Market Delivers on Promise of Increased M&A

When Allstate bought Esurance earlier this year, several consultancies and analyst firms saw it as an inevitability that more M&A activity would follow. Many factors were said to be driving the activity. Deloitte suggested regulatory pressure, while Towers Watson noted that in a still-stagnant economy companies were looking to "right-size" their business.

"I think that [increased activity] is around both improved capital and increased earnings," Jack Gibson, Towers Watson’s managing director, global mergers and acquisitions, told me. "People are looking outside their normal areas — for greater global expansion, or new channels — while other companies are definitely looking to better balance their portfolio or right-size things."

KPMG alluded to both of those factors in a survey: "The key driver of increased M&A activity, according to 47 percent of the executives, is access to new markets, followed by regulatory changes and pressures (38 percent) and product synergies (33 percent)," the company said in a release.

Meanwhile, Aite Group's Stephen Applebaum posited that Allstate specifically might be looking to tap into Esurance's innovative IT culture.

The two acquisitions announced today — Nationwide's purchase of Harleysville, and Medical Protective taking on Princeton Insurance — demonstrate the breadth of strategic reasons for investments and divestments to which Gibson referred. Nationwide says it's looking to increase its commercial lines footprint. Meanwhile the company that sold Princeton Insurance to Medical Protective, Medical Liability Mutual, saw an opportunity to concentrate in one state while the suitor was looking to expand its distribution area.

For IT departments, these kinds of acquisitions don't often lead to many wholesale changes, according to Matt Josefowicz, partner and managing director of Novarica. Because it seems both Harleysville and Princeton will be continuing with business as usual, any IT assignments are likely to be about adding value rather than subtracting systems and employees.

"M&A impact on IT varies depending on the acquirer's strategy," Josefowicz says. "If the acquired company maintains its own organizational structure and is really merged only at a balance sheet level, there maybe some opportunity to do shared services or leverage relationships with key vendors, but there is generally less of an integration project or total re-engineering of operations and technology."

Nathan Golia is senior editor of Insurance & Technology. He joined the publication in 2010 as associate editor and covers all aspects of the nexus between insurance and information technology, including mobility, distribution, core systems, customer interaction, and risk ... View Full Bio