Carriers will increasingly seek InsurTech startups as investment and eventual M&A targets in 2019, according to Deloitte’s predictions outlined in a new report.
“Insurance companies’ appetite for InsurTech investments should remain strong in 2019, as many would prefer to buy rather than build industry-disrupting capabilities to drive market growth and improve long-term financial performance,” Deloitte said in its report “2019 Insurance M&A outlook: Positioning for growth.”
There are several signs of carriers’ continued and growing interest in InsurTech investments/acquisitions, Deloitte said, including the launch of new venture capital funds, “some within insurance companies, that are making partial investments now with an eye toward full-on acquisitions of successful startups.”
Deloitte predicted that InsurTech targets should be “more plentiful in 2019” for prospective buyers because as InsurTechs mature, venture capital and other investors will be seeking exit strategies, which often include liquidation of “their maturing holdings.”
Beyond InsurTech acquisition targets, Deloitte sees other M&A transaction types for insurers in 2019, including:
- Cross-border deals. The idea is that U.S.-based insurers will look outside of the country’s borders to purchase complementary rivals. Regional targets for this include Bermuda and Canada. In reverse, European carriers may target U.S. companies for acquisition in order to offset limited growth at home. Japan could also follow suit.
- Middle-market match-ups. The prediction is that middle-market personal lines and small commercial insurers (some that are mutuals), will form alliances or consolidate. One way to do this: holding companies.
- Diversification. Insurers will continue looking at acquiring businesses that help diversify both product portfolio and customer base.
- Private equity investors. This sector has invested in and acquired insurers, and the prediction is that this trend will continue, giving them access to “a stable business model, premium income, investable assets and capital, and a good source of short-term earnings.”
Driving all of these trends are a number of factors, including the rollback of regulations that made mergers and acquisitions more difficult, and changes brought about by the Trump tax cuts, Deloitte said.