Stunning Truths About Mergers and Acquisitions in Insurance coverage

This submit is a part of a sequence 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 increase into new geographies or traces of enterprise, there are a large number of causes firms contemplate mergers and acquisitions.

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

However if you happen to’re simply in search of some fundamentals – specifically what’s all this speak of M&A within the insurance coverage business about anyway – you then’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 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, keep in mind 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 you get knowledgeable 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 develop into one. The phrase mergers and acquisitions can embody a couple of 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 firms type 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 firms, thus bringing the acquired firm below 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 amass. Usually, an organization solely wants to amass greater than 50 p.c of one other enterprise to achieve 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 will be voluntary or involuntary (typically generally 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 incessantly inside 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 word 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 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 fee than insurance coverage carriers.

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

The most important motive 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 an entire new geographic area, new traces of enterprise, or each. Typically insurance coverage carriers will look to amass others in an try and swallow up an organization they see as worthwhile competitors, which they’d fairly have below their very own roof than to compete towards.

Insurance coverage firms additionally see alternatives to cut back working prices and overhead by 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 very best exit technique after they’re able to retire. If an insurance coverage agent has constructed a profitable company with a big and worthwhile guide of enterprise over the course of their profession, promoting the company to a bigger company will be a horny proposition. From the opposite facet, bigger companies typically wish to increase their attain into new states and new traces of enterprise, and the best method to do that is commonly to amass an current insurance coverage company that brings the specified qualities into the combination.

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

Natural development often is the gold normal 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 expertise. In a finest case situation, 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 individuals and techniques. Spending money and time to type out how the newly-created enterprise entity will operate when combining two beforehand impartial firms, or how one firm will soak up the operations of one other, is usually a draw back of mergers and acquisitions.

Having the correct 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 fashionable insurance coverage infrastructure means potential consumers 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 consumers with a full, real-time, correct view of the compliance standing of each producer working below that company.

For firms trying to purchase or merge, having the correct tech stack will imply spending a lot much less time transferring information over by hand. Geared up with the correct techniques in place already means integrations and automation can assist take the load off human staff who’d fairly 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, check out AgentSync’s suite of options to modernize your insurance coverage enterprise.

Mergers & Acquisitions