latest-news-headlines Market Intelligence /marketintelligence/en/news-insights/latest-news-headlines/distribution-insurtech-capabilities-will-continue-to-drive-insurance-m-a-61819781 content esgSubNav
Log in to other products

Login to Market Intelligence Platform


Looking for more?

Contact Us
In This List

Distribution, insurtech capabilities will continue to drive insurance M&A


Q&A: Navigating Climate Risk as a Financial Risk


Banking Essentials Newsletter - February Edition, Part 2


StreetTalk – Episode 74: Investor sees legs in strong credit performance, US bank stock rally


Street Talk – Episode 74: Investor sees legs in strong credit performance, US bank stock rally

Distribution, insurtech capabilities will continue to drive insurance M&A

The start of the coronavirus pandemic quieted insurance deal activity across the globe during the second quarter of 2020, but recovered fully during the second half of the year as abundant capital and high multiples brought buyers and sellers together. Those trends are expected to continue in 2021.

M&A work slowed considerably for Houlihan Lokey Inc. advisers Arik Rashkes and Craig Tessimond after lockdown orders came down in the early spring, but began to return to normal levels by the end of May 2020. Volume eventually exceeded pre-pandemic levels, Rashkes said in an interview. Strong deal flow in the fourth quarter points to a continued healthy volume for 2021, he said.

"Deals are being announced at a very healthy pace, and from a deal flow perspective, we're seeing very nice optics," said Rashkes, a managing director and head of insurance.

The COVID-19 pandemic did nothing to discourage the abundant investment capital of private equity players still looking to spend money on strong insurance properties and did not bring down the historically high multiples sellers are commanding, said Tessimond, who is a managing director.

"That's a dynamic that hasn't changed — COVID or otherwise," Tessimond said in an interview. Many of the deals that landed during the second half of 2020 were strategic, with buyers looking for operational improvements or advantages. The economic downturn did not dampen their ambitions, he said.

"There's consolidation going on for the [strategic buyers] more and more in insurance services," said Tessimond, who expects 2021 to be an active year.

Stacy Kirshner, an insurance adviser with Alvarez & Marsal Holdings LLC, expects that private equity will continue to be big players in the distribution space, deploying capital with increasingly creative backing arrangements that emerged during the second half of 2020. Kirshner in an interview said there are a "variety of different investment opportunities" in both the equity and debt sides of company capital structures.

A Deloitte survey of insurance executives showed that among the top M&A goals for North American companies were adding technological capabilities, acquiring talent and divesting product lines. European underwriters are looking to improve distribution channels, while Asia-Pacific companies want to use M&A to increase scale and add product lines. Companies in all three regions anticipate deals that would help consolidate their operations in their home countries.

Pandemic puts tech in view

The second half of 2020 saw capital continue to pour into insurtechs through investments and IPOs, a trend that Deloitte insurance research leader Sam Friedman believes will continue. Adapting to remote working conditions forced insurance companies to place far greater value on digital capabilities, Friedman said in an interview.

"There was a reprioritization within insurance companies as users of insurtech — really focusing on those that can help adapt the most quickly to a remote workforce and a virtual engagement with customers," he said.

Enhanced digital capabilities have become more important for brokers, Kirshner said.

"In order for a lot of these insurance distribution assets to become industry leaders, they've acknowledged that insurtech needs to be a part of the thesis of the operations," she said.

While funding for insurtechs has been robust, about half of the capital invested went to the 10 largest companies, Friedman said.

Investors have shown a preference for scale, and insurers are looking for holistic solutions rather than narrowly focused capabilities, said Gary Shaw, insurance practice leader for Deloitte. That trend cold drive smaller insurtechs missing out on funding into each others' arms, Shaw said in an interview.

"If insurtechs can get together, they'll have a broader value proposition for insurers," he said.