A recent survey released by Chicago-based Accenture Inc. predicts an increase in merger and acquisition activity in the property and casualty insurance sector for this year. For the global survey, more than 100 insurance equity analysts in 14 of the world’s largest insurance markets were questioned.
More then 71 percent of property and casualty analysts surveyed anticipated a “significant increase” in merger and acquisition activity this year. In North America, 89 percent of the analysts anticipated the increase compared to only one-third of the surveyed analysts in Europe.
Karen Pauli, a native of Wisconsin and senior analyst in the insurance practice at TowerGroup in Needham Mass., was not questioned for the survey but says she agreed with its findings completely.
“I agree that merger and acquisition activity will increase and will continue to increase on both the carrier and independent agency side of things,” she said.
The need to grow is driving the increase in M&A activity in the P&C market, Pauli said.
“It is very difficult to grow rapidly in a soft market; there is exceedingly heavy competition that forces carriers to drop their prices in order to compete,” she said.
In order to obtain the growth that companies desire, they reach out and search for acquisitions that will make their product line complete, said Pauli.
“Companies make acquisitions in markets they are looking to expand into,” she said.
Many independent insurance agencies are being sold as many of their owners are baby boomers that are reaching retirement age, Pauli said.
“Mergers and acquisitions are happening here because the principles that are retiring have found that the next generation is either not equipped or doesn’t want to become an insurance agent and so the only thing they can do to get equity out of the agency is to sell it to a larger one,” she said.
“It’s too soon to tell what an increase in merger and acquisition activity would mean for the insurance industry here,” said Sean Dilweg, Wisconsin insurance commissioner. “We do, however, review any mergers and acquisitions involving a Wisconsin domestic company.”
With almost 300 independent agencies, 258 domestic and 1,317 non domestic insurance companies across the state, including ACUITY Insurance in Sheboygan, American Family Insurance in Madison, Sentry Insurance in Stevens Point, Northwestern Mutual in Milwaukee, Wausau Insurance Co. in Wausau, and West Bend Mutual Insurance Co. in West Bend, the Wisconsin insurance industry could be affected by the increase in merger and acquisition activity.
One positive aspect is that post merger, the organizations generally become financially stronger. However an increase in consolidation also means fewer choices in the marketplace for consumers, said Pauli. Also, mergers typically result in job cuts to maximize organizational efficiencies.
“Employment may drop,” said Pauli, “It also has a rebound effect on vendors who supply software and other technology to carriers. There are then fewer targets for them to reach.”
The insurance market, according to Pauli, is becoming extremely competitive; and competition from outside the United States is also a pressing subject, although that doesn’t always mean a loss of jobs for American workers, especially in the insurance field.
“There is a strong direction with international carriers buying up U.S. carriers,” said Pauli. “It’s part of globalization. Insurance is kind of behind the curve when it comes to that, carriers here have had a tendency to pretty much focus on the U.S. market.”
