This post is part of a series sponsored by AgentSync.
Mergers and acquisitions (M&A) are always a hot topic in insurance. From small agencies waiting to be acquired, large agencies hoping to grow, or carriers looking to expand into new geographies or lines of business, there are a multitude of reasons why companies consider M&A.
Given that it’s so commonplace within the insurance industry, it’s no surprise that we’ve written about insurance M&A before. Interested in reading about Why you should prioritize compliance in the business acquisition process? Made. Or wondering how you can avoid getting stuck with a lemon in an insurance acquisition? Made. How about an argument for Why Your Tech Stack Is Important Before You Even Consider Selling your insurance agency? Made!
But if you’re just looking for some basics, i.e. what all this M&A talk in the insurance industry is about, then you’ve come to the right place. In this blog we will cover the fundamentals such as:
- What are mergers and acquisitions?
- How are mergers and acquisitions different?
- Why are there so many mergers and acquisitions in insurance?
- Why do some insurance agencies acquire others?
- Why would you want your insurance agency to be acquired?
Before you read any further, please remember that we are experts in managing producer license compliance, but we are not your attorney or accountant. Before considering any insurance M&A activity, be sure to obtain expert advice from a trusted professional. To simplify and automate compliance for your agency, operator or MGA, see how AgentSync to be able to help.
What does M&A mean in insurance?
The term M&A stands for mergers and acquisitions: the process by which multiple separate business entities become one. The phrase mergers and acquisitions can encompass a few different specific actions, each with different meanings and implications.
What is an insurance merger?
An insurance merger is when two separate companies form a new company. For example, Insurance Company A and Insurance Company B decide that they would be in a better position together to form a new company: Insurance Company C.
What is an insurance acquisition?
An insurance takeover is when a company acquires one or more companies, thus bringing the acquired company under the umbrella of the acquiring company. 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 need only acquire more than 50 percent of another business to gain control.
How are mergers and acquisitions different?
Simply put, a merger generally refers to a “merger of equals” in which two companies mutually agree that it is a smart business move to merge into a single newly formed company. An acquisition generally refers to a larger company buying all or part of a smaller company and becoming its new owner or parent company. Takeovers can be voluntary or involuntary (sometimes known as a takeover or hostile takeover if the acquired company does not agree to it).
How common are mergers and acquisitions within insurance?
Mergers and acquisitions occur frequently within the insurance industry, which encompasses insurance agencies, carriers, MGAs/MGUs, and insurance technology companies (insurtechs).
Over the past 20 years, insurance M&A deal values (how much each deal is worth) and deal volume (the number of deals done) have grown and stayed high: anywhere from just under $40 billion in about 80 deals in 2003 still record of $57.5 billion in 869 deals in 2021. We should note that the exact number of transactions and transaction volume varies depending on the sources, but everyone agrees that 2021 was a record year.
As the economy slowed in 2022, insurance industry mergers and acquisitions cooled off as well. However, industry ‘remained resilient’ compared to M&A activity in other sectors of the economy, with agency and brokerage activity driving insurance M&A at a much higher rate than insurance companies.
Why are insurance companies involved in mergers and acquisitions activity?
The main reason an insurance company will undergo mergers and acquisitions is to increase its market share. They can accomplish this by merging or acquiring an insurance company with a presence in an entirely new geographic region, new lines of business, or both. Sometimes insurance companies will seek to acquire others in an attempt to swallow a company that they see as valuable competition, one that they would rather have under their own roof than compete against.
Insurance companies also see opportunities to reduce operating costs and overhead through mergers and acquisitions.
Why are insurance agencies involved in mergers and acquisitions activity?
In many cases, insurance agency owners view acquisition as the best exit strategy when they are ready to retire. If an insurance agent has built a successful agency with a large and valuable book of business throughout her career, selling the agency to a larger agency may be an attractive proposition. On the other hand, larger agencies often want to expand their reach into new states and new lines of business, and the easiest way to do this is to acquire an existing insurance agency that brings the desired qualities into the mix.
Why are M&As attractive compared to organic growth?
Organic growth may be the gold standard of a healthy business, but mergers and acquisitions can help a company get up and running quickly without having to hire, train, or implement new technology. In the best case scenario, the acquiring company can begin to see an almost immediate return on their investment with an already profitable company now under their umbrella.
What are some of the disadvantages of insurance mergers and acquisitions?
Sometimes mergers and acquisitions create redundancies, both in people and systems. Spending time and money figuring out how the newly created business entity will work by combining two previously independent companies, or how one company will absorb the operations of another, can be a disadvantage of mergers and acquisitions.
Having the right insurance technology in place can lead to more successful M&A
This may not seem obvious, but when doing a merger or acquisition, insurtech is important. For companies looking to be acquired, the fact that they already use a modern insurance infrastructure means that potential buyers have a clear vision of what they will get from an operational, financial and compliance perspective. With AgentSync, for example, an insurance agency seeking to be acquired can provide potential buyers with a complete, accurate, and real-time view of the compliance status of every producer that works for that agency.
For companies looking to buy or merge, having the right technology will mean spending much less time manually moving data. Equipped with the right systems in place means integrations and automation can help ease the burden on human employees who would rather do more important work during the M&A process.
Whether you are considering M&A in your organization or not, check out AgentSync suite of solutions to modernize your insurance business.
Fusions and acquisitions