The threats and opportunities of digital disruption mean insurers, like all businesses, must adapt to survive. M&A allows insurers to rapidly react to the changing environment and access new markets and customers. Against a backdrop of political uncertainty, soft pricing and persistently low interest rates, acquisitions of insurtech start-ups can unlock the door to new processes and faster growth, if they are done right. We expect to see continued strong interest in tech-driven insurance M&A in the second half of 2019 and beyond as more established players enter the space.
In the past few weeks we have seen London based insurtech start-up Zego raise more than $42m to fund its European expansion. Zego, which was founded by two former Deliveroo employees, allows customers in the “gig economy” to pay for commercial insurance only when they use their cars and scooters for work. With the rise of ride hailing apps and food delivery services there is now a growing demand for insurance which is by the minute, rather than based on annual policies. It won’t be long before customers demand such flexibility across insurance products more generally and traditional players will have to respond. The fastest way for established players to do so is through M&A. For start-ups too the interest from established players provides an excellent opportunity to get more capital into their businesses, create partnerships with well-known names in the industry and reach a wider market: a note of caution though, start-ups will need to ensure they are well advised in structuring such transactions against sophisticated and experienced players to avoid being locked out of future funding rounds or losing control (something we will cover in a subsequent briefing).
Before jumping feet first into any deal, established players looking to acquire or enter into partnership arrangements with insurtech providers should be aware of the potential challenges. Being able to navigate the potential pitfalls presented by insurtech M&A will ensure a successful outcome for everyone involved. With this in mind, our latest insurtech briefing considers the do’s and don’ts of insurtech M&A - link here.