Strong M&A activity driven by massive push for scale, digitization: PwC Canada

The race to achieve scale, connect digitally with customers and realize synergies are driving continued strong M&A activity in P&C insurance, a recent PricewaterhouseCoopers (PwC) Canada report suggests.

Valuations remain at “historic highs” for insurance brokers and MGAs, bringing new vendors to market. Meanwhile, strategic carriers and aggregators continue to consolidate, according to PwC Canada’s recent Mid-year Canadian M&A Industry and Market Trends report.

“Key drivers are stability of returns and access to capital for investors, with a significant amount of capital flowing into businesses that have shown resilience to the impact of the COVID-19 pandemic,” Philip Heywood, partner, national financial services deals leader, with PwC Canada, told Canadian Underwriter in an interview discussing the report.

M&A in the brokerage landscape is likely to be strong the rest of the year due to a “massive push for scale by the key consolidators,” added Jordan Baimel, partner, financial services M&A deals, with PwC Canada.

Baimel said PwC also expects traditional P&C brokers to continue acquiring benefits firms in order to diversify their portfolios. “The benefits sector is going through rapid growth, amplified by COVID-19 and employee wellness,” Baimel said. “We’ve seen a strong and significant shift into this sector with a lot of potential for vendors to come to market — and this will only continue.”

Pandemic impact

The pandemic has accelerated digitization, “forcing insurers, brokers and MGAs to look at their digital channels and process efficiency,” Heywood said. This “pressure to digitize” has been a catalyst for an increase in both M&A and partnerships with fintechs and technology-driven startups.

“Digital opportunities continue to create upside potential for investors who are looking for a digital-first strategy,” Heywood said. “However, in P&C these digital-first strategies won’t aim to replace people, but will rather be about speed to market, speed to [claims] settlement and improving the overall customer experience.”

While the industry has been slow to embrace digitization, Heywood added, the pandemic has highlighted the fact that industry and regulators need to evolve to keep up with technological developments and changed consumer behaviour, by enabling buying and binding insurance online, and allowing for e-signing of contracts and integrated point-of-sale finance solutions, for example.

This has been easier in personal lines, Baimel added. “However, trends in the past year indicate a significant push by brokers to look for digital ways to streamline easy underwriting and binding in the commercial space, and this is expected to continue,” Baimel said.

Feature image by iStock.com/peshkov