This publish is a part of a sequence sponsored by AgentSync.
Mergers and acquisitions (M&A) are at all times a sizzling subject in insurance coverage. From small companies hoping to get acquired, giant companies hoping to get bigger, or carriers trying to broaden into new geographies or strains of enterprise, there are a large number of causes firms contemplate mergers and acquisitions.
Since it’s such a standard prevalence throughout the insurance coverage trade, it’s no shock that we’ve written about insurance coverage mergers and acquisitions earlier than. Interested in studying about why you need to prioritize compliance within the enterprise acquisition course of? Done. Or questioning how one can keep away from getting caught with a lemon in an insurance coverage acquisition? Done. How about an argument for why your tech stack issues earlier than you even contemplate promoting your insurance coverage company? Done!
But in the event you’re simply searching for 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 suitable place. In 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?
Before you learn on, do not forget that we’re specialists in producer license compliance administration however we’re not your legal professional or accountant. Before 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 may 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 a couple of totally different particular actions, every with totally different meanings and implications.
What is 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 determine they’d be in a greater place collectively forming a brand new firm: insurance coverage provider C.
What is an insurance coverage acquisition?
An insurance coverage acquisition is when one firm acquires a number of different firms, thus bringing the acquired firm underneath the umbrella of the buying firm. The buying firm, additionally referred to as a father or mother firm, doesn’t have to purchase 100% of the corporate it needs to amass. Generally, an organization solely wants to amass greater than 50 % of one other enterprise to achieve management.
How do mergers and acquisitions differ?
Quite merely, a merger often refers to a “merger of equals” by which two firms 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 changing into its new proprietor or father or mother firm. Acquisitions may be voluntary or involuntary (generally often known 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 steadily throughout the insurance coverage trade, encompassing insurance coverage companies, carriers, MGAs/MGUs, and insurance coverage know-how firms (insurtechs).
Over the final 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: wherever 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 ought to notice that the precise variety of offers and deal quantity differ by sources however everybody agrees 2021 was a file 12 months.
As the economic system slowed in 2022, insurance coverage trade mergers and acquisitions additionally cooled off. However, 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 charge than insurance coverage carriers.
Why do insurance coverage carriers take part in M&A exercise?
The greatest purpose an insurance coverage provider will bear mergers and acquisitions is to extend market share. They can 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. Sometimes insurance coverage carriers will look to amass others in an try and swallow up an organization they see as helpful competitors, which they’d quite have underneath their very own roof than to compete towards.
Insurance firms additionally see alternatives to scale back working prices and overhead by M&A.
Why do insurance coverage companies take part in M&A exercise?
In many instances, insurance coverage company house owners see acquisition as the very best exit technique once they’re able to retire. If an insurance coverage agent has constructed a profitable company with a big and helpful ebook of enterprise over the course of their profession, promoting the company to a bigger company may be a pretty proposition. From the opposite aspect, bigger companies usually need to broaden their attain into new states and new strains of enterprise, and the simplest manner 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?
Organic development could be the gold customary of a wholesome enterprise however mergers and acquisitions may help an organization develop and hit the bottom operating rapidly with out having to workers up, prepare, or implement new know-how. 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 underneath its umbrella.
What are some down sides to insurance coverage mergers and acquisitions?
Sometimes M&A creates redundancies, each in individuals and techniques. Spending money and time to kind out how the newly-created enterprise entity will perform when combining two beforehand unbiased firms, or how one firm will take in the operations of one other, could be a draw back of mergers and acquisitions.
Having the suitable 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 firms 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 underneath that company.
For firms trying to purchase or merge, having the suitable tech stack will imply spending a lot much less time shifting information over by hand. Equipped with the suitable techniques in place already means integrations and automation may help take the load off human workers who’d quite be doing extra essential work all through the merger and acquisition course of.
Whether 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.
Topics
Mergers & Acquisitions