Mergers and acquisitions (M&A) growth has been a very hot topic for insurance agencies over the past several years and with good reason. The growth of M&A activity has had a serious impact on not only agencies that have been purchased, but also on their insurance producers. Now that we're well into 2016, what is the status of M&A activity and why should the insurance producer care?
There's no doubt that M&A growth has been impressive over the past several years. For example, in 2015, there was a 73 percent increase in the total value of deals and a 174 percent increase in the average value of deals compared to 2014, according to Ernst & Young’s “Global Insurance M&A Themes 2016.” The big question at the end of 2015 was whether or not the velocity would continue in 2016.
This month, Insurance Journal's Sarah Lucas reported, "While the number of closed transactions is down slightly from 2015, deal activity continues at a robust pace across the country, and many buyers are reporting strong pipelines of transactions they expect to close this year."
For agencies, there are a few recurring themes driving the need for transformation due to increased M&A that insurance producers need to be aware of, including:
- Reductions in operating and project spend: Due to the demand for agencies to increase profit and capital, an increased awareness in expense efficiency is causing a reduction in costs, as well as many firms seeking enhanced margins through mergers.
- Technology: With an ever-growing demand for improved technology, M&A could provide the fastest way to improve an organization’s capabilities in the least amount of time.
- The need for growth, scale, and new capabilities: Like any business, insurance agencies need to continue seeking profitable growth through evolution in the marketplace. Not only must insurance agencies focus on transforming their practice and increasing sophistication to match the needs of their clients, they also need to expand into new areas of capability.
On another note, low profitability linked to low investment yields is making it hard to raise capital, which creates a risk-aversion atmosphere and an increased temptation for accounts to move around, negatively impacting insurance producer morale.
What does this mean for insurance industry producer opportunites? Working in an agency that is strictly concerned with increasing revenue levels and returns and has decreasing care for client relationships can hinder your growth and make you feel a lack of pride in your work.
Consider transitioning from a traditional corporate agency model where you have no control over your future, limited independence, and no equity in your book of business to an entrepreneurial model that provides higher commissions, resources and tools, equity opportunities, and stock options. The entrepreneurial or lifestyle model enables insurance producers to take pride in their work by increasing their decision-making power and their future opportunities.
