Allianz Australia is welcoming about 300 new employees from the Royal Automobile Association of South Australia (RAA) after receiving final regulatory approval to purchase the motor club earlier this month. Meanwhile, Insurance Australia Group (IAG) has a green light to buy the Royal Automobile Club of Queensland (RACQ). These are just the latest big mergers and acquisitions (M&A) in what some experts describe as a “wave” across Australia’s insurance landscape in recent years.
Insurance Business is looking at the impacts on brokers and their clients - and on the insurers themselves.
"At the heart of this collaboration are two organisations with shared values and a commitment to delivering exceptional care and value to our customers and members,” said Richard Feledy, managing director of Allianz Australia, in a media release about his firm’s purchase of RAA.
“Merging and integrating a business continues to be a highly challenging endeavour for organisations across all sectors – not just financial services institutions and insurers,” said Daryn Saretzki, financial services leader for EY’s Parthenon Oceania division. He was answering questions about the general impact of M&A on the insurance industry and not on any particular recent deal.
Based on EY data and analysis, Saretzki said as many as 60% of deals don’t realise the full value from their acquisitions.
He said organisations, including insurers, face four key challenges:
Mergers are often predicated on the retention of customers, said Saretzki. A key challenge, he said, is whether most customers can be retained through the M&A journey.
“Anything which creates uncertainty or disruption can be a trigger for customer churn or for brokers to consider recommending an alternate provider,” said Saretzki. “Competitors will also look for opportunities or weaknesses and seek to win customers while the organisation is focused on integration.”
The EY expert said bringing people together and integrating them from one business into another remains a highly challenging task.
“Organisations need to take employees on both sides through the journey and manage the change and ensure cultural integration, all while realising synergies and cost savings,” he said.
Saretzki said technology integration and customer migration remain key challenges for acquirers of all sizes.
“The age of legacy systems and the quality of data often make these tasks time consuming and costly – and the process for moving customers across is sensitive and complex,” he said.
Minimising customer impact, said Saretzki, is critical to protect against attrition.
He also said “staying the course” through a long-term, whole-of-business transformation can be very difficult.
“These are often multi-year programs of works that impact many parts of the organisation,” said Saretzki. “Keeping focused on the rationale for the merger and maintaining disciplined execution is often even more difficult in an environment where regulations change and other business priorities arise.”
Apart from the broad challenge of integrating two separate insurance businesses, there are also insurance challenges to deal with after the purchase of another firm.
“Insurance mergers do create some unique [insurance] challenges,” said Saretzki. These include:
“Bringing together diverse reinsurance programs can be complex,” he said. “But it can also be key to unlocking value in certain deals.”
Saretzki said there can “real challenges” integrating computer systems, particularly legacy technology. “These systems are also more difficult to uplift for pricing changes and changing regulatory requirements,” he said.
Saretzki suggested that the disruption of an acquisition can cause some employees to consider whether they want to remain with the firm. He said a “critical challenge” for insurers is ensuring that employees are retained and transitioned, particularly those with unique skills and experience in roles including pricing and underwriting, actuarial or technology.
IAG’s second merger move with The Royal Automobile Club of WA (RAC WA) awaits regulatory approval. In recent years, increasing numbers of smaller insurers and brokers have also consolidated.
Has your firm experienced a merger or acquisition recently? Please tell us about some of the challenges and how they played out, below
