Stunning 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 all the time a sizzling subject in insurance coverage. From small companies hoping to get acquired, massive companies hoping to get bigger, or carriers trying to increase into new geographies or traces of enterprise, there are a large number of causes corporations contemplate mergers and acquisitions.

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

However if you happen to’re simply searching for some fundamentals – specifically what’s all this speak of M&A within the insurance coverage trade about anyway – then you definately’ve come to the best place. On this weblog we’ll cowl the foundations like:

  • What are mergers and acquisitions?
  • How are mergers and acquisitions completely 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 specialists 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 may also 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 grow to be one. The phrase mergers and acquisitions can embody just a few completely different particular actions, every with completely different meanings and implications.

What’s an insurance coverage merger?

An insurance coverage merger is when two separate corporations type 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 corporations, thus bringing the acquired firm beneath the umbrella of the buying firm. The buying firm, additionally known as a dad or mum firm, doesn’t have to purchase 100% of the corporate it needs to amass. Typically, an organization solely wants to amass greater than 50 % of one other enterprise to achieve management.

How do mergers and acquisitions differ?

Fairly merely, a merger often refers to a “merger of equals” wherein two corporations mutually agree that it’s a wise enterprise transfer to mix into one, newly fashioned firm. An acquisition often refers to a bigger firm buying all or a part of a smaller firm and turning into its new proprietor or dad or mum firm. Acquisitions might be voluntary or involuntary (typically often called a takeover or hostile takeover if the corporate being acquired isn’t mutually keen).

How widespread is M&A inside insurance coverage?

Mergers and acquisitions occur incessantly inside the insurance coverage trade, 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 value) and deal quantity (the variety of offers performed) have grown and remained excessive: anyplace 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 notice that the precise variety of offers and deal quantity differ by sources however everybody agrees 2021 was a file 12 months.

Because the economic system slowed in 2022, insurance coverage trade 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 higher 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 an entire new geographic area, new traces of enterprise, or each. Typically insurance coverage carriers will look to amass 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 towards.

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 circumstances, insurance coverage company house owners see acquisition as the perfect exit technique once 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 pretty proposition. From the opposite aspect, bigger companies usually wish to increase their attain into new states and new traces of enterprise, and the simplest approach to do that is usually to amass an current insurance coverage company that brings the specified qualities into the combo.

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

Natural progress will be the gold normal of a wholesome enterprise however mergers and acquisitions may also help an organization develop and hit the bottom working rapidly with out having to employees up, practice, 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 beneath its umbrella.

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

Typically M&A creates redundancies, each in individuals and methods. Spending money and time to kind out how the newly-created enterprise entity will perform when combining two beforehand impartial corporations, or how one firm will soak up the operations of one other, generally is a draw back of mergers and acquisitions.

Having the best 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 trying to be acquired, already utilizing fashionable 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 corporations trying to purchase or merge, having the best tech stack will imply spending a lot much less time transferring information over by hand. Outfitted with the best methods in place already means integrations and automation may also 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