The year 2021 has relayed an unparalleled rise of M&A in the insurance industry. BMS Group’s inaugural report titled, Redefining M&A Insurance for the 2020’s heralds 2021 to be the ‘record year for M&A insurance’. We are witnessing M&A trends across the board from small, middle-sized and large companies banding together to share resources, stimulate growth, increase market share or improve customer service deliverability. Equity and reinsurance deals in the L&A domain display no signs of slowing since price competition amongst reinsurers is creating a seller’s market. Also, P&C company divestitures of life insurance subsidiaries have been occurring more recurrently.
In this scenario, it is important to understand what really accounts for the rise of M&A in the insurance industry in 2021? Let’s have a look at three main factors potentially propelling the insurance M&A.
Need for Digital Capability Improvement
Covid-19 has awakened insurance companies to the exigent need for having sustainable digital engagements. This has been deemed vital to power through pandemic-driven disruption. According to the EY 2021 Digital Investment Index, global financial institutions have reported that M&A as a vehicle for adding digital capabilities exceeded return expectations 52% of the time, in contrast to 45% for partnerships and 31% for in-house initiatives. Many insurance companies are looking to add digital capabilities to better respond to their customer’s evolving needs and expectations. A key instance in this regard is the merger of Blend, a leader in digital lending software, with Mr Cooper Group, Inc. to acquire Title365, a top provider of title insurance and settlement services. According to the agreement, Blend’s technology platform and Title365’s operational expertise in escrow, title and settlement will help financial institutions to efficiently engage with consumers across a fully integrated homebuying journey.
Advancing Growth Potential
Coalescing forces through M&A provides Insurance companies with ample chances for growth. Of note, Staysure Group has bought Rock Insurance Group, a travel insurance white labelling and partnerships business, for an undisclosed sum. The deal is expected to be mutually beneficial as it will help expand the customer base as well as allow Staysure Group to sell Rock’s products and services.
Optimisation of Customer Experiences
Optimising customer experience is another major concern driving insurance M&A. To gain credible customer reviews and boost customer deliverability, many insurance companies are combining forces with financial groups as well as digital organisations to improve their customer footprint. Quite recently, Massachusetts Mutual Life Insurance Company ( MassMutual) announced that it had entered into a definitive agreement with American Financial Group, Inc to purchase its wholly-owned subsidiary, Great American Life Insurance Company and other subsidiaries and affiliated entities which primarily offer traditional fixed and fixed indexed annuity products. The purchase price expected to be about US$3.5mn will allow Great American Life to operate as an independent subsidiary of MassMutual. Through this transaction, MassMutual will be able to diversify its products and distribution capabilities, allowing it to reach more customers in need of lifetime income solutions.