By Garry Hamilton, Chief Growth Officer and Founder, Equator

It’s been a busy few years for Private Equity (PE) houses investing in the fast-growing insurance industry.

Garry Hamilton

The sector is fizzing with funds from these firms. Nowhere is this truer than in the US, with PE specialists doubling their holdings in the country’s insurance market since 2015. They now hold almost 7.5% of the US life and annuity market.

Big PE deals have been done in the UK, too. Bain paid more than £1.2bn for eSure in 2018, then swooped for Liverpool Victoria late in 2020.

There’s more investment flooding insurance from major conglomerates and existing brands: witness the joint Canadian-Danish acquisition of RSA, one of the world’s oldest insurers, with Intact and Tryg sealing the deal in June 2021.

Buyouts are burgeoning across the piece – but PE is the most eye-catching source of money flowing into insurance. There are three critical reasons for this:

• A rich pool of liquidity in their equity, ripe for reinvestment
• The COVID crisis bringing a need for modernisation and vast untapped pools of new business
• A sector ripe for disruption and automation in every aspect

While interest rates are beginning an uptick on both sides of the Atlantic following a period of historically low rates, the figures are still favourable for insurers looking to invest their equity, limiting profits and lowering valuations.

It is this invested equity that is so appealing to PE businesses. Permanent capital creates opportunities for an altered business model for bigger PE houses. Assuming there is no ambition to sell quickly, they can use this equity for their own investing.

With the need for ongoing fundraising removed, PE firms can continue acquiring businesses at speed. Assuming a PE house can make efficient investments, insurers will benefit from greater returns on their equity than from traditional bond markets they’re used to playing in.

PE investment brings dynamism, a focus on cost, and a thirst to bring scale and drive profitability. It has the expertise to deliver. In a post-COVID world, the opportunity is fast becoming an obligation.

Many insurance businesses could not scale digitally without funding. If they fail to do so, when ever-greater numbers of customers are seeking services based mainly online for their convenience, they risk being left behind in a sea of fast-paced, digitally agile competitors.

With so much dry powder in PE, the opportunities are clear. The challenge is to convert impetus into sustained solutions that are customer-friendly, compliant and deliver efficiencies across an entire insurance business.

Analysing these opportunities in greater depth reveals seven paths to growth value that are available for insurance firms and their PE backers, all enabled by digital transformation and technology:

Digital diligence – Any PE business looking to make acquisitions has the opportunity to use strategic planning to prepare a digital estate. A digital strategy and roadmap have the potential to energise an organisation and inspire a culture of change.

AI and automation – Fast-paced innovators disrupt the market with cutting-edge solutions powered increasingly by Artificial Intelligence and Robotic Process Automation. Smart insurers are taking the opportunity to increase process efficiencies to reduce costs and improve service levels.

Better customer service – Besides AI, there are many new opportunities to use digital technology to improve operational effectiveness and deliver a standout customer experience. Almost every business would benefit from adopting intelligent digital tools – for better customer service, personalised customer relationships and more effective self-service.

Digital platform scaling – As PE moves to invest, consolidate and bring scale to the insurance sector, they will seek to merge their investments using one platform. The focus then shifts to scalable Digital Experience Platforms, including customer database, CRO, eCommerce and other capabilities.

Differentiation through content – Content is a worthy investment for any business. It demonstrates knowledge and expertise. It also keeps an otherwise static website constantly updated and evolving. And it gives search engines interest, as they value fresh, unique content.

Winning search strategy – In most growth plans, a comprehensive search strategy will be crucial in customer acquisition. Done right; it gives a platform for growth. Done wrong, the fallout can be a genuine threat for an entire business.

Accurate analysis and insight – Analytics is a critical part of any digital infrastructure, yet one that is still overlooked. With a properly implemented configuration, a business learns and adapts digital strategy in real-time.

Digital transformation delivers many opportunities to bring rapid profitability, scale and simplification. Some PE-funded wealth businesses are already beginning to capitalise on them.

As a result, PE investors and the insurance sector seem set for a bright future. Placing a comprehensive digital transformation strategy at the core of an investment thesis can ensure value creation, make a business more easily scalable and deliver a thorough competitive advantage.

Without a doubt, tomorrow’s insurance or brokerage businesses will be data-driven, digitally enabled and customer-centric.


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