M&A remains a critical growth strategy but due to customers’ expectations evolving the industry must keep up
More than three quarters (78%) of insurance leaders say that Brexit is decreasing their appetite for mergers and acquisitions (M&A).
This is according to a survey by Deloitte “A demanding future: The four trends that define insurance in 2020” which looked at 200 insurance leaders across Europe, Middle East and the Americas.
Half (52%) expect to complete two or more deals over the next three years, and just under three quarters (72%) of insurers think that over half of the growth in their industry over the next five years will be driven by M&A.
The report identified four areas which insurers need to focus on to avoid being left behind covering customers, growth, road maps and digital disruption.
Critical growth strategy
Ian Sparshott, global insurance sector financial advisory leader at Deloitte, said: “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 on 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.”
Customers and solutions
David Rush, head of insurance for Deloitte North and South Europe, explained that 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,” he added.
Insurers are expecting to broaden their service offerings to include more than just the insurance protection element.
It said that another main challenge to growth over the past three years has been regulatory and legal obstacles however expanding customer expectations was now seen as the biggest challenge by 45%.
Deloitte found that 62% of insurers believe that consumers regard non-insurance products the most important factor when choosing an insurer, 57% believed that access to friendly knowledgeable staff was the most effective way to increase customer loyalty.
Andy Masters, partner at Deloitte, added: “Insurers have to figure out how to offer customer products and services that are relevant to them at any time when they need them.
“These might be unrelated to the day to day but are about creating a more desirable experience that drives up frequency and quality of interaction.
“The technology clearly exists to help them do this given the many non-insurance examples. Unlike new technology-based start-ups, incumbent insurers already have millions of customers to work with build engaging propositions that create stickiness.”
Different growth roadmap
The traditional approach of selling protective products might not fit the future, a shift to a new service-based model and greater focus on prevention might be necessary.
It said that by 2024 more than a quarter (33%) of premium volume will come from brand new propositions.
Olivier de Groote, partner at Deloitte said that customers are increasingly looking for frictionless services.
“Insurance is some way behind but those that are investing more in technology and offering the market an easy and complete experience that offers clear solutions to customers problems are in a good position,” he added.
Clive Buesnel, vice chairman and UK head of insurance at Deloitte said that a significant shift towards services among insurers might be seen as they try to engage customers with offerings that add value. And as insurance will be embedded in a range of valuable services it will no longer be a grudge purchase.
Organic growth will not be enough
Incumbent firm can no longer rely on organic growth or internal innovation.
Sparshott added that M&A activity will centre around core markets and products but will also be used via acquisition or partnership to access technologies that enable improvements within the industry.
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 growth with 49% saying the top driver for this activity is the need to expand products and service offerings.
More than three quarters (80%) felt like the industry was keeping pace with technological advancement, with 95% expecting an increase in the use of advanced analytics over the next three years.
The top challenges cited were cyber and data regulation at 51%.
Andy Lees, partner at Deloitte recommended that insurers should adopt an ecosystem approach that involves partnership and outsourcing.
But he said it will take a lot of effort to transition from a legacy system.
Subscribers read more