Brown & Brown Inc.'s acquisition of CoverHound Inc. offers an example of how the coronavirus pandemic accelerated change in the insurance industry then slowed the execution of that change.
Lockdown orders and widespread remote work cut off in-person meetings and traditional channels of brokerage sales.
CoverHound was making fundraising rounds at the time, and Brown & Brown's was one of several buyout proposals, particularly for its personal lines business, offered in the place of backing capital, CoverHound CEO Keith Moore said in an interview.
The insurance technology company offered Brown & Brown a sort of plug-in for digital sales, said Moore, who is also CEO of subsidiary CyberPolicy.
"A good catalyst for that conversation was the fact that as an industry and as a nation overall, we've been seeing this digital acceleration since March," he said.
In addition to the sudden shift to remote work, businesses that make up CoverHound's clientele found themselves with more exposure having to deal with customers outside their stores and take payments over smartphones for the first time.
Many large insurers realized that their online sales channels were underdeveloped if they existed at all, so for all their brokers, they did not have a way to transact digitally, the executive said.
M&A talks with Brown & Brown began during the second quarter, Moore said. The deal would have been completed sooner, but the pandemic and the necessity of virtual meetings slowed the process, he said.
"It was not an easy thing to do during a pandemic," Moore said. His companies will continue to operate independently.
CoverHound sells personal and commercial insurance in about equal parts and was on the verge of profitability as it began its latest fundraising round, Moore said. Deal terms prohibit him from disclosing the sale price.
CoverHound has seen a jump in sales for its online distribution platform and a spike in cross-sales with cyber insurance, which CyberPolicy markets primarily to small businesses. Before the pandemic, cyber insurance was less than 12% of new written premium, but has during spells made up more than a third of new business, Moore said.
"Small businesses are seeing that they have more cyber exposure because of the pandemic ... or they're taking payments in a different fashion than they did before," he said.
The deal will considerably expand the number of insurers for which CoverHound can sell because of Brown & Brown's deep roster of carrier partners, Moore said. Previously, since some carriers were investors, CoverHound and CyberPolicy were restricted in the coverage they could offer.
Brown & Brown's scale was an attractive sale proposition, but the cultural fit between the parties was more important in the decision to be acquired, Moore said.
"If it had been a larger broker, we wouldn't have had as much upside day one because those organizations are a little slower to move," he said. "[Brown & Brown's] entrepreneurial spirit and their agility will make it a good place for us to be able to apply what we do."