The New Face of M&A
Insurance Experts' Forum, March 4, 2014
Over the last couple of decades, we have seen many mergers and acquisitions (M&A) that have enhanced and expanded the companies involved, often motivated by the basic business drivers of seeking growth, reaching new markets, or strengthening the distribution networks. But these traditional acquisitions were insurers buying insurers or agencies, brokers buying brokers or agencies, agencies buying agencies, or solution providers buying solution providers.
There were M&A attempts that had the potential not only to redefine and reshape the companies involved, but the whole industry as well, and open a door for potential new business models. One of the most notable M&As was the merger of Travelers Insurance and Citicorp to form Citigroup in 1998. This acquisition did not fulfil the expectation of bringing in a new era of CRM and customer centricity – and the hope of driving deeper customer relationships based on the cross-selling of all products and services was not yet realized.
But lately, the M&A around and about the insurance industry have taken on a different face. There is a new trend in M&A in the industry, and technology companies are becoming a part of the M&A fabric. The insurance industry and the overall technology market are deploying large amounts of capital to pursue growth, innovation, and market-entry opportunities that have the potential to create business models never seen before.
In early 2011, Google acquired BeatThatQuote.com, a UK aggregator for auto insurance and, a year and half later, followed with the launch of a new auto insurance comparison site, Google Advisor. In the US there are few aggregator sites due to a more complicated regulatory environment and the large percentage of insurance that is still being sold by agents. But the acquisition and subsequent aggregator launch by Google reveals a strategic focus on the insurance industry.
In October 2013, Monsanto announced the acquisition of The Climate Corporation (Climate) for nearly $1B. Climate was founded in 2007 by former Google employees and others who saw the opportunity for weather related insurance for farmers (agriculture) using a self-service model. This model was substantially different from the usual agent/broker, face-to-face model, and used a new and innovative self-service model that allowed customers to go online to define and underwrite their insurance coverage based on a number of factors. And by monitoring weather, Climate could send a check for losses rather than wait for a formal notice of loss.
In January 2014, MarketScout, an electronic insurance exchange, acquired NorthPoint, a specialty fine arts and collectibles underwriting company that provides coverage for museums, exhibitions, and galleries in 48 states and the District of Columbia. MarketScout connects insurance clients with retail agents and MGA’s that have the specialty experience needed to work with a high-net-worth clientele. This combination has the potential to provide a level of customer insight, loyalty, value, and service that differentiates them in the marketplace from other providers and helps them gain a greater market share in that niche.
In February 2014, Quindell announced that they would exercise their option to acquire full ownership of ingenie, an auto insurance brand focusing exclusively on young drivers ages 17-25 using telematics. ingenie’s unique business model uses a combination of technologies including telematics and analytics, and partners with underwriters to reward good drivers with cheaper insurance while helping them to become safer drivers. Quindell, a provider of technology and business process services to the insurance industry, sees the acquisition as a means to propel growth in the technology sector and international expansion into the North American market.
These M&A examples demonstrate a bigger vision. They paint the picture a customer-driven organization that employs technology to capture and cement customer loyalty by offering products and services that meet every customer’s unique and personalized needs. And that is why this new face of M&A has the potential to disrupt and redefine the whole industry, let alone the competition. This non-traditional and in some cases outside-the-industry approach is customer driven and fortified by technology and innovation, a powerful combination.
So, instead of taking the traditional view that M&A are made to grow and gain market share, look at companies both outside and within the insurance industry that are committed to serving the customer. Are they using the next generation of emerging technologies to differentiate? Do they have innovation or R&D capabilities that together can re-energize, reimagine, and re-think their businesses? Are they seeking to partner for customer synergy? Are they looking at M&A as a means to an end rather than an end in itself? If they are, they are on the way to becoming a next-gen insurer.
This blog has been reprinted with permission from Strategy Meets Action.
Denise Garth is a partner at Strategy Meets Action, and can be reached at firstname.lastname@example.org.
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The opinions posted in this blog do not necessarily reflect those of Insurance Networking News or SourceMedia.
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