Blog: Private equity is investing in insurance’s bright future

Insurance is the darling of the private equity sector – there were more deals done in the UK & Europe in 2021 than ever before. And that momentum shows no signs of abating. The insurance broker space especially, is the hottest it has ever been, with PE looking to bring value creation through consolidation. Bowmark Capital, through its Aston Lark investment, purchased 18 businesses in just 2021 alone to merge and create a broker powerhouse.

One does not need to dig deep to ascertain why. Insurance businesses are built upon a strong pool of long-term customer relationships that deliver ongoing revenue, the opportunity for greater depth of connection, and little assets beyond people and technology.

Insurance is the darling of the private equity sector. One does not need to dig deep to ascertain why. Insurance businesses are built upon a strong pool of long-term customer relationships that deliver ongoing revenue, the opportunity for greater depth of connection, and little assets beyond people and technology.”

Of course, consolidation is not enough to make the investment worthwhile. The promise of additional value creation through digital transformation brings real economies of scale to life. The ability to automate and personalise that which was previously high-touch, manual processes is prominent, and it is the natural appeal for PE.

However, insurance businesses need funds to scale digitally. If they fail to do so when ever-greater numbers of customers are seeking services based mainly online for their convenience, they risk being left behind in a sea of fast-paced, digitally agile competitors. The challenge is to convert impetus into sustained solutions that are customer-friendly, compliant and deliver efficiencies across an entire insurance business.

Analysing these opportunities in more depth helps us expose seven paths to growth for insurance firms and their PE backers, all enabled by digital transformation and technology:

Digital diligence - Any PE business looking to make acquisitions has the chance to utilise strategic planning to prepare a digital estate. Having access to a digital strategy and roadmap creates the potential to energise an organisation and inspire a culture of change.

Artificial intelligence and automation – Fast-paced innovators disrupt the market with cutting-edge solutions, driven increasingly by artificial intelligence and robotic process automation. Intelligent insurers are grasping the opportunity to boost process efficiencies to lower costs and enhance service levels.

Better customer service - Besides AI, there are other innovative opportunities to use digital technology to improve operational effectiveness and deliver a standout customer experience. Most businesses would benefit from adopting intelligent digital tools for better customer service, personalised customer relationships and more effective self-service.

Digital platform scaling – To merge investments using one platform, PE firms need to adapt to invest, consolidate and bring scale to the insurance sector. This means the attention will then pivot to using scalable digital experience platforms, including customer databases, conversion rate optimisation, eCommerce and other capabilities.

Differentiation through content – Investing in content is worthwhile for any business. It demonstrates knowledge and expertise, and ensures that a website doesn’t end up stagnating. It also helps with search engine optimisation, as search engines value fresh, unique content.

Winning search strategy – A comprehensive search strategy will be critical in customer acquisition in most growth plans. When done correctly, it creates a platform for growth. If done incorrectly, the fallout can be a severe threat to an entire business.

Accurate analysis and insight – Analytics is a vital part of any digital infrastructure, but it is yet often overlooked. With a properly implemented configuration, a business learns and adapts its digital strategy in real time.

Digital transformation provides increased opportunities to bring rapid profitability, scale and simplification. And a few PE-funded wealth businesses are starting to capitalise on them.

Placing a comprehensive digital transformation strategy at the core of an investment thesis can ensure rapid value creation, make a business more easily scalable, and deliver a thorough competitive advantage. The upshot will be a data-driven, digitally enabled, and customer-centric sector set up for success. These digitally centric businesses will provide the most significant market share and the strongest exit multiples. The market is ripe for disruption, and it is private equity that will fuel this change.