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 matter in insurance coverage. From small companies hoping to get acquired, massive companies hoping to get bigger, or carriers seeking to broaden into new geographies or strains of enterprise, there are a large number 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. Occupied with studying about why it is best to prioritize compliance within the enterprise acquisition course of? Achieved. Or questioning how one can keep away from getting caught with a lemon in an insurance coverage acquisition? Achieved. How about an argument for why your tech stack issues earlier than you even contemplate promoting your insurance coverage company? Achieved!

However in case you’re simply on the lookout 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 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 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 professional 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 turn into one. The phrase mergers and acquisitions can embody just a few 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 corporations type 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 dad or mum firm, doesn’t have to purchase one hundred pc of the corporate it desires 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 often refers to a “merger of equals” through which two corporations mutually agree that it’s a wise enterprise transfer to mix into one, newly shaped firm. An acquisition often refers to a bigger firm buying all or a part of a smaller firm and turning into its new proprietor or dad or mum 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 ceaselessly inside the insurance coverage trade, encompassing insurance coverage companies, 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 price) and deal quantity (the variety of offers carried out) have grown and remained excessive: anyplace from just below $40 billion throughout about 80 offers in 2003 to a file excessive of $57.5 billion throughout 869 offers in 2021. We must always observe that the precise variety of offers and deal quantity fluctuate by sources however everybody agrees 2021 was a file yr.

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 charge than insurance coverage carriers.

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

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

Insurance coverage corporations 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 instances, insurance coverage company house owners see acquisition as the perfect exit technique after they’re able to retire. If an insurance coverage agent has constructed a profitable company with a big and beneficial e book 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 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 enticing in comparison with natural development?

Natural development would be the gold normal of a wholesome enterprise however mergers and acquisitions can assist an organization develop and hit the bottom working shortly with out having to workers up, practice, or implement new know-how. In a greatest case state of affairs, 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 folks and methods. Spending money and time to kind out how the newly-created enterprise entity will perform when combining two beforehand impartial corporations, or how one firm will soak up the operations of one other, generally is 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 seeking 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 seeking to be acquired can present potential patrons with a full, real-time, correct view of the compliance standing of each producer working below that company.

For corporations seeking 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 methods 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, take a look at AgentSync’s suite of options to modernize your insurance coverage enterprise.

Mergers & Acquisitions


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