While consumers are driving digitization trends, backend technology will have the most powerful impact on insurers.
Mergers and acquisitions (M&A) in the insurance space are expected to surpass 220 worldwide during the first half of 2021, according to Clyde & Co., which noted the need to scale technology to fully leverage digital investments is a big driver of the sector’s transactions.
If the 2021 projections hit the mark or surpass them, it would be the first time since 2019 that level of transactional volume was reached, Clyde & Co. reported. The second half of 2021 is anticipated to see even more closings.
“From the perspective of smaller companies, many are waking up to the reality that they can’t afford to keep up with the technology that is going to be required to remain competitive in the future,” Anne Ross, a partner with Foley & Lardner LLP, told PropertyCasualty360.com. “They simply don’t have the scale needed to absorb the cost of the data analytics, artificial intelligence and other technologies that are improving expense ratios of their larger competitors.”
For companies that can afford to invest in the bleeding-edge, the question is, “should we build or buy?”
“Most companies do some of each, but we are seeing a lot of M&A activity driven by targeted acquisitions of companies that already have the technology as well as the expertise in-house to develop it further,” Ross said.
Propelling the pressure to deploy the latest technology is demand from consumers as well as producers, she explained. For consumers, the expectations of access to products and services online and through mobile devices were derived from their experience with retail and financial institutions.
“They want to comparison shop and purchase insurance online, file a claim through a mobile device and pay their premiums the same way,” Ross said. “Those carriers that work with independent agent producers are hearing from those agents ‘we need you to keep up with these developments.’”
Tech evolving M&A landscape ‘end-to-end’
Technology providers attracting the attention of potential buyers are not just working on consumer-facing products, Ross noted, explaining they run through the insurance chain from intelligent pricing and underwriting to risk mitigation and loss prevention.
“Some of the less obvious ones are more efficient claims handling and fraud detection, and data analytics, AI and telematics can all feed into that,” she said. “A lot of the technology that is less evident to consumers will be the most powerful for insurers.”
She said the most remarkable thing is how all these digitization trends have been accelerated by the pandemic.
“In 40 years of practice, I have never seen a period of time when changes have happened so quickly,” Ross said. “We have some catching up to do in terms of what this all really means. But for insurance M&A it is accelerating these trends, putting them on a rocket booster in some cases.”