Tuesday, August 4, 2020

Insurers plan to expand M&A activity as customers demand more from services

The majority (72%) of insurers think that over half of the growth in their industry in the next five years will be driven by mergers and acquisitions (M&A) activity, according to Deloitte.

According to the survey of 200 insurance leaders across the EMEA region, expanding customer expectations is the biggest challenge facing the insurance industry in the next three years. As a result, the majority of insurers (62%) believe new, non-traditional products are the key to attracting new customers.

Insurers are expecting to have to broaden their service offerings to include more than just the insurance protection element. Respondents cite value-adding non-insurance products including: cyber response support, security, plumbing and other household services as being most important to customers.

David Rush, head of insurance for Deloitte North and South Europe, said:“Customers’ expectations have evolved. Experience in other industries has taught them to expect more and they have become used to being able to access relevant services in one place. Despite the fact that insurers are bullish about the industry’s progress in adapting to the new digital age – 80% think the industry is keeping up with technological advancement – there has been little genuine disruption in the market so far.”

While 81% of insurers are planning partnerships in existing markets, almost half (44%) have firm plans to forge alliances to enter new territories. M&A is increasingly becoming the tactic of choice for those companies looking to grow their business and keep up with fast-moving technological change, with 49% saying the top driver for this activity is the need to expand products and service offerings.

Although more than three-quarters (78%) of all respondents say Brexit is decreasing their M&A appetite at present, in the longer term, deal making confidence abounds. More than half (52%) expect to complete two or more deals over the next three years.

Meanwhile, nearly all respondents (93%) say they will make M&A part of their growth strategy next year and in the long term.

Ian Sparshott, global insurance sector financial advisory leader at Deloitte, concludes: “Against a backdrop of surplus capital and continuing low GDP growth and interest rates, M&A remains a critical growth strategy for many insurers. The survey results suggest M&A activity will centre around core markets and products but also be used, either via acquisition or partnership, to access technologies that enable improvements within the industry. This could include distribution, new products, underwriting capabilities or claims process improvements. However the successful integration of newly acquired assets will be crucial in determining the success of this strategy.”

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