insurance coverage agent has constructed a profitable company with a big and precious e book of enterprise over the course of their profession, promoting the company to a bigger company will be a pretty proposition. From the opposite aspect, bigger companies usually need to develop their attain into new states and new traces of enterprise, and the simplest manner to do that is usually to accumulate an current insurance coverage company that brings the specified qualities into the combination.

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 will help an organization develop and hit the bottom working rapidly with out having to employees up, prepare, or implement new know-how. In a finest case state of affairs, the buying firm can begin to see a nearly-immediate return on their funding with an already worthwhile firm now below its umbrella.

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

Typically M&A creates redundancies, each in folks and methods. Spending money and time to type out how the newly-created enterprise entity will operate when combining two beforehand unbiased corporations, or how one firm will soak up the operations of one other, could be a draw back of mergers and acquisitions.

Having the proper insurance coverage know-how in place can result in extra profitable mergers and acquisitions

This may not appear apparent however when present process a merger or acquisition, insurtech issues. For corporations seeking 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 seeking to be acquired can present potential patrons with a full, real-time, correct view of the compliance standing of each producer working below that company.

For corporations seeking to purchase or merge, having the proper tech stack will imply spending a lot much less time shifting knowledge over by hand. Outfitted with the proper methods in place already means integrations and automation will help take the load off human workers who’d somewhat be doing extra vital work all through the merger and acquisition course of.

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

Subjects
Mergers & Acquisitions