Stunning Truths About Mergers and Acquisitions in Insurance coverage

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

Mergers and acquisitions (M&A) are at all times a scorching matter in insurance coverage. From small businesses hoping to get acquired, massive businesses hoping to get bigger, or carriers seeking to develop into new geographies or traces of enterprise, there are a mess of causes corporations contemplate 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. Involved in studying about why you should prioritize compliance in the business acquisition process? Accomplished. Or questioning how one can avoid getting stuck with a lemon in an insurance coverage acquisition? Accomplished. How about an argument for why your tech stack matters before you even consider selling your insurance coverage company? Accomplished!

However in the event you’re simply on the lookout for some fundamentals – particularly what’s all this speak of M&A within the insurance coverage trade 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 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, ensure you get skilled 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 change 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 underneath the umbrella of the buying firm. The buying firm, additionally referred to as a dad or mum firm, doesn’t have to purchase 100% of the corporate it needs to accumulate. Usually, an organization solely wants to accumulate greater than 50 % of one other enterprise to achieve management.

How do mergers and acquisitions differ?

Fairly merely, a merger normally refers to a “merger of equals” through which two corporations mutually agree that it’s a sensible enterprise transfer to mix into one, newly fashioned 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 dad or mum firm. Acquisitions may be voluntary or involuntary (typically referred to as a takeover or hostile takeover if the corporate being acquired isn’t mutually keen).

How frequent is M&A inside insurance coverage?

Mergers and acquisitions occur incessantly inside the insurance coverage trade, encompassing insurance coverage businesses, carriers, MGAs/MGUs, and insurance coverage know-how corporations (insurtechs).

During the last 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 just 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 range by sources however everybody agrees 2021 was a document 12 months.

Because the economic system slowed in 2022, insurance coverage trade mergers and acquisitions additionally cooled off. Nevertheless, 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 price than insurance coverage carriers.

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

The largest purpose an insurance coverage service will endure mergers and acquisitions is to extend market share. They will 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. Generally insurance coverage carriers will look to accumulate others in an try and swallow up an organization they see as helpful competitors, which they’d slightly have underneath their very own roof than to compete towards.

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

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

In lots of instances, insurance coverage company homeowners see acquisition as the most effective exit technique once they’re able to retire. If an insurance coverage agent has constructed a profitable company with a big and helpful e-book of enterprise over the course of their profession, promoting the company to a bigger company may be a sexy proposition. From the opposite aspect, bigger businesses usually need to develop their attain into new states and new traces of enterprise, and the best manner to do that is usually to accumulate 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 often is 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 workers up, practice, or implement new know-how. 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 underneath 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 kind out how the newly-created enterprise entity will operate when combining two beforehand unbiased corporations, or how one firm will take 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 underneath that company.

For corporations seeking 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 will help take the load off human workers 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, check out AgentSync’s suite of options to modernize your insurance coverage enterprise.

Mergers & Acquisitions