Stunning 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 sizzling subject in insurance coverage. From small companies hoping to get acquired, giant companies hoping to get bigger, or carriers trying to develop into new geographies or strains of enterprise, there are a mess of causes corporations think about mergers and acquisitions.

Because it’s such a typical incidence throughout the insurance coverage trade, it’s no shock that we’ve written about insurance coverage mergers and acquisitions earlier than. Interested by 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 should you’re simply in search of some fundamentals – specifically what’s all this discuss of M&A within the insurance coverage trade about anyway – then you definately’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 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, service’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 change into one. The phrase mergers and acquisitions can embody a number 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 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 father or mother firm, doesn’t have to purchase one hundred pc of the corporate it desires to amass. Typically, an organization solely wants to amass greater than 50 p.c of one other enterprise to realize management.

How do mergers and acquisitions differ?

Fairly merely, a merger normally refers to a “merger of equals” during which two corporations 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 father or mother firm. Acquisitions will be voluntary or involuntary (generally often called 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 often throughout the insurance coverage trade, encompassing insurance coverage companies, carriers, MGAs/MGUs, and insurance coverage expertise 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 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 report yr.

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 price than insurance coverage carriers.

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

The most important motive an insurance coverage service will bear 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 a complete new geographic area, new strains of enterprise, or each. Generally insurance coverage carriers will look to amass others in an try and swallow up an organization they see as invaluable competitors, which they’d quite have below 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 companies take part in M&A exercise?

In lots of circumstances, insurance coverage company house owners see acquisition as one of the best exit technique once they’re able to retire. If an insurance coverage agent has constructed a profitable company with a big and invaluable ebook of enterprise over the course of their profession, promoting the company to a bigger company will be a gorgeous proposition. From the opposite facet, bigger companies typically need to develop their attain into new states and new strains 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 progress?

Natural progress often is the gold normal of a wholesome enterprise however mergers and acquisitions can assist an organization develop and hit the bottom operating shortly with out having to workers up, prepare, or implement new expertise. In a greatest 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?

Generally 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 corporations, or how one firm will take up the operations of one other, could be 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 corporations 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 corporations trying to purchase or merge, having the correct tech stack will imply spending a lot much less time shifting knowledge over by hand. Outfitted with the correct techniques in place already means integrations and automation can assist take the load off human workers who’d quite 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