Two of the biggest trans-Tasman insurers are buying up Australia’s mutual motor clubs. Allianz Australia has the regulatory go-ahead to acquire RAA Insurance (RAAI). Insurance Australia Group (IAG) has the green light to take over RACQ and its second merger move with RAC WA awaits regulatory approval. Meanwhile, increasing numbers of smaller insurers and brokers are also consolidating.
What’s happening to the insurance sectors in Australia and New Zealand and what’s behind this “wave” of mergers and acquisitions (M&A)? “Over the last several years, we have seen waves of consolidation and mergers for insurance businesses in Australia and New Zealand across both the life and general insurance sectors,” said Daryn Saretzki (main picture, left), financial services leader for EY’s Parthenon Oceania division.
“A surge of M&A,” he said, has impacted general insurance lines. For example, these recent moves by IAG and Allianz Australia in the motor insurance sector.
“The landscape today in both Australia and New Zealand is looking markedly different to what it did in the past,” said Saretzki.
He said commercial insurance has seen less consolidation in recent years, as pricing and profitability has stabilised and improved.
However, Saretzki and other experts say there is a continuing long-term trend of smaller general insurance brokers and underwriting firms merging or being acquired.
Sometimes these firms are already part of the same network. For example, in late 2023, Ausure Newcastle completed its second acquisition in less than week by acquiring an Ausure authorised representative (AR) firm in Mudgee. The purchase followed the acquisition of Ausure Byron Bay.
“We’ve also seen more activity from overseas based groups, particularly from the UK, creating some consolidation in this space,” said Stacey Hooper (main picture, right), EY’s Oceania insurance leader.
US companies are also actively acquiring Australian insurance companies. A few weeks ago, worldwide firm United Risk Global completed its acquisition of Sydney-headquartered, Pinnacle Underwriting and its affiliate Pinnacle Holdings Group. Pinnacle is a specialty facultative reinsurance underwriting firm.
In April, Arthur J. Gallagher & Co. announced its acquisition of Tresidder Insurance Brokers. The firm focuses on property and casualty services from offices in Victoria and Queensland.
In recent years, the US-headquartered brokerage and professional services giant has acquired a number of Australia and New Zealand based insurance firms.
The EY experts said there are a number of drivers behind this consolidation.
Some important ones include capital efficiency, regulatory requirements and the scale required to invest in or leverage technology like user friendly digital systems and artificial intelligence (AI)
These three factors, said the EY experts, explain “the wave of life insurance consolidation.” This started with Australia’s banks divesting their life insurance divisions across both Australia and New Zealand.
They also explain the more recent wave across the general insurance industry.
“The more recent surge in general insurance activity has been driven by the Automobile Clubs, who similarly had legacy technology issues,” said Saretzki. “The larger insurers who acquired these businesses benefited from increased scale and leveraging greater volumes on their platforms, as well as geographic diversity.”
A June report by National Australia Bank (NAB), that included the view of insurance brokerages, highlighted acquisition as “a key growth strategy for professional services firms.”
“The Performance Era: A new age of growth,” found that one in four of have made an acquisition in the last two years with the same number planning one in the next two years.
The main motivation was found to be growth.
The same proportion of firms, said the report, are looking to sell. The top two reasons were succession planning and offloading non-core services.
“There are a lot of ageing firm owners who haven’t clearly planned their exit strategies very far in advance,” said Adam Holster, a professional services banking executive at NAB. “This means, when they want to retire, a sale is their primary option. This then drives a lot of M&A in professional services.”
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