5 Growth Drivers for Insurance Sector
According to Clyde & Co Report, continuing economic uncertainty has muted investor appetite for start-ups, particularly in the insurtech space, and has started to dampen enthusiasm for M&A transactions, impacting corporate business for investment banks and law firms (see Mergers & Acquisitions Activity in 2023).
Big-ticket M&A transactions are expected to pick up. And the liberalisation of certain regulations is attracting investment to markets across the EMEA region.
1. The return of big deals
According to Insurance M&A Deals 2023 Outlook, while ‘mega-deals’ in the insurance M&A — those valued in excess of USD 1 billion — have struggled to get off the start line in the past 12 months, there is an expectation that this year could see the return of big M&A transactions.
M&A lawyers are expecting a two-speed 2023. Small to medium-sized enterprises will continue to be wary of transactions as they wait for the current market uncertainty to subside.
Volume of M&A deals completed globaly
In contrast, large global insurance businesses seem undeterred by market conditions. Their focus is on consolidation in preference to limited organic growth options, so they are actively seeking merger and acquisition opportunities.
There will be growth opportunities over the coming years as investor sentiment improves.
Private equity funds have largely been absent from the insurance market over the past year but have maintained their focus on larger M&A targets in anticipation of potential opportunities.
2. Regulatory action is a mixed blessing
Heavy regulatory activity is proving burdensome for insurance carriers, impacting their capacity for organic growth. Consumer protection laws are making it harder to do the same volumes of business across multiple jurisdictions, with GDPR laws a common area of focus.
However, regulatory action is also proving a spur to growth in some territories. In Asia, South Korea’s Financial Services Commission is looking at reforming regulations to drive digital transformation in the insurance space, potentially enabling established and start-up insurers to create digital-only platforms.
There has been a change of sentiment in China. The government appears keen to broaden out the private pensions market on the mainland, suggesting international insurers may have a future role to play in developing pensions products in the country.
In the GCC region, Saudi Arabia’s $1tn+ Vision 2030 National Investment Strategy for infrastructure and real estate hints at an enormous (re)insurance opportunity. The Saudi regulator SAMA is in the process of liberalising some insurance regulations to encourage inward investment in the sector.
3. MGA market remains buoyant, despite reinsurer caution
The MGA model is still proving popular in the London and Lloyd’s market, especially where insurers want to penetrate further into markets where they lack the appropriate depth or breadth of underwriting expertise.
In the US, amid the uncertain economic climate, there is growing caution among reinsurers with respect to insurance clients’ partnerships with MGAs and MGUs.
The MGA model is still proving popular in the London and Lloyd’s market and Australia, especially where insurers want to penetrate further into markets where they lack the appropriate depth or breadth of underwriting expertise.
Reinsurers are exercising heightened caution with respect to what’s being written under producer agreements between insurers and MGAs/MGUs. In particular, there’s a focus on exactly how the pen is being monitored for compliance with underwriting guidelines.
4. Embedded insurance offers opportunity in sluggish insurtech sector
While technology plays a continuing role in enabling growth in the insurance sector — automating elements of underwriting and claims processes, driving parametric coverage, and opening up new distribution channels — investment in bigest insurtech companies has stagnated.
Embedded insurance is fast becoming a favorite buzzword among insurtech entrepreneurs and insurance innovators. But what does it mean, and why does it matter? Put simply, embedded insurance is a form of digital bundling, enabling partners from virtually any industry to offer insurance policies as an add-on or feature, generally as part of a digital sale.
Solutions tailored to online retail sales, travel-related bookings, and other online services are likely to increase discretionary insurance purchases (see How IoT, ML, AI and Blockchain Technology are Changing Insurance?).
While the insurance market is finding more applications for blockchain technology, particularly for parametric coverage, the cryptocurrency market that is underpinned by blockchain has yet to make much impact on insurers.
While some jurisdictions are looking to align financial services sectors with cryptocurrencies, the space needs to be more closely regulated before insurers can commit to using these currencies to collect premiums and hold reserves.
5. War for insurance talent could heat up in drive for organic growth
In the insurance space, litigation around employment contracts has been more focused in recent years on the movement of individuals and teams to rival companies in so-called ‘poaching’ disputes.
If 2023 does see a return to major M&A deals in the insurance market, there is likely to be a sharper focus by acquirors and merger partners on the best approach to combining differing company cultures (see InsurTech Sector Overview).
Businesses increasingly need to consider whether the culture of a combined entity is consistent with ESG strategies, DE&I frameworks, employee wellbeing and mental health considerations, and the need to modernise working practices.
They must also be aware of increased regulatory scrutiny of their complaints procedures, alongside a growing willingness among employees to pursue complaints.
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FULL Report — https://beinsure.com/global-insurance-sector-outlook/
