September 22, 2023

This publish is a part of a collection sponsored by AgentSync.

Mergers and acquisitions (M&A) are at all times a sizzling subject in insurance coverage. From small businesses hoping to get acquired, massive businesses hoping to get bigger, or carriers trying to broaden into new geographies or traces of enterprise, there are a mess of causes corporations take into account mergers and acquisitions.

Because it’s such a typical prevalence inside the insurance coverage business, it’s no shock that we’ve written about insurance coverage mergers and acquisitions earlier than. Keen on studying about why you should prioritize compliance in the business acquisition process? Completed. Or questioning how one can avoid getting stuck with a lemon in an insurance coverage acquisition? Completed. How about an argument for why your tech stack matters before you even consider selling your insurance coverage company? Completed!

However if you happen to’re simply searching for some fundamentals – specifically what’s all this speak of M&A within the insurance coverage business about anyway – you then’ve come to the best 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 businesses 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 knowledgeable recommendation from a trusted skilled. For simplifying and automating your company’s, service’s, or MGA’s compliance, see how AgentSync might 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 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 father or mother firm, doesn’t have to purchase one hundred pc of the corporate it desires to accumulate. Typically, an organization solely wants to accumulate 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” wherein two corporations mutually agree that it’s a sensible 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 father or mother firm. Acquisitions may be voluntary or involuntary (typically generally known as a takeover or hostile takeover if the corporate being acquired isn’t mutually prepared).

How widespread is M&A inside insurance coverage?

Mergers and acquisitions occur often inside the insurance coverage business, encompassing insurance coverage businesses, carriers, MGAs/MGUs, and insurance coverage expertise corporations (insurtechs).

Over the past 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: anyplace from just below $40 billion across about 80 deals in 2003 to a record high of $57.5 billion across 869 deals in 2021. We must always observe that the precise variety of offers and deal quantity fluctuate by sources however everybody agrees 2021 was a report yr.

Because the economic system slowed in 2022, insurance coverage business mergers and acquisitions additionally cooled off. Nevertheless, 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 purpose 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 traces of enterprise, or each. Generally insurance coverage carriers will look to accumulate others in an try to swallow up an organization they see as priceless competitors, which they’d slightly 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 M&A.

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

In lots of circumstances, insurance coverage company homeowners see acquisition as the most effective exit technique after they’re able to retire. If an insurance coverage agent has constructed a profitable company with a big and priceless guide of enterprise over the course of their profession, promoting the company to a bigger company may be a horny proposition. From the opposite aspect, bigger businesses typically need to broaden their attain into new states and new traces of enterprise, and the simplest approach to do that is usually to accumulate 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 will be the gold customary of a wholesome enterprise however mergers and acquisitions might help an organization develop and hit the bottom operating shortly with out having to employees up, practice, or implement new expertise. In a finest 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 in the operations of one other, generally is a draw back of mergers and acquisitions.

Having the best insurance coverage expertise 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 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 below that company.

For corporations trying to purchase or merge, having the best tech stack will imply spending a lot much less time transferring knowledge over by hand. Geared up with the best techniques in place already means integrations and automation might help take the load off human staff who’d slightly 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