Insurance and compliance fit hand in hand. As challenging as it can be for your company to form compliance frameworks in anticipation of an insurance acquisition or merger, it’s important to do so. You must be able to anticipate what your company might go through (whether you’re acquiring or being acquired).
Today, the impact of insurance regulatory changes on your acquisition strategy is significant.
The Shifting Regulatory Landscape for Insurers
Regulatory changes affecting mergers and acquisitions have lengthened the pre-close timeline and created additional threats and roadblocks to deals proceeding at all. In fact, the M&A timeline can go from months to a couple of years or longer. That means your due diligence takes longer and must be more comprehensive than ever.
Even the largest global enterprises can be stymied. Consider, for instance, Microsoft’s $69 billion acquisition of Activision Blizzard. The deal had to be restructured to meet regulatory approval despite the larger company’s armies of corporate lawyers, accountants, and consultants.
Your much smaller insurance company might have many times fewer exposures, vulnerabilities, conflicts, distractions, and issues to resolve than the giant tech company during your M&A, but you still need to think — and even overthink — your due diligence and acquisition strategy.
Acquisition Strategies in the Face of Regulatory Hurdles
In the United States, your M&A plans are likely to run up against the Federal Trade Commission (FTC) and the Department of Justice (DOJ). On top of that, every state has its own insurance commissioners, and collectively there’s the National Association of Insurance Commissioners (NAIC) acting as a sort of arbiter when state rules and insurance regulations conflict.
It’s an entire alphabet soup of reviewers, regulators, and overseers with whom your company and M&A partner could get entangled. That’s why it’s so important to have a game plan before you undertake a deal.
Refined Due Diligence Processes
Your due diligence process should start even before the handshakes that initiated the deal.
Ask a lot of questions first. Why do you want to close a deal with this partner? Will their management team deliver value to the combined organization? Are their insurance products compatible with your own? Do they empower your agents? Have you scoped out all of the other company’s liability exposures and mitigated the costs in the purchase price?
Can you defend the strategic relevance of the deal? How will it affect employees, shareholders, and other parts of your organization and theirs?
Answering all these questions and many more will take time. But know that these are the areas of concern the insurance regulators will have. Overlook them now, and they’ll come back to haunt you later.
Strategic Alignment with Long-Term Regulatory Trends
The regulatory environment has changed in America with, well, the environment. Climate change has wrought major claims activity due to wildfires, flooding, hurricane-strength winds, and other extreme weather conditions. These events raise claim levels and, therefore, boost the premiums of life, auto, homeowners, and renters insurance and various business lines.
Another leading concern for regulators is healthcare insurance and its possible impact on well-being. The agencies want to ensure your merger or acquisition won’t be unduly burdensome to existing and future policyholders.
Leveraging Technology for Efficient Customer Acquisition
A streamlined and seamless digital integration process doesn’t just benefit the combined companies, it also makes customer interaction faster, easier, and more accurate. The integrated technology enables cross-selling and upselling that benefits your policyholders while also enhancing the new company’s bottom line.
The focus must be on seamless integration and growth. The key here is to envision, design, and share an automated system that will benefit all users, both direct and indirect, during and after the acquisition process. There must be strong cybersecurity so that customer data isn’t compromised and your company isn’t impacted negatively.
That’s why your dealmakers must spend time carefully considering insurtech digital platforms that will enhance customer relationships, expand the marketing footprint and the product offering, and gain a competitive advantage post-deal.
Adjusting Sales and Distribution Channels to Align With Regulators
It’s all about the user experience: The customer impact. That matters as much to the regulatory agencies that will review your M&A as it does to the policyholders your move impacts. That’s why it must be determined during the acquisition process how you’ll distribute your new and expanded product line.
Focus on organizational efficiency and customer service mechanisms that will keep your base loyal and responsive. Do your two teams’ distribution channels mesh? Are your communication tools and strategies effective? Your regulators want to know — and so do your stakeholders.
Balancing Risk and Opportunity in Insurance Acquisitions
You have a reason — probably several of them — for accepting or triggering your insurance acquisition in the first place. The goal might be to increase your brand strength, add product inventory and marketing reach, streamline operations and reduce costs through economies of scale, or otherwise find advantage.
You risk unexpected time and costs, regulatory rejection, or the need to dramatically restructure the deal. Worst yet, you might discover only after the deal closes that the discussions should have never gotten out of the boardroom in the first place.
For one reason or another, between 70% and 90% of all corporate acquisitions fail.
That doesn’t mean your M&A will join that club. It only suggests the need to balance the risks with the rewards and mitigate threats as much as possible by anticipating the regulatory changes you might be asked to make and making the right decisions in the due diligence period.
Future Outlook: Preparing for the Continued Regulatory Evolution
Spoiler alert: insurance and compliance in the current regulatory landscape will only get more challenging and complex in years to come. That’s because an ever-growing number of transactions will have a global outlook and, therefore, attract the attention of even more regulators.
Furthermore, climate conditions will likely grow harsher in the near future, reducing the availability of insurance coverage in certain lines or putting the price point out of the reach of too many consumers.
Shareholder actions, technological incompatibility, and cultural differences are among other factors that can slow down or even completely halt deals or lead to radical restructuring.
Your best bet is to plan on an extended regulatory timeline, take your due diligence seriously, stay flexible, and hope your insurance acquisition partner will do the same.
It also helps to have a partner with M&A experience and the processes and procedures already in place to anticipate potential roadblocks.
Learn More About Confie’s Acquisition Process
We’ve been there many, many times. As the nation’s leading providers of personal lines insurance coverage, we have welcomed hundreds of smaller organizations into the Confie family. That’s why we have a dedicated team of professionals devoted to insurance company acquisitions. We want to make companies like yours all across the nation an integral part of our organization.
Join our team to extend your reach and grab a competitive edge with a robust product inventory from brand-name insurance carriers. We know the impact of regulatory changes on insurance acquisitions and how to design compliance frameworks that make the due diligence and closing of the deal as swift and seamless as possible.
Please visit our Knowledge Center for industry trends and insights, acquisition news, and additional details. You can also call us at (714) 252-2500 or drop us a line if you’d like to explore a possible collaboration.
