Shocking Truths About Mergers and Acquisitions in Insurance coverage


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

Mergers and acquisitions (M&A) are all the time a scorching matter in insurance coverage. From small businesses hoping to get acquired, giant businesses hoping to get bigger, or carriers trying to broaden into new geographies or strains of enterprise, there are a large number of causes corporations take into account mergers and acquisitions.

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

However for those who’re simply in search of some fundamentals – particularly what’s all this speak of M&A within the insurance coverage trade about anyway – then you definitely’ve come to the correct 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 businesses purchase others?
  • Why would you need your insurance coverage company to be acquired?

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

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 out to be one. The phrase mergers and acquisitions can embody a couple 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 corporations kind into one new firm. For instance, insurance coverage provider A and insurance coverage provider B resolve 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 referred to as a father or mother firm, doesn’t have to purchase one hundred pc of the corporate it desires to accumulate. Typically, 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 often refers to a “merger of equals” by which two corporations mutually agree that it’s a sensible 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 changing into its new proprietor or father or mother firm. Acquisitions could 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 ceaselessly inside the insurance coverage trade, encompassing insurance coverage businesses, 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 carried out) have grown and remained excessive: anyplace from slightly below $40 billion throughout about 80 offers in 2003 to a file excessive of $57.5 billion throughout 869 offers in 2021. We should always notice that the precise variety of offers and deal quantity fluctuate 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. Nevertheless, the trade “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 better fee than insurance coverage carriers.

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

The most important cause an insurance coverage provider will bear mergers and acquisitions is to extend market share. They will accomplish this by merging with or buying an insurance coverage provider with a footprint in a complete new geographic area, new strains of enterprise, or each. Generally insurance coverage carriers will look to accumulate others in an try and swallow up an organization they see as worthwhile competitors, which they’d slightly have beneath their very own roof than to compete towards.

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

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

In lots of instances, 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 worthwhile e-book of enterprise over the course of their profession, promoting the company to a bigger company could be a sexy proposition. From the opposite aspect, bigger businesses typically need to broaden their attain into new states and new strains of enterprise, and the best means 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 engaging in comparison with natural progress?

Natural progress could be the gold commonplace of a wholesome enterprise however mergers and acquisitions can assist an organization develop and hit the bottom operating rapidly with out having to workers 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 beneath its umbrella.

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

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

Having the correct 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 correct tech stack will imply spending a lot much less time shifting information over by hand. Outfitted with the correct techniques in place already means integrations and automation can assist take the load off human staff who’d slightly 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, take a look at AgentSync’s suite of options to modernize your insurance coverage enterprise.

Mergers & Acquisitions


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