Insurtech: the driving force in M&A

Insurtech providers will increasingly take centre-stage in the way carriers consider acquisition, investment, and partnership—reshaping the insurance mergers and acquisitions (M&A) landscape in the process. As technology begins to drive a new dynamic in insurance growth, investment decisions could be based on far more than simply great product lines.

This was one of the main points from an interview with Vikram Sidhu, partner, New York, Clyde & Co and Eva-Maria Barbosa, partner, Munich, Clyde & Co, on “ The Impact of Technology”. The interview took place on Intelligent Insurer’s Re/insurance Lounge, an online platform where interviews and panel discussions are available on demand.

“While there will be much investing in new lines of product, technology will certainly drive a new and dynamic pattern in insurance M&A,” said Barbosa.

“Dealmakers will now be asking themselves not only if they are buying a business with great products, but also if that business has the necessary technology to support those products,” she said.

The insurance sector has had no choice but to embrace technology in the face of COVID-19. That accelerated an existing trend of the industry becoming ever more digitised in all aspects of its business. Now, technology will increasingly be at the heart of a reshaping of the industry and drive M&A in the process.

However, according to Barbosa, who was sharing insights on the Clyde & Co Insurance Growth Report 2021 published in February, technology has been and will remain a key feature on the growth agenda in the coming year as re/insurers seek out insurtech providers that can deliver a competitive advantage, whether it be through acquisition, investment, or partnership.

An important role
Sidhu said that previously the insurance industry was not integrating with technology fast enough. “While some companies certainly did recognise the need to move forward, current global conditions have compelled the industry to bring technology to the forefront,” he said.

“We have seen some very exciting things happen in the market and technology is now playing an important role in the growth strategy of the insurance space.”

The $7.1 billion spent on insurtech fundraising in 2020 represented an all-time high, according to Willis Re.

“Before, the insurance industry was recognised as not integrating technology fast enough, then the pandemic happened and suddenly everyone was online. The industry has taken the lesson and run with it and we are seeing significant increase in insurtech in insurance M&A,” Sidhu said.

Barbosa added that for some of those insurers that were lagging in the technology space, the fear of moving forward with technology has disappeared, and that more major deals and investments will play a role in the market going forward.

“The insurance sector is catching up quickly and the market will become a very interesting space in the next two to three years,” she said.

The growth report revealed that when face-to face-business growth is no longer possible, there is little choice but to fall back on technology for existing relationships and to access new markets. The report revealed that the speed with which companies adapted to the technological revolution in 2020 has been remarkable. Despite global doom and gloom, Clyde and Co found that dealmakers have shown a great deal of resilience to complete transactions.

Barbosa and Sidhu said that the shift to remote working forced by the pandemic accelerated the adoption of technology across the insurance sector. The importance of technology has now become unquestionable as insurance businesses across the globe have grappled with many challenges to ensure that the growth demanded by shareholders is delivered.

That is why technology will become a key feature on growth agendas in the coming year as re/insurers seek out insurtech providers that can deliver a competitive edge—be it through acquisition, investment, or partnership.

How to grow
Barbosa and Sidhu agreed that insurance sector investors will be looking at greater innovation on the product side and also in terms of strategic positioning when deciding on M&A in future.

“Products such as cyber and climate change will become increasingly relevant and profitable, but at the same time investors will be closely scrutinising whether it makes sense become larger through M&A or to focus on organic growth through product innovation,” said Sidhu.

“While there will be innovation on the product side insurtechs will also be on the hunt for investors, and this pandemic has provided a launch pad for this trend to pick up speed,” he added.

“While there will be lots of investing into new lines of products, technology will certainly drive a new and dynamic pattern in the M&A space,” said Barbosa.

“Dealmakers will be asking themselves not only if they are buying a business with great products but also if that business has the necessary technology to back it up.”

To view the full Re/insurance Lounge session click  here.