2021 was a banner year for the merger and acquisition (M&A) landscape, with record transaction volumes and activity. However, by the end of 2022, the global economic slowdown, inflation, rising interest rates and generalized market instability all contributed to falling M&A activity, with deal value dropping 69% from 2021’s level. What can insurers expect from M&A and insurance in 2023?

Ongoing market uncertainty means the difficult fundraising environments that influenced M&A activity in 2022 are still persisting in 2023 (Sifted reports there were less than half the volume of fundraises in January of 2023 than in the same month of the previous year). As a result, experts agree we can expect to see buyers looking for smaller, more affordable deals.  And though carrier deals are on the decline, brokerage acquisitions are still happening – likely a reflection of the increasing economic challenges of the past two years.

Though fundraising has been relatively quiet in 2023, founders and investors in European markets say a rise in acquisitions may be materializing due in part to startups looking for earlier exits. In fact, a Sifted Intelligence analysis reported record M&A deals from the UK, France and Germany. In addition, distressed startups running out of runway may also be looking for earlier exit opportunities – purging non-core assets at a reduced rate.

Insurtech acquisition count is on the rise according to Bain’s M&A in insurance report, which also reports more cautious vetting of insurtech deals in 2023. Even with a renewed focus on due diligence, insurtech deals remain appealing to buyers looking for strategic acquisitions of innovative businesses and novel technologies (insurance acquisitions in artificial intelligence and machine learning markets are anticipated for 2023). 

And because changing market conditions have increased customer acquisition costs considerably, effective underwriting has become more challenging, meaning M&A deals in insurtech must be carefully scrutinized. Rather than end deals (though this can certainly be an outcome), insurers are being forced to think more critically about their potential investments – connecting deals to their organization’s fundamental goals and objectives and asking and answering important questions about their targets, like:

• How scalable is the target’s technology? 
• Can the target’s success be recreated within the acquiring organization?
• Will the target’s talent or team thrive as part of the acquiring organization?
• What are the risks and challenges of M&A?
• What are the synergies and redundancies that will result as part of integration?
• How has the target demonstrated its commitment to environmental, social and governance (ESG) fundamentals like climate risk, social justice, sustainability, and corporate governance?

Smart companies willing to make the most of the current landscape will find opportunities abound. But to fully realize the value of an M&A acquisition, there must be clear objectives for the buyer – acquiring customers, growing market share, adopting novel technology, driving strategic partnerships. Though challenges remain, future M&A deals like these may be coming, and along with them the potential to shape the industry into a more efficient, more customer-centric version of itself.