Three reasons fintech is driving brokerage acquisitions

Disruption by fintechs will be one driving force behind mergers and acquisitions among insurance brokerages, industry executives say.“I think fintech will help perpetuate this continued consolidation trend because I think at the small end of the market, fintech is viewed as a threat,” said Rod Campbell, director and CEO of brokerage Jones Brown Inc., during M&A Trends in the Insurance Sector, a recent panel discussion.

Moderator Michael Carolan, senior vice president of corporate finance at KPMG Canada, asked the panelists whether the industry is likely to see more mergers and acquisitions activity that is driven by fintech disruption in the insurance space.

Some brokerage managers think they do not have the culture, capability or the mindset to take on the digital solutions that fintechs are offering, suggested Campbell.

“Or we don’t have access to the capital to make the right investments into technology, or thirdly some of these technologies, frankly, need scale that small brokers just don’t have to take advantage of,” Campbell said Nov. 28 during the panel at KPMG Canada’s annual insurance conference. “So I think those three factors will shake out some of the small brokerages to look to consolidate more rapidly – maybe not optimally, because it’s more out of fear than opportunity but I think that it’s going to drive some activity in the marketplace.”

Over the past year, many fintech deals in Canada have not been in insurance space but in other areas such as wealth management and payments, Carolan said during the panel, held at the Metro Toronto Convention Centre.

But you will likely see more fintech-driven M&A activity in the industry, said panelist Peter Schindler, senior vice president of global accounts and business initiatives for Reinsurance Group of America Inc.

“Companies are making a tremendous amount of investment across this whole area just in terms of their own capabilities but also recognize that there is a ton going on externally that they don’t have,” said Schindler. “There is a tremendous amount of recognition in the industry that existing processes aren’t going to be the way we do things a number of years from now and without continued investment, we will fall short or somebody else will come in and disrupt.”

For its part, Marsh and McLennan Companies Inc. does not view fintech as a threat, said Lowell Pancer, a Canada-based managing director for Marsh and McLennan, during the panel.

“We see it as an opportunity,” said Pancer.

He referred to two deals in which digital brokerages were bought by established industry players. One was Travelers Companies Inc.’s 2018 acquisition of a majority interest in Toronto-based Zensurance.

The other was the agreement announced Nov. 20 for Aon PLC to acquire CoverWallet Inc., a New York City-based firm that provides online quoting and binding for small and mid-sized commercial clients.

“I think those types of transactions are very reflective of the desire of market participants to continue looking for other ways in which to use technology to be more efficient and find new solutions that may be able to – in certain areas – alleviate some costs and in others just grow revenue that they may not have had access to before,” said Pancer.

“Absolutely we will continue to see the same kinds of desire to digitize and bring in new kinds of technologies in the marketplace across the insurance food chain.”