Insurance agencies, brokers, and carriers may choose to participate in M&A activity for a variety of reasons, with an even wider variety of outcomes. But one thing we know for sure is that when mergers and acquisitions do happen, redundancies and inefficiencies can abound. Having the right technology in place before, during, and after an insurance merger or acquisition can play a large part in streamlining operations and avoiding unnecessary spending.
What’s the current state of insurance M&A activity?
Depending on your source, insurance M&A was at its highest in 10 years during the first half of 2022, or maybe a bit down from a 2021 peak. But multiple sources agree that mergers and acquisitions in the insurance industry remain “relatively resilient compared to other sectors.”
So, M&A is still happening within the insurance industry, particularly on the broker side. Over 90 percent of announced 2022 deals occurred between brokerages, while less than 10 percent involved underwriters. As for why insurance brokers are keen to merge with and acquire other brokers, a McKinsey study found that in 70 percent of cases (based on deal dollar value), scaling was the primary goal. Scaling an insurance business can mean adding new services, products, geographies, or capabilities to the lineup without needing to start from scratch. It can also mean diversifying a company’s source of earnings to hedge against risk.
At the same time, factors like high inflation, uncertainties about the future, and the increasing cost to borrow money are pushing businesses of all types to look for ways to wrangle costs as low as possible. Insurance industry businesses are no exception. Concerns about operational efficiency, redundancies, and costs can be particularly applicable during the merger and acquisition process.
How can technology make or break a successful merger or acquisition?
According to CDW, integrating tech systems is one of the most important – yet most underrated – elements of any merger and acquisition strategy. When planned in advance and done correctly, technology can be a “force multiplier” for all organizations and staff involved in the merger or acquisition.
On the other hand, if overlooked, technology can become a source of frustration, wasted time and money, and data security risks. In a worst-case scenario, an insurance merger or acquisition can fail entirely if organizations can’t successfully move forward with the right technology.
3 reasons to focus on technology during the business acquisition process
1. Reduce costs
This may be the most obvious reason to get your tech house in order when you’re taking part in a company acquisition. According to a study by Bain & Company, businesses that fail to integrate their processes and systems will incur technology costs two to three times higher than companies that put tech integration at the center of their merger and acquisition strategy.
2. Speed up the merger or acquisition timeline
Time is money and this is especially true during the M&A process. Deals that finish quickly tend to be more successful and profitable, while extended M&A timelines can increase costs and lead to other negative impacts. A PwC study aims to show that the speed of a deal can increase its value.
3. Prevent talent churn during all phases of insurance mergers and acquisitions
Losing your most talented people comes at a high cost to any business. With the insurance industry’s current talent shortage, it’s even more important to do everything you can during the merger and acquisition process to retain critical talent. Focusing on technology and successful tech integrations can reduce talent turnover and the lost productivity that happens when employees are stuck in a long M&A process.
3 tips for putting tech at the center of your insurance M&A strategy
1. If you fail to plan, you might be planning to fail
Pre-planning is crucial when it comes to the success of any mergers and acquisitions that involve technology. And in the year 2023, that’s going to be 100 percent of deals. CDW writes that “organizations should make technology a key consideration early on and include IT in the assessment process of the acquisition.” This is instead of, as they report is common, leaving the tech piece of the merger or acquisition as an afterthought.
Throughout different phases of mergers and acquisitions, the organizations involved have to assess all current systems, evaluate the usefulness of each one, and ultimately determine which they’ll keep, expand on, or sunset. These aren’t decisions that can be done in a vacuum without input from data security experts, members of the tech team, and even daily users of each system.
2. Find the right merger and acquisition support partners
Mergers and acquisitions are a huge undertaking. It’s OK to acknowledge that your organization can’t do it (successfully) alone. This might mean bringing in an outside consultant, project manager, and IT support. According to CDW, not seeking outside help is a major pitfall for many companies that learn their internal IT teams don’t have the bandwidth, or the M&A expertise, to ensure a smooth tech integration during the merger and acquisition process.
Along with that kind of third-party M&A support, you may also look to your tech vendors and partners for help. At AgentSync, for example, we’re prepared to help any customers through the M&A process – whether they’re acquiring another company and need to add users, or are being acquired and need help getting the buyer and any of its other subsidiaries up to speed.
3. Adopt best-in-class tech solutions long before M&A is on the table
In most merger or acquisition situations, the acquiring company will evaluate the best combination of tech from the target company, its own, or elsewhere in the marketplace. If you’re looking to be acquired, your tech stack can play a role in the offers you get, either making you more attractive or less.
Even if M&A isn’t on your radar, this is a great reason to adopt the best tech now. From the seller’s side, having technology already in place that helps your business save money and streamline operations (not to mention, ensure compliance!) makes you all the more attractive to potential buyers. As a bonus, if you’re on something so good that your buyer decides to get in on it too, your employees have the benefit of no disruption in their daily use or learning curve to adopt a new solution.
From the buyer’s side, if your organization has already adopted an ideal tech solution that’s also easily scalable as you grow, you’re ready to quickly and easily bring new people into an already established technology ecosystem. You can save time on evaluating solutions during the M&A process, knowing you’ve got the best already.
Speaking of the best: We might be biased but we think AgentSync is the ideal producer compliance management solution for insurance agencies, carriers, and MGAs/MGUs. We give insurance organizations of all sizes the ability to modernize, automate, and streamline insurance license compliance. This means, whichever side of the M&A you’re on, your organization reaps the benefits of having your tech house in order. Check out a demo and see what AgentSync can do today!