Despite a raging pandemic, supply chain disruptions and labor shortages, merger and acquisition deals for most insurance sectors have increased in the last 12 months. Or perhaps the pace has quickened because of those negative factors roiling the businesses.
Either way, say industry experts, disruptive impacts have been far less substantial for insurance than for other financial services sectors. The M&A division of The Insurance Journal, for example, lists more than 15 mergers and acquisitions in just the month of December alone, an amount that has surprised industry executives when considering last year’s consolidation activity was up an unexpected 8%.
Nowhere is the trend more evident in the independent brokerage sector, which has undergone unprecedented consolidation, driven mostly by private-equity and other institution-backed investors. Historically low interest rates have also helped.
The total number of retail-oriented broker-dealer firms with wealth management as their core business declined at a rate of almost 3.5% for the last 10 years and now number around 950, compared with nearly 1,400 firms a decade ago.
“I think over the next five to 10 years there's going to be more people that need our services than we're able to reach today,” said Bryan Adams, cofounder and CEO of Integrity Marketing Group, a Dallas-based distributor of life and health insurance and provider of technology solutions for wealth management and retirement planning. “So consolidation is truly a positive thing because it allows us to more efficiently and more effectively serve the population.”
'One Of The Hottest Topics'
Adams made his remarks this week at the three-day online annual meeting of the National Association of Independent Life Brokerage Agencies. He said consolidation, mergers and partnerships help serve more people and gives companies more skill to invest in technology and additional resources to help consumers plan for their life, health and wealth needs.
“This is one of the hottest topics of conversation for agencies and firms and owners of those agencies,” said Jason Konopik, whose Partners Advantage Insurance Services was acquired by Arthur J. Gallagher. “It’s on the front of mind for everyone.”
Konopik said the top piece of advice he had for brokerages in the current environment is to plan.
“You really must start early in your thought process,” he said. “It's always much easier to plan for and execute what you want to happen rather than find yourself in a position where you need to quickly react to what you feel you have to do.”
Konopik says the process starts with a deep, honest, understanding of an agency, and what the objectives are for the owners, or for their partners and staff.
“We're all very proud of what we've built as entrepreneurs,” he said. “But that pride doesn't always translate to the perceived value that a buyer is willing to pay. So, taking steps on the front end of that process to really understand the value of your firm is extremely important to help set expectations”
Adams noted he was in a slightly different position than some of the other panelists who worked for brokerages that have been acquired.
“I actually went out and found a partner myself in 2016,” he said. “And the three guiding principles were that we made sure we took care of our family, our employees, and that we stay in the game and keep on serving more people. When you find people that are aligned with that kind of vision and that kind of passion and the core values that we all try to live by, it creates a special type of business that I think has a unique culture all its own. It has been really transformational for us.”
Making A Match
Finding partners that share the same vision or values, isn’t easy, the panelists agreed. But is essential to a successful merger or acquisition.
We're trying to find entrepreneurs and companies that share our vision and that share a commitment to adding value throughout the chain of carriers, agents, and customers,” said Jim Quinn, Chief Financial Officer of AmeriLife. It’s ultimately about how can we be better and not just a game of, ‘Hey, let's get bigger for the sake of being bigger.’”
Investing in a merger or partnership, Quinn said, allows brokerages to add scale and invest in more technology, cybersecurity and CRM systems.
“You can invest more in lead generation and help the agents do a better job with accounting and compliance and take some of those headaches off the plates of an entrepreneur, who most of the time really just want to get back to selling,” he said.
Dan LaBert, CEO of NAILBA said there’s no sign that the merger and acquisition activity is going to slow down.
“In many cases it needs to be done just to meet the challenges that the landscape currently faces,” he said.
Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].