Mergers and Acquisitions (M&A) is a strategic approach an increasing amount of businesses are using to thrive, expand, and grow. Consolidation of companies has become a necessary strategy in the dynamic and ever-evolving insurance industry, which is now facing numerous challenges.
According to an industry outlook report by Deloitte, technological innovation and changes in consumer behavior are current threats that insurers are paying attention to. However, in order to stay competitive and avoid capital slushing and disruption, M&A is now regarded as an essential element in their overall growth plan.
While there are a variety of M&A options businesses can consider, here are some of the key ways in which M&A can be accomplished:
Private Equity
Private equity firms are those that typically buy or invest in established companies. Through this type of transaction, insurance companies can turn to private equity firms to restructure or streamline their operations for increased revenues. Private equity players invest money into the insurance agencies that they buy. As a result, these insurers can have higher-quality IT and provide better services to their clients.
Venture Capital Funding
Venture capital firms mostly invest funds in start-ups. Investments in insurance-focused start-ups have continued to rise over the past couple of years. Insurers Bright Health and Metromile are just two of the biggest venture funding recipients to date. What looks the brightest for the insurance industry, though, is the rise of InsurTech, which venture capital firms from different parts of the world are excited to invest in.
Large-Scale Consolidation
In the case of M&A in the insurance industry, the bigger could definitely be the better. Large-scale mergers or consolidations consisting of insurance companies, reinsurers, brokers, and underwriters bring hope to the industry. Through their consolidated efforts, there will be better risk assessment and management. This approach also provides the opportunity to boost scale and widen reach, especially if it involves firms, reinsurers, or brokers with larger global footprints.
Captive Insurance
For those looking for an alternative to self-insurance, captive insurance could be the perfect option. This type of insurance company is a wholly-owned subsidiary company, wherein the parent group or the group of related companies create a firm to provide insurance and risk-mitigation services for itself. With captive insurance, the insureds can have increased control over insurance-related services, wider coverage, stable pricing and availability, reduced expenses, and improved cash flow.
Back-Office Support Services
M&A activities and outsourcing opportunities have a direct correlation. Therefore, insurance companies can also outsource and utilize back-office support or management services to achieve growth and better performance. Back-office support services companies help streamline the operations of insurance companies by handling policy, claims, and data processing and commission management. All of these non-core activities can be done without costing the insurance companies a large sum.
Major M&A deals in the insurance industry were recorded in 2017 and as insurance companies become more aggressive in finding ways to grow and diversify their product offerings. The industry should expect a continuous rise in M&A market activities this year if insurance companies want to continue thriving in this competitive industry.
