Insurance industry’s resilience has made it ‘attractive to capital’ and open to ‘more consolidation’

Private equity houses and other investors are looking “at where they can deploy capital in the insurance industry” after the sector has showcased its resilience during the Covid-19 pandemic – this means the industry is “going to see more consolidation”, said David Howden, chief executive of Howden Group.

He told Insurance Times: “The insurance industry has proven itself to be highly resilient and I think that’s made it even more attractive to capital that was already looking for many opportunities to back insurance businesses, particularly in distribution – therefore, you’re going to see more consolidation.

“You have seen a continuation of an appetite for the market to continue to grow, it’s attractiveness for investment from outside.

“Ironically, [it has] perhaps been accelerated by the fact that a lot of the private equity houses, pension funds, etc have probably had businesses that have been far more challenged by the pandemic and that’s something we should recognise and be very supportive of. Therefore, they’ve found it relatively attractive to look at where they can deploy capital in the insurance industry.”

Howden predicted that unless there was another “black swan” event on a level pegging with the coronavirus pandemic, then consolidation will easily continue because the capital market will not impact firms’ ability to borrow money.

Consolidation endgame

Although some firms may have money to burn when it comes to investing in insurance companies, Howden said organisations need to consider their “endgame”.

He explained: “My question is what is the endgame for that consolidation? We’re very clear on our endgame and that’s there isn’t one.

“We’re on a journey to build a business over the long-term and to do that, we’re going to focus on our people and our clients and really make their life as easy and enjoyable and as relevant as possible and then on the way, build a good business.

“I think that’s a long way from people who just try to consolidate to bring businesses together to eventually flip them onto someone else with a higher multiple.”

For Howden, his approach and perspective on consolidation really differentiates Howden Group and how it engages with M&A.

“As the market consolidates, there’s less and less choices; we’re very far away from what I’d call a normal aggregator or indeed a global multinational company,” Howden said.

“We have a different DNA, a different heartbeat from them and, therefore, our ability to attract entrepreneurs who have built businesses, who really care about their staff, who really care about their customers and who really care about the future of their businesses and who’s hand they’re going to entrust those businesses to.

“We think we stand out as an unusual and differentiated model and we’ll be able to attract those businesses to come and join us.

“We’re working on a number of those deals at the moment, in the UK market in particular.”

Demonstrating resilience

Although the Covid-19 pandemic has undoubtedly had an economic impact on a multitude of business sectors, it does not appear to have slowed down M&A activity in the insurance industry, Howden noted.

It certainly didn’t halt Howden Group’s own acquisition plans – last March, for example, the business was “right in the middle of an acquisition of a business called IUA New Zealand, which was actually for our underwriting business Dual”.

Howden continued: “I can remember very clearly a discussion with senior colleagues and board members about should we carry on and complete in a world where, this was back in March, none of us knew what lay ahead.

“I was very clear that resilience is one of the key principles you have to build a business upon. If you don’t demonstrate that in a time of uncertainty, then shame on you.”

Following this deal, Howden Group then went on to complete negotiations to buy personal lines broker A-Plan, which was confirmed last September. This transaction is expected to complete this month.

“From our perspective, we knew fundamentally that we had to continue to drive our business for the benefit of our people working in the business and indeed for our clients; we took some quite interesting decisions during those times,” he said.

“For example, as a group we didn’t furlough anyone at all, we kept all our staff on, we kept them on full salaries and we kept them available to service our clients as we needed.

“We continued to invest in our business very heavily indeed. We made another investment in the technology side, which was, in a way, easier to do because we’d seen the value and the importance of that with Covid. We were able to get, globally, thousands of people working remotely and serving customers.”