This submit 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, giant companies hoping to get bigger, or carriers seeking to broaden 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 prevalence throughout the insurance coverage trade, it’s no shock that we’ve written about insurance coverage mergers and acquisitions earlier than. Considering studying about why you must prioritize compliance within the enterprise acquisition course of? Performed. Or questioning how one can keep away from getting caught with a lemon in an insurance coverage acquisition? Performed. How about an argument for why your tech stack issues earlier than you even think about promoting your insurance coverage company? Performed!
However in the event you’re simply in search of some fundamentals – particularly what’s all this discuss of M&A within the insurance coverage trade about anyway – then you definitely’ve come to the suitable 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, 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 may also 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 turn 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 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 referred to as a guardian 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 corporations mutually agree that it’s a wise 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 guardian firm. Acquisitions could be voluntary or involuntary (generally generally known as a takeover or hostile takeover if the corporate being acquired isn’t mutually keen).
How widespread is M&A inside insurance coverage?
Mergers and acquisitions occur ceaselessly 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 carried out) have grown and remained excessive: wherever from slightly below $40 billion throughout about 80 offers in 2003 to a report excessive of $57.5 billion throughout 869 offers in 2021. We must always be aware that the precise variety of offers and deal quantity range by sources however everybody agrees 2021 was a report yr.
Because the financial system slowed in 2022, insurance coverage trade mergers and acquisitions additionally cooled off. Nonetheless, the trade “remained resilient” in comparison with M&A exercise in different sectors of the financial system – with company and brokerage exercise fueling insurance coverage M&A at a far larger price than insurance coverage carriers.
Why do insurance coverage carriers take part in M&A exercise?
The largest cause 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 strains 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 moderately have below their very own roof than to compete in opposition to.
Insurance coverage corporations additionally see alternatives to cut back working prices and overhead by means of 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 perfect exit technique once 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 could be a pretty proposition. From the opposite facet, bigger companies typically wish to broaden their attain into new states and new strains of enterprise, and the best 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 enticing in comparison with natural development?
Natural development stands out as the gold commonplace of a wholesome enterprise however mergers and acquisitions may also help an organization develop and hit the bottom working 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?
Typically 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 impartial corporations, or how one firm will take in the operations of one other, generally is a draw back of mergers and acquisitions.
Having the suitable 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 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 suitable tech stack will imply spending a lot much less time shifting information over by hand. Outfitted with the suitable techniques in place already means integrations and automation may also help take the load off human staff who’d moderately 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, take a look at AgentSync’s suite of options to modernize your insurance coverage enterprise.
Subjects
Mergers & Acquisitions
