A large number of global insurance industry executives are actively looking at acquisitions and partnerships in an effort to offset limited organic growth opportunities in an increasingly competitive landscape, which is being transformed by technological advances.
This is according to the findings of a recent survey and accompanying report conducted by KPMG International, which focuses on merger & acquisitions (M&A), transformation and innovation in the insurance sector, and includes responses from 200 insurance industry executives.
Laura Hay, Head of Global Insurance at KPMG International, said: “Insurers are competing for market share in a slow-growth environment, that is experiencing an influx of dynamic new insuretech players. They know they can’t rely just on organic growth to meet their objectives, so alliances and acquisitions become essential as insurers look to engage with customers in new and different ways, and gain access to innovative operating capabilities and technology infrastructure to reshape their business and drive future growth.”
The rise of technology and InsurTech firms is generally viewed as a positive for the insurance sector, ultimately assisting with the development of more efficient processes designed to increase efficiency for companies and lower costs for consumers.
In response to the growing influence of InsurTech and the fact organic growth is becoming increasingly difficult to achieve, insurance companies across the world are looking to transform their business models via M&A and partnerships, in an effort to stay profitable and relevant in the evolving risk transfer space.
The report shows that tech-driven M&A activity has actually outpaced that of all international M&A over the last five years.
According to the report, 81% of respondents hope to seek up to three acquisitions over the next three years, with more than 70% stating that they hope their deals transform their business in some way.
37% of respondents said that in order to achieve their transformation objectives they hope to divest at least one asset over the next three years, with the majority of divestiture activity expected to occur in Western Europe.
The majority of insurance industry M&A is expected to take place in North America, while Asia is tipped to experience the most partnership activity, reveals the report.
The report states that insurance companies are motivated by a desire to both transform and innovate for the future, with 37% of respondents hopeful of transforming their business models through M&A. 24% are eager to transform their operating models through M&A, while 10% are looking to purchase new innovation capabilities and emerging technologies.
Ultimately, the report finds that disruption is viewed as more of an opportunity for growth than a threat.
While there’s various reasons for firms to embark on some form of M&A, the synergies can often be more challenging to achieve that perceived, and the report notes that achieving deal success quickly could well be challenging.
In fact, just 10% of respondents say they are extremely likely to find an M&A target that is a strategic fit for their business model, with just 7% saying they are extremely likely to find an M&A target that is a strategic fit for their operating model.
Ram Menon, Global Head of Insurance Deal Advisory for KPMG International, commented: “To realize value from their deals, insurers need to rethink their approach and their capabilities. Insurers need to redefine deal success — from acquisition strategy to integration execution, set out a clear path for transformation applying holistic design thinking, accelerate innovation by standing up an inorganic innovation engine, and more importantly, resist short-term thinking. Transformation is not a ‘one-and-done’ event.”
