There's no doubt that, in most cases, insurance relies on capital to scale. This creates a multiplier effect. More premiums result in more capital, which means more money to invest. More pooling, people, and premiums generally means a better risk distribution, despite collective risks being stretched like never before. This in turn is typically reflected in the insurer's competitive customer acquisition model, allowing them to price more effectively and increase investment in marketing, propositions, and technology.One way to achieve scale, and quickly is through M&A. A
In the U.K. the headline deal is Aviva acquiring the Direct Line Group, an acquisition valued at around $4.8 billion, which, according to Group CEO, Amanda Blanc will, 'Create a leader in U.K. personal lines, accelerating Aviva as a capital-light business and bringing the best of Aviva to millions more customers." Meanwhile, in the U.S., PWC suggested in its
While mergers and acquisitions promise scale and growth and can boost top-line revenue in the short-term, they often fall short of solving the deeper challenges threatening the industry's future - eroding margins, surging costs, widening coverage gaps, and entrenched inefficiencies.
Rather than resolving these issues, M&A can magnify them, leaving insurers grappling with cultural clashes, technological misalignment, and operational complexity. This is somewhat of a vicious circle and underpins why insurance in consumer markets has become largely price-led and relatively commoditized. Continuing down this path, the sector risks trying to scale out of the problem only to find it catches up with them again.
Outdated operating models
Those of us passionate about insurance are often heard referring to its role as a vital driver of societal and business growth, and supporting people in some of their worst moments imaginable.
Continuing to provide this role is crucial, but doing so is incredibly, and increasingly difficult, and won't be achieved when technology is only being used to industrialize the insurance model. Far from setting it free, this approach has stifled the sector's ability to achieve digital transformation success and keep pace with the world it operates in. In doing so, it has saddled insurers with huge amounts of complexity and cost.
Up until now, technology has essentially turned what was paper and manual processes into 1's and 0's in the hope that this would allow insurance to scale more efficiently. Certainly, over the last 30 years, this has mostly worked. That's because, in the past, insurance has typically required little ingenuity or differentiation in customer experience, new propositions and the way it was operated. It also meant that one insurer could be bought for its "book of business" and be subsumed by the acquiring party relatively easily. The justification for the acquisition simply being in combining operations and reducing the cost per policy.
Everything to gain. Little to lose.
Reimagining operational design
However, the insurance market is in the middle of a transformative shift. One where reimagining operational design is critical to create a sustainable future for both insurers and policyholders. Insurance needs to move from value chains that minimize costs and maximize distribution to ecosystems capable of maximizing the value of a customer.
This isn't optional, nor a nice to have competitive frame for success because Insurers now have to tackle the headwinds facing the industry. They have to meet the needs of the digital customer, and become a trusted high retention rate business capable of operating around relationships and not just policies. They must identify and support vulnerable customers better and build better, more intelligent repair networks that stem the impacts of claims inflation.
They must become capable of adapting products to dramatically changing lives, where "ownership" profiles are changing as we continue to age and urbanize. They must be able to address the need to build risk-mitigating, usage based and dynamic services that integrate into our lives and the world around us as it continues to change at an ever-increasing pace. And they must build resilient businesses that can weather the impact of catastrophic events and maintain their presence in the worst affected areas.
To do all this, new operating models are needed. It is time to ditch the monolithic systems that block the way to invention, innovation, and iteration - whether they exist on-premises or in the cloud. Insurers must now adopt the right technology foundations, like the MACH-driven architectures found in eCommerce, where core capabilities can embed massive amounts of inter–operability, scale and adaptivity in the way different products and services are created and maintained. All of which play beautifully in the context of successful acquisitions.
Insurers built on these foundations can:
- Deploy multi-brand models.
- Adapt to hold and manage a variety of product offerings.
- Recognize and manage customers as individual valued relationships.
But first we need a major shift in operational mindset which creates an operating model capable of allowing the modern ambitious insurer to take full advantage of acquisition based scale, whilst also creating the ability to retain customers and maximize their value.These are growth based businesses that can create new entities fit for the future, and no longer ones simply trying to out-run the economics of insurance.
