Surprising facts about mergers and acquisitions in insurance

This post is part of a series sponsored by AgentSync.

Surprising Truths About Mergers and Acquisitions in Insurance Smaart Company Accounting, Tax, & Insurance Services Smaart Company Accounting, Tax, & Insurance Services

Mergers and Acquisitions (M&A) is always a hot topic in the insurance business. From small agencies hoping to acquire, large agencies hoping to become larger, or carriers looking to expand into new geographies or lines of business, there are many reasons for companies to consider mergers and acquisitions.

Since it is such a common occurrence in the insurance industry, it is not surprising that we have written about insurance mergers and acquisitions before. Interested in reading about why you should prioritize compliance in the business acquisition process? Finished. Or wondering how you can avoid running into lemons in the insurance takeover process? Finished. How about an argument for why your technology stack is important before you consider selling your insurance agency? Finished!

But if you’re just looking for some basics – i.e. what’s the talk about mergers and acquisitions in the insurance industry anyway – you’ve come to the right place. In this blog we will cover the basics such as:

  • What are mergers and acquisitions?
  • How do mergers and acquisitions differ from each other?
  • Why are there so many mergers and acquisitions in insurance?
  • Why do some insurance agencies get others?
  • Why do you want to get your own insurance agency?

Before you continue reading, remember that we are product license compliance management experts but not your lawyer or accountant. Before considering any insurance M&A activity for yourself, make sure you get expert advice from a trusted professional. To simplify and automate your agency, carrier or MGA compliance, see how AgentSync can help you.

What does merger and acquisition mean in insurance?

The term mergers and acquisitions refers to mergers and acquisitions: the process by which several separate business entities become one. The phrase mergers and acquisitions can include a few different specific actions, each with different meanings and effects.

What is an insurance merger?

An insurance merger occurs when two separate companies are formed into one new company. For example, Insurance Company A and Insurance Company B decide that they would be better off together to form a new company: Insurance Company C.

What is acquiring insurance?

An insurance takeover is when one company acquires one or more other companies, thereby bringing the acquiring company under the acquiring company’s umbrella. The acquiring company, also called the parent company, does not have to buy 100 percent of the company it wants to acquire. In general, a company only needs to acquire more than 50 percent of another business to take control.

How are mergers and acquisitions different?

Quite simply, a merger usually refers to a “merger of equals” in which two companies mutually agree that it is a smart business move to merge into one newly formed company. An acquisition usually refers to a larger company buying all or a portion of a smaller company and becoming its new owner or parent company. Takeovers can be voluntary or involuntary (sometimes known as a takeover or a hostile takeover if the company being acquired is not of mutual desire).

How common are mergers and acquisitions in insurance?

Mergers and acquisitions occur frequently within the insurance industry, including underwriters, carriers, MGAs/MGUs, and insurance technology companies (insurers).

Over the past 20 years, M&A insurance deal values ​​(how much each deal is worth) and deal volume (the number of deals made) have grown and stayed high: anywhere from less than $40 billion across about 80 deals in 2003 to a record high $57.5 billion across 869 deals in 2021. We should note that the exact number of deals and deal size varies across sources but everyone agrees that 2021 was a record year.

With the economy slowing in 2022, mergers and acquisitions in the insurance industry have slowed down. However, the industry has “remained resilient” compared to M&A activity in other sectors of the economy – with agency and brokerage activity fueling insurance M&A at a much greater rate than insurers.

Why do insurance companies participate in mergers and acquisitions?

The biggest reason an insurance company undergoes mergers and acquisitions is to increase its market share. They can achieve this by merging with or acquiring an insurance company with a footprint in a whole new geography, new lines of business, or both. Sometimes, insurers look to acquire others in an effort to swallow up a company they see as a valuable competitor, and which they would rather have under their own roof than compete with.

Insurance companies also see opportunities to reduce operating costs and overheads through mergers and acquisitions.

Why do insurance agencies participate in mergers and acquisitions?

In many cases, insurance agency owners see a buyout as the best exit strategy when they’re ready to retire. If the insurance agent has built a successful agency with a large book of business and value over the course of his or her career, selling the agency to a larger agency can be an attractive proposition. On the flip side, larger agencies often want to expand their reach into new states and new lines of business, and often the easiest way to do that is to get an existing insurance agency that brings the desired qualities into the mix.

Why are mergers and acquisitions attractive compared to organic growth?

Organic growth may be the gold standard for a healthy business, but mergers and acquisitions can help a company grow and get up and running quickly without having to hire employees, train, or implement new technology. In the best case scenario, the acquiring company could start to see a near immediate return on its investment with an already profitable company now under its umbrella.

What are some downsides to insurance mergers and acquisitions?

Sometimes, mergers and acquisitions create redundancies, in both people and systems. Spending time and money sorting out how a newly created business entity will function when two previously independent companies are combined, or how one company will absorb the operations of another, can be a downside to mergers and acquisitions.

Having the right insurance technology in place can lead to more successful mergers and acquisitions

This may not seem obvious but when undergoing a merger or acquisition, technology matters. For companies looking to acquire, the use of an already modern insurance infrastructure means that potential buyers have a clear view of what they are getting from operational, financial and compliance points of view. With AgentSync, for example, an insurance agency looking to acquire can provide potential buyers with a complete, real-time, and accurate view of the compliance status of every product operating under that agency.

For companies looking to acquire or merge, having the right technology stack means less time spent manually moving data around. Equipping with the right systems in place already means that mergers and automations can help relieve the burden on human employees who would prefer to do more important work during an M&A process.

Whether or not you are considering mergers and acquisitions in your organization, check out AgentSync’s suite of solutions to modernize your insurance business.

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