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Insurance Companies Confide in Acquisition for Growth
Slack industry growth and agile competition have compelled insurance executives to pursue acquisitions for growth. They seek to achieve greater market share, increased synergy, scalable economies, cost reductions, and new product releases. It is not only about enriching their existing business and modus operandi but also transforming the organization for the future.
North America is expected to witness the most acquisitions over the next three years, with Asia-Pacific providing the most opportunities for partnerships. Western Europe is supposed to drive relatively more divestment activity.
In a recent survey, it was found that just 10 percent of executives thought they are “extremely likely” to find a deal that fits their business model. Furthermore, 18 percent of the insurers surveyed said they have venture capital teams for evaluation and executions of acquisitions.
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By Safan Zaheer, Head of FinTech and Director, Digital Financial Services, KPMGUS
Acquisitions and claims need to be aligned with business strategy. Precisely, insurers are fighting for market share in a slow growth environment, which is facing an influx of new insur tech players. Companies can’t just bank on organic growth to achieve their objectives. To reshape the business and drive future growth, acquisition becomes indispensable.
Acquisitions help improve the performance of the parent company; business leaders acquiring other firms would prefer to go for low-margin-low-return on investment than the other way around. This would invariably lead to an increase in the value and shares of companies. In terms of geography, a majority of firms look to acquire an already-established business; such an effort enables them to get hold of the business overseas. The purchased business would already have its own labor, management team, a brand name, and intangible assets.
As a result, acquisitions often become an integral part of a company’s growth strategy when it is profitable to acquire an existing firm than to expand. In a hunt for growth and new profits, large firms look for dynamic companies that can add value to their revenue stream. Acquisition can be the way forward for the insurance companies for transforming their business model or enhancing their existing models.
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By Murali Natarajan, SVP & CIO, West Bend Mutual Insurance