March 4, 2020 by Jason Contant
Brokers who can best balance online distribution with personal advice will reap the benefits in the current merger and acquisition (M&A) environment, a brokerage M&A expert noted recently.
“In Canada, brokers have generally been successful in defending against pure direct insurance distribution models,” Mike Berris, a partner with Vancouver-based Smythe Advisory, wrote in a blog last week. “Despite that, brokers must be prepared to develop more efficient ways to deliver insurance to the consumer while still being able to provide the consumer professional advice if needed.”
Brokers who are able to use online distribution as part of their service offerings will be well-positioned to both grow and protect the enterprise value of their businesses, Berris wrote in 2020 M&A Trends in Canada’s P&C Insurance Industry. “Many brokers are addressing this issue, but it remains to be seen exactly what it will look like. Brokers and underwriters are now faced with the decision of how to use technology to protect their current customer relationships, as well as attract new customers.”
Online distribution of P&C insurance is already affecting M&A activity and pricing, and much of the buyers’ attention is focused on personal lines books at the moment, Berris reported.
“We believe the market is feeling the increased risk of disruption from direct-to-consumer platforms,” he wrote. “It is our experience that potential purchasers are more careful when evaluating personal lines books of business, as they are looking at the ability to sustain the business as insurance distribution evolves. They are also evaluating how effectively that book might be transitioned into broker-controlled online platforms.”
Smythe Advisory says it has recently seen some “impressive online platforms that work well with a broker distribution model.” But it’s still an open question how these online platforms will interface with insurers in a standardized manner. For the P&C industry, key business drivers include the speed of policy issuance and an expanded ability to reach new and existing customers efficiently.
Potential purchasers are more careful when evaluating personal lines books of business, Berris observed. “Certain purchasers are well-positioned and willing to purchase large personal lines books, while others are considerably more cautious and would prefer to focus on commercial lines,” he said.
2020 M&A Trends in Canada’s P&C Insurance Industry also focused on trends in private equity and family and/or management buyouts.