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The Insurer In Full: Growing The Pie

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  • Topics:
    • InsurTech
    • Mergers & Acquisitions
    • Topical Trends

There have been predictions that insurtech evolution will see many successful start-ups swallowed up by incumbent carriers as they look to further digitize...

But a series of carrier acquisitions suggests increased travel in the other direction too as distribution insurtechs display an eagerness to go head-to-head with established insurers.

Most recently, it emerged late last week that Pie Carrier Holdings – set up earlier this year by workers’ compensation insurtech Pie with backing from Gallatin Point Capital and Sirius to purchase licensed insurance companies – has agreed a deal to buy American Sentinel from LD Investments.

The transaction is the latest example of an insurtech buying a carrier platform, as a number of start-ups have matured from being typically MGA or program-style distribution plays to securing a risk-bearing balance sheet operation.

As previously reported, homeowners insurtech MGA Hippo bought fronting carrier Spinnaker in Q2 this year, while auto insurtech Buckle acquired licensed carrier Gateway Insurance from Atlas Financial Holdings and has since recapitalized the firm.

Other examples include title insurance specialist States Title buying North American Title last year.

The two-way street was highlighted by Scor’s deputy CEO of P&C Partners Adrian Jones, who said at ITC Global last week that he expects to see “materially more” M&A activity involving insurtechs going forward.

 

Insurtchs buying carriers

 

“That could be among insurtechs, it could be insurtechs buying orphaned assets of incumbent companies or it could be insurtechs selling to the large incumbents,” he commented.

On the carrier side, the Covid-19 catalyst means that many incumbents now realize they have to do more than “dabble” in insurtech, they need to buy “real capabilities”, suggested Jones.

“And I suspect that insurtechs and their backers will also find more M&A opportunities going forward for the same reasons. There are more capabilities out there, and they might make more sense in your hands than someone else’s,” he continued.

And the Scor executive said the most interesting deals are acquisitions by insurtechs of carrier operations.

“These are deals where incumbent assets have been sold to start-ups who are using them aggressively to build out new businesses. I think those are really exciting,” Jones added.

 

Presence and paper

Adding carrier operations can enable an insurtech to accelerate market presence.

But as this publication has previously written, for insurtechs that are essentially MGAs or program administrators with tech-enabled underwriting or distribution capabilities, the addition of a licensed and rated carrier platform comes with other meaningful advantages as they look to grow.

For any MGA, MGU or program administrator, access to underwriting paper is critical to their business model and growth is not possible without committed capacity and strong carrier relationships.

In a benign phase of the pricing cycle that requires plenty of management as carrier appetite ebbs and flows, but in a fast-hardening market such as has been in place for the last 18 months it can become an existential threat as capacity providers retrench or refocus on inhouse business.

Securing a carrier subsidiary or affiliate can alleviate that concern, even if it acts as little more than a front with a panel of reinsurers behind it. Rotating reinsurance capacity is typically less of a headache than finding a new fronting carrier and going through the process of securing the right licenses in the right states for a particular program.

For expansive insurtechs, the comfort of guaranteed paper as a cornerstone of capacity provides greater continuity for business planning and distribution partners.

That could create a stable platform for growth as they strike out alone.

 

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