The insurance industry is an evolving landscape. The emergence of new technologies and increased competition has created pressure to innovate while casting doubt on the viability of focusing on strategies emphasizing organic growth. These factors may drive an increase in M&A activity in the insurance industry, according to a report from KPMG International.
The report, which is based on interviews with insurance executives from around the world, concludes that the majority of insurance companies are seeking M&A opportunities in an effort to deploy their capital in pursuit of transformative growth. However, these companies will likely require significant support from M&A advisors to achieve their goals. While 81% of insurers interviewed intend to seek acquisitions in the next three years, only 10% consider it extremely likely that they will find an ideal target. Further, many insurers seemed less than confident in their ability to source deals and evaluate the strategic fit of potential targets. Taken together, these figures indicate that, though the insurance industry is primed for an increase in M&A activity, it will require significant expertise from M&A advisors in order to locate and evaluate potential acquisition targets.
The report further predicts that the majority of M&A activity will be in North America, with various factors fueling anticipated growth. For example, much of the growth is expected to result from insurance companies expanding across borders by acquiring targets that are already established in the new jurisdiction, allowing the acquirer to reduce unforeseen risks and begin operating without the need to start from scratch. Another driving factor may be the increasing focus on technological innovation. To date, most insurance companies have not focused heavily on acquiring innovative technologies, but this too may be changing as more insurers establish corporate venture capital teams and invest in Insurtech.
To achieve long-term success in an increasingly competitive and innovative market, insurers will need to align their businesses with an M&A strategy that facilitates technological development, inorganic growth, and cross-border coordination. Insurers are recognizing this reality, and most have sufficient capital to implement these strategies. As a result, evolution in the insurance industry cannot be far off, and increased M&A activity may soon follow.
The author would like to thank Brandon Schupp, summer student, for his assistance in preparing this legal update.
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