Imagine your business goes to purchase insurance, and in place of the mountain of referrals, paperwork, and small talk with brokers, you simply input your coverage needs and choose the best quote. What sounds like an advertisement for Policygenius is coming to an office near you as insurance goes digital. Private equity and even incumbent insurers are leading the way through acquisitions, and pocketing cost synergies as they go. “It will be a very busy winter to spring as these [companies] come to market,” says Grant Thornton partner John Cristiano.
InsurTech is a particularly bright spot. Traditional insurers could be the likeliest acquirers as digital transformation leaves no sector untouched, writes DA Davidson in a recent note. Incumbent insurers can leverage their large customer bases to bring target solutions to scale. Tech companies focused on underwriting, distribution, or claims will likely see the most interest due to the ease of extracting “near-term strategic benefits.”
The transaction doesn’t have to go one way, says Cristiano. “Insurtechs are not afraid to buy a carrier,” and the willingness of both tech companies and incumbents to be buyers “accelerates things on both sides,” he reasons.
Hedge funds and other deep pocketed investors backing tech companies is an interesting development for the sector. Their lower cost of capital and potential operational synergies from acquiring traditional insurers is not just for writers of premium. “You can see it,” Cristiano says, “I’ve certainly seen more startup technology [firms] looking on the distribution side.”
Sponsors appear to have taken note, acquiring or investing in several possible candidates for a takeover by one such strategic. Oaktree Capital Management led a $180 million funding round for HealthCare.com just before the new year to help the nascent firm’s product development and data science. The healthcare claims and insurance vertical has been a particularly lucrative for extracting tech-driven synergies, as several private equity firms have notched their largest exits ever on the play.
–Brandon Zero
