Mergers and acquisitions (M&A) have long been pivotal strategies for growth within the insurance sector, enabling firms to expand their market presence, enter new territories, and secure competitive advantages.
Today, however, the role of technology in these processes has become increasingly crucial. The most forward-thinking businesses now rely on advanced technology platforms not only to manage M&A efficiently but also to sustain growth, enhance customer loyalty, and improve competitiveness post-acquisition.
Jeff Heine, chief revenue officer at insurance software solution Novidea, recently offered six reasons as to why the right technology is a game-changer for M&A within insurance.
The State of M&A in Insurance
The UK broker market has seen significant consolidation over the past few years, Heine explained. Data from Ibis World indicates a consistent year-on-year decline in the number of brokers from 2018 to 2023. This trend has been driven by major players such as Howden and The Ardonagh Group, who have aggressively acquired smaller entities to fuel their growth. Globally, however, M&A activity in the insurance sector has shown a decline. Clyde & Co’s Insurance Growth Report notes that in 2023, there were only 346 completed deals, a drop from 449 in 2022.
Despite this overall decline, the size and impact of these deals are becoming more substantial. According to PwC’s 2023 M&A integration survey, nearly half (48%) of all M&A transactions in 2022 were classified as transformational—up from just 19% in 2019. Transformational deals are those that involve acquiring new markets, channels, or products that fundamentally change an organisation.
Why Technology is Vital for M&A Success
Technology has become a cornerstone in the M&A landscape, particularly within InsurTech, where it has shifted from being seen as a potential obstacle to a vital facilitator. Here are six reasons Heine believes the right technology is a game-changer in the M&A process:
- Streamlining Processes and Integration: For large brokers that frequently acquire other companies, having a unified platform that simplifies the integration process is essential, Heine noted. This platform should standardise and automate processes across various business lines—such as wholesale, retail, and reinsurance—thereby realising economies of scale.
- Cybersecurity and Risk Management: Understanding and managing risks, particularly cyber risks, is a critical aspect of M&A. The chosen technology must include robust cybersecurity features to protect sensitive data and ensure a smooth transaction.
- Cross-Selling and Upselling Opportunities: Acquisitions present a significant opportunity for upselling or cross-selling new products to acquired clients. Advanced systems can identify these opportunities by highlighting gaps where certain insurance products have not been offered.
- Data Consolidation for Business Continuity: Merging different data systems can be a complex task during M&A. The right platform can automate the consolidation and integration of data, ensuring continuity and allowing for immediate review and utilisation of acquired data.
- Improving Customer Service: Acquisitions often involve clients who have a longstanding relationship with the acquired broker. Maintaining high standards of customer service and quick response times is crucial to retain these clients and reduce churn. Technology plays a key role in enabling enhanced customer service, Heine explained.
- Ensuring Compliance and Regulatory Adherence: Navigating the complex regulatory environment during M&A is challenging. Choosing a technology platform that complies with current standards and adapts to regulatory changes is vital for smooth and confident transactions.
Choosing the Right Platform for Growth
While M&A presents numerous challenges, adopting advanced, cloud-native insurance management platforms can significantly simplify the process. These platforms facilitate data integration, streamline processes, and enhance overall efficiency, making them indispensable for acquisitive firms aiming to maintain growth and competitiveness in the insurance sector.
Companies like Howden are already recognising these benefits. As a highly acquisitive global broker, Howden is transitioning its operations onto a single cloud-native, data-driven platform by Novidea, showcasing the growing importance of technology in M&A strategies.
Conclusion
Heine concluded that in the increasingly competitive landscape of the insurance sector, next-generation technology platforms have become essential for managing M&A. These technologies enable firms to streamline processes, enhance cybersecurity, seize new business opportunities, maintain regulatory compliance, and provide excellent customer service—all of which contribute to a successful and growth-oriented M&A strategy.
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