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How M&A Dealmaking Will Shape the Insurtech Revolution

A wave of disruptive start-ups is bringing transformative tech-focused insurance products to market. Traditional industry giants are taking note. Amid capital and regulatory challenges as well as uncertainty caused by the pandemic, will we see a spike in strategic M&A in the coming year?


The insurance industry is one of the oldest financial businesses. While it is ubiquitous, it is ridden with inefficiencies and has been slow to evolve, thus creating an opportunity for disruption. The nascent Insurtech industry is looking to take advantage of innovative tech-based solutions.

Investopedia defines Insurtech as the “use of technology innovations designed to squeeze out savings and efficiency from the current insurance industry model.” The industry emerged around 2010 as an offshoot of Fintech and has been shaking up the insurance industry ever since. Whether it’s improving the customer experience or streamlining risk assessment and data management, insurance industry leaders have taken notice and are adjusting their strategies to remain competitive and gain an edge.

This emerging global sector saw strong investment in Q2 2020 with USD 1.56 billion across 74 deals. In July, Lemonade, a New York City-based digital-first property and casualty Insurtech company targeting millennials and other young adults, became the first of its kind to go public, which turned heads throughout the insurance industry. Palo Alto, CA-based unicorn Hippo Insurance raised USD 150 million earlier this year and Columbus, OH-based Root Insurance raised USD 350 million in its series A in 2019. Overall, 2019 saw 548 deals worth USD 7.3 billion. While it is still unlikely that many Insurtech companies will IPO as Lemonade did on July 2, many will find an avenue to merge with more established companies that feel they complement their portfolio and offerings.

Historically, larger insurance companies have viewed M&A as a necessary strategy for growth in a very competitive industry. Conversely, smaller insurance companies use M&A as a means to partner with larger organizations that see value in them.

Right now, larger insurance companies are seeing this new wave of technological advances and a demand for a simpler way of doing things as an opportunity for strategic transactions. This will enable them to not only remain competitive in their space but also add to their existing services while having innovative control over new, cutting-edge technologies.

Speed bumps

The COVID-19 pandemic has presented the insurance industry with many new obstacles. Many organizations paused the transactions they were working on due to the degree of uncertainty in the market. The new remote due diligence process has also created challenges for companies who were accustomed to conducting their processes on-site. A complete change in the way deal teams collaborate, meaning virtual meetings and cluttered inboxes, has forced deal teams to adjust to “new normal.” On top of challenges fueled by the pandemic, the current economic state and pending U.S. presidential election are also driving factors in many insurance companies’ strategy and appetite for mergers and acquisitions (MA). Another challenge many insurance companies are faced with in the wake of COVID-19 is having to adjust to shifting customer needs for faster, simpler transactions and more efficient ways to virtually submit and manage claims.

The pandemic has exposed weaknesses in many companies that may not have been prepared to service their customer base in the digital era. This has created a considerable opportunity for Insurtech companies as the need to meet challenges caused by COVID-19 increases. Speed, efficiency, simplicity and accessibility are more important now than ever. Technology offers companies a unique blend of improved efficiencies to meet customers’ needs and the ability to streamline internal processes and fine-tune their current service offerings. Customers are beginning to gain a sense of comfort using technology and utilizing digital platforms. If anything, the pandemic has accelerated the upward trajectory of the insurance industry’s need for technological advances to meet new customer demands.

Challenges and opportunities ahead

The primary challenge Insurtech startups may face now is simply surviving. This creates an opportunity for larger, more established insurance companies to buy these Insurtech companies and create a mutually beneficial partnership. Within Insurtech, partnerships are crucial — larger companies want to partner with Insurtech companies because of the value they can add with their unique technologies. Acquisitions typically occur when a smaller insurance company’s portfolio blends or fits appropriately with a larger company’s and is viewed as a growth engine.

This isn’t the only challenge Insurtech companies will be faced with moving forward. They will be tasked with navigating a highly regulated and scrutinized industry, as well as post-merger integration. The successful integration of systems and the ability for these companies to deliver value to their key stakeholders quickly is critical.

Still, the outlook is optimistic for the Insurtech industry heading into Q4 and 2021. Many industry leaders predict a significant comeback in M&A deal activity. In the coming 12 months, larger insurance companies are well-positioned to use M&A as smaller companies see an acquisition as an opportunity for security and long-term survival.

Tim Miley Intralinks

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