Allstate completes $4bn National General acquisition
US insurer Allstate has confirmed the completion of its multi-billion dollar acquisition of National General, scaling up its personal lines business and adding billions in premiums.
The deal was announced in June 2020 amid the early height of the pandemic. Allstate agreed to buy the New York-based firm in an all-cash deal worth around $4bn, or $34.50 per share.
National General offers a suite of property-liability products through a network of independent agents, specialising in non-standard auto insurance at a time when claims plummeted under the pandemic. It generated operating income of $319m in 2019, with $5.6bn in gross premiums written.
Barry Karfunkel, Co-Chairman and CEO of National General, said combining expertise from both firms through the acquisition would form “a top-five personal lines carrier for independent agents” and expand the array of products it could offer customers.
The acquisition will add $4bn in personal lines premiums and increase Allstate’s market share in the segment by 1%, brining 10% of the overall market under its banner, according to Tom Wilson, chair, president and CEO of The Allstate Corporation.
The move will also boost Allstate’s existing independent agent business, Wilson adds: “Independent agents will now have more protection offerings for customers, with a strong technology platform creating growth opportunities for them and Allstate. National General’s accident and health business will also further expand Allstate’s circle of protection.”
Allstate remains solid during COVID-19
Allstate swiftly pivoted to virtual as the pandemic took hold in 2020, including the management of the majority of claims. Active policies in the three months to 30 September 2020 grew 27% year-on-year, up to 173m, while the firm also benefitted from fewer automotive claims due to reduced miles driven under the virus. Total revenues of $11.5b in the third quarter of 2020 increased 3.9% compared to the same period in 2019, though this was partly offset by reduced investment income.
Insurtechs are winning the race with legacy system companies
Nestled in its own place within the world of financial services, insurance is arguably more unpopular than retail banking.
That’s hardly surprising given that, from a customer service perspective, insurance is something of an off-kilter transaction. You pay a sizable premium in exchange for a service you hope you will never have to use. This image problem is exacerbated by ubiquitous tales of insurers not paying out when it is time to make a claim.
The insurance sector has long been due to an overhaul, and this is where the disruptive force of insurtech comes in - one of fintech’s most upwardly mobile subcategories. Accordingly, last year, insurtech in the UK alone attracted £262m in investment, a growth of 60% on 2019, according to Tech Nation. Insurtech’s momentous growth has been captured in a new report by The AI Journal exploring this burgeoning sector.
What exactly is insurtech?
Put simply, insurtech refers to technological innovations that seek to make insurance cheaper to buy and more efficient to use. In a similar vein to fintech, the large, established institutions have been dipping their toes into insurtech, but it’s the disruptors who are genuinely looking to shake up the status quo, diving into and exploiting those areas that traditionalists have little imperative to explore.
Examples are price comparison sites (one of the earliest forms of insurtech that was eventually snapped up by the insurers it initially sought to disrupt), claims software, customisable policies, or even smart-tech-enabled dynamic policies whose premiums can fluctuate depending on changing circumstances.
The latter, for instance, could use someone’s fitness tracker or smartwatch to monitor fitness levels, thus reducing the premium of a life insurance policy; or track a GPS system that records the location of a car and assesses risk levels accordingly.
Most consumers tend to shop around for their insurance needs and perhaps end up buying their contents insurance with one provider, their car insurance with someone else, and their pet insurance with yet another underwriter. Managing all these different policies, with their varying renewal dates and payment terms can be complex. This has led to the increase in apps that pull everything together.
More prosaically, insurtechs are developing AI that uses machine learning to act as an insurance broker, eliminating the need for a human intermediary and therefore offering more cost-effective and impartial advice.
Insurtechs and risk
But there are some obstacles in the way of insurtech’s continued evolution.
Insurance companies are averse to risk. Understandably so, as at the crux of the industry is the role of the actuary, whose job it is to analyse and measure the probability and risk of future events. So it’s little wonder that there’s a reluctance among the traditional players to welcome the disruption that insurtech brings.
Insurance is heavily regulated, a minefield of legality and labyrinthine jurisdiction, which means the idea of shaking it up can be anathema. And why would they, when their old-school business models are working perfectly fine?
There’s an understandable nervousness and unwillingness to work with startups, who themselves need to work with the bigger firms in order to underwrite risk.
While it seems like a catch-22 situation, there is growing, if cautious, interest from insurance companies, who can see the benefits of insurance with a friendlier face, innovative solutions, and a competitive edge through differentiation. As that tentativeness dissipates, the growth of insurtech will gather even more momentum.
Tom Allen's analysis is based on the findings of a new report on the fintech and insurtech industries produced by The AI Journal.