5 M&A developments driving change in the insurance industry

December 2, 2022 4:12 PM

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Mergers and acquisitions in the insurance industry have been on the rise in the last two years and the indications are this is likely to continue through 2022 and beyond.

Total deal volume across underwriters and brokers was up by 40% year over year through the end of 2021, while the aggregate deal value increased 165% from $21.6 billion in 2020 to $57.5 billion in 2021, according to Deloitte's 2023 Insurance Outlook report.

Read our roundup for a look at some recent developments in the M&A space.

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Coalition acquires Munich Re's Digital Affect

Cyber insurtech Coalition can proceed with its purchase of Digital Affect Insurance Company after the firm received regulatory approval for the deal on the back of securing $250 million in Series F funding in June.

"The acquisition is a natural next step in our evolution and will allow us to better serve our broker partners and customers, while continuing to push the boundaries of innovation in cyber insurance, executive risks insurance, and beyond," said Shawn Ram, head of insurance for Coalition.

With this acquisition, Coalition can transition from offering insurance policies through partnerships with other carriers, such as Allianz and Swiss Re, to using its own carrier.

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Coalition acquires Munich Re's Digital Affect

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Lemonade closes acquisition of Metromile

Lemonade has boosted its auto insurance book of business, offered under its Lemonade Car product, by $100 million following its acquisition of usage-based auto insurance insurtech Metromile.

"For ten years, Metromile's intricate sensors monitored billions of miles of driving, while their AI cross-referenced these data with hundreds of thousands of claims," said Lemonade co-CEO and co-founder Shai Wininger. "Injecting all that intelligence into Lemonade Car could make the most delightful car insurance also the most competitive, precise, and fair."

Founded in 2016 with homeowners and renters insurance, Lemonade has steadily expanded, adding pet insurance in 2020 and auto insurance in 2021.

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Lemonade closes acquisition of Metromile

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Hub International bolsters digital with insurtech M&A

Global insurance broker and financial services firm Hub International is targeting proven, profitable winners as it pursues its strategy to advance the company's digital coverage via insurtech growth.

"We felt that… we really should be focused more on providing our customers with solutions that provide a way to come find us digitally and a way to get great service digitally," says Chris Treanor, President and CEO. "And a great way to be able to fulfill that more quickly would be to acquire great digital firms."

The company's focused approach to M&A has seen the recent purchase of commercial insurance brokerage for small businesses Insureon Holdings and liability insurance provider for healthcare professionals CM&F Group.

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Hub International bolsters digital with insurtech M&A

Insurtech SPACs not spared amid sector's wider performance woes

The popular practice of insurtechs using special purpose acquisition companies (SPACs) to drive expansion by acquiring a target company and taking it public is on the wane as firms begin to feel some of the downsides of the investment vehicle.

"Insurance-related businesses targeted by SPACs weren't ready to be public companies," says Mark E. Watson, founder and chairman of Aquila Capital Partners. "They weren't mature enough or big enough."

However, SPACs still have a future in insurtech. "While the SPAC bubble has deflated from its recent peak, becoming a less attractive option for many, good technology tends to find a home regardless of the specific funding mechanism," said Scott Kelley, vice president of underwriting at the Argo Group.

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Insurance, insurtech M&A activity not slowing down

The outlook for M&A activity in the insurance industry during the course of 2022 appears to be on track to match, if not exceed, the intensity of 2021, according to a recent Deloitte report.

"Strategic investors have ample available capital, the stock market appears to be supportive, and there are few anticipated economic, regulatory, or tax headwinds," said the report.

Factors behind the likelihood of another banner year include insurance carriers seeking to expand their distribution network, explore opportunities for investment growth, provide more product diversity, and pursue specialty insurtechs.

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Insurance, insurtech M&A activity not slowing down