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 hoping to be acquired, large agencies hoping to grow, or carriers looking to expand into new geographies or lines of business, there are many reasons companies consider mergers and acquisitions. claim.
Since this is such a common occurrence within the insurance industry, it’s no surprise that we’ve written about insurance mergers and acquisitions before. Interested in reading why you should prioritize following the business acquisition process? Done. Or wondering how you can avoid getting stuck with a lemon on an insurance claim? Done. How about an argument for why your tech stack is important before you consider selling your insurance agency? Done!
But if you’re just looking for some basics – which is what M&A in the insurance industry is all about anyway – then you’ve come to the right place. In this blog we will cover the basics such as:
- What are mergers and acquisitions?
- How are mergers and acquisitions different from each other?
- Why are there so many insurance mergers and acquisitions?
- Why do some insurance agencies hire others?
- Why do you want to get your insurance agency?
Before you read on, 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 for yourself, make sure you get expert advice from a trusted professional. To simplify and automate compliance for your agency, carrier, or MGA, see how AgentSync can help.
What does M&A mean in insurance?
The term M&A stands for mergers and acquisitions: the process by which several different business entities become one. The phrase merger and acquisition can encompass several different specific actions, each with different meanings and implications.
What is an insurance merger?
An insurance merger is when two separate companies are formed into a new company. For example, insurance carrier A and insurance carrier B decide that they are in a better position to jointly establish a new company: insurance carrier C.
What is the insurance?
An insurance takeover is when a company acquires one or more other companies, thereby 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. Generally, a company only needs to acquire more than 50 percent of another business to gain control.
How are mergers and acquisitions different?
Simply put, a merger usually refers to a “merger of equals” where two companies agree that it is a good business move to merge into a single, newly formed company. An acquisition usually refers to a larger company buying all or part of a smaller company and becoming the new owner or parent company. Acquisitions can be voluntary or involuntary (sometimes known as a takeover or hostile takeover if the company being acquired does not like each other).
How common is M&A within insurance?
Mergers and acquisitions occur frequently within the insurance industry, consisting of 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 conducted) have grown and remained high: anywhere from less than $40 billion in about 80 deals in 2003 to a record high. of $57.5 billion in 869 deals in 2021. We must note that the exact number of deals and number of deals differ among sources but all agree that 2021 will be a record year.
As the economy slows in 2022, mergers and acquisitions in the insurance industry also cool. However, the industry “remains robust” compared to M&A activity in other sectors of the economy – with agency and brokerage activity growing M&A insurance at a much higher rate than that of insurance carriers.
Why do insurance carriers engage in M&A activity?
The biggest reason an insurance carrier goes through mergers and acquisitions is to increase market share. They can do this by merging or acquiring an insurance carrier with a footprint in a new geographic region, new line of business, or both. Sometimes insurance carriers look to acquire others in an attempt to swallow up a company they see as valuable competition, which they would rather have under their own roof than compete with.
Insurance companies also see opportunities to reduce operating costs and overhead through M&A.
Why do insurance agencies engage in M&A activity?
In many cases, insurance agency owners see acquisition as the best exit method when they are ready to retire. If an insurance agent has built a successful agency with a large and valuable book of business over the course of their career, selling the agency to a larger agency can be an attractive offer. On the other hand, large agencies always want to expand their reach to new states and new lines of business, and the easiest way to do this is always to acquire. of an existing insurance agency that brings the desired qualities to the mix.
Why are mergers and acquisitions attractive compared to organic growth?
Organic growth may be the gold standard of a healthy business but mergers and acquisitions can help a company grow and hit the ground running quickly without the need for staffing, training, or implementation. new technology. In a best case scenario, the acquiring company can begin to see an almost immediate return on their investment in a company that is currently profitable under its umbrella.
What are some down sides of insurance mergers and acquisitions?
Sometimes M&A creates redundancies, both in people and systems. Spending time and money to sort out how the 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 failure of mergers and acquisitions.
Having the right insurance technology in place can lead to more successful mergers and acquisitions
It may not be obvious but when going through a merger or acquisition, insurtech is essential. For companies looking to acquire, already using a modern insurance infrastructure means that potential buyers have a clear view of what they are getting from operational, financial, and compliance perspectives. With AgentSync, for example, an insurance agency looking to acquire can provide potential buyers with a full, real-time, accurate view of the compliance status of each producer working under the that agency.
For companies looking to buy or merge, having the right tech stack means spending less time moving data by hand. Having the right systems in place means that integrations and automation can help take the load off of human employees who want to do more important work throughout the merger and acquisition process.
Whether you’re considering M&A in your organization or not, explore AgentSync’s suite of solutions to transform your insurance business.
Mergers and Acquisitions