AIG deal for Validus brings data to the forefront

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The digital transformation frenzy in insurance is influencing every aspect of the business, including merger and acquisition strategy.

In a conference call outlining its reasons for agreeing to buy the reinsurer Validus, AIG – represented by recently minted CEO Brian Duperreault – quickly mentioned the target’s proprietary data and analytics capabilities, as well as its CAT modeling platform, as a key driver of the decision.

“Validus has successfully applied tech and data as a sustainable competitive advantage,” Duperreault said less than five minutes into the call. “[Its] ability to assess property risk through proprietary CAT modeling is just one example of how [it has] leveraged research and analytics to enhance underwriting profitability. This fits nicely with our tech and data strategies.”

With many insurers are outright acquiring technology companies – especially as they identify potential winners in the burgeoning insurtech community – it’s only natural that they would be looking for similar I.T. boosts when making decisions about M&A within their market as well.

“Companies are looking for the advantages that proprietary tech will bring to them as part of the transaction,” says Matt Josefowicz, president and CEO of insurance tech analyst firm Novarica. “It’s interesting that [tech is] on a level with capacity, expertise and market presence going into the decision.”

AIG’s deal continues a trend. In its Oct. 2017 conference call announcing the purchase of Aetna’s U.S. group life and disability business, The Hartford CEO Chris Swift identified Aetna's homegrown Workability platform for absence and disability administration platform as an asset.

"Their claim system and some of their digital capabilities are best in class, and as we integrate and use that insight, [we think] makes us a natural buyer," Swift said at the time. The buy also "achieves our customer digital enablement objectives and provides a superior claims leave management platform that we will be able to leverage to achieve better claim outcomes."

Companies of all kinds are increasingly looking to find complementary technology solutions in their targets, according to research from Deloitte. In its “The state of the deal: M&A trends 2018” report, which surveyed more than 1,000 executives, including some insurers, the advisory firm found that “technology acquisition is the new No. 1 driver of M&A pursuits, ahead of expanding customer bases in existing markets.”

Additionally, “In this year’s survey, 12 percent of respondents cite digital strategy as the driving force behind M&A deals for the coming year; combined, acquiring technology or a digital strategy accounted for about a third of all deals being pursued,” Deloitte wrote.

In its 2018 outlook for the insurance industry, Deloitte further said it expected M&A strategy in the sector to be “spurred by digitalization, with insurers seeking to enhance distribution, customer experience, data collection, advanced analytics, and operational efficiency by homing in on insurtech investment and acquisition targets.”

That has played out both in the AIG deal, which mentioned analytics and data specifically, and in the earlier The Hartford deal. The value of actionable data on customers is nearly as high as the customers themselves, insurance executives say.

"We will be able to leverage our data and analytical capabilities across workers comp and group disability claims, which will enhance our competitive advantages and product capabilities," Swift said of the Aetna deal.

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