A combination of low-interest rates, debt finance opportunities, and pandemic disruptions have laid the groundwork for mergers and acquisitions (M&As) to ramp up in the insurance market. With so many of such changes and ensuing uncertainties happening in the insurance industry, you might expect that insurers would be holding off on system updates. However, the opposite is true, with many merged insurance businesses updating with a unified digital insurance platform during their transition period.
Switching all merged parties to a newer platform with current-generation artificial intelligence (AI) and machine learning (ML) capabilities is usually a superior choice compared to having one entity adopt its counterpart’s previous-generation software. It is also a far better choice than running multiple incompatible systems in parallel, something that is especially common after a rapid series of mergers.
Consolidating digital platforms after an M&A can improve the profitability and growth prospects of newly merged insurers in a number of ways:
1.) Better Organizational Flexibility
Previous-generation legacy systems already tend to be less flexible compared to current solutions. These problems are further compounded when running multiple legacy systems in parallel. Because these different systems are rarely able to effectively transfer data to and from each other, a lot of manual data wrangling is often necessary to reconcile the information on different databases. This necessarily prevents smart automation from occurring between systems, resulting in reduced operational flexibility.
Unfortunately, the immediate aftermath of mergers is one of the times when better flexibility is critical. A lack of organizational flexibility at this stage can lead to a host of lost opportunities which could be hard to make up for, later on.
By updating to a unified digital insurance platform, newly merged insurers can more easily consolidate and improve processes. They could also lay the groundwork for more effective automation, freeing up insurers to focus on improving outcomes, capturing new markets, and meeting their members’ needs.
2.) Reduced Labor Requirements
Legacy systems are usually unable to effectively leverage advancements in AI and ML, making them more labor-intensive to operate compared to new platforms. Additionally, if multiple legacy platforms are maintained after a merger, these labor requirements tend to increase whenever data from one system has to be used in another.
Unifying the new entity’s system with a single current-generation platform should allow these labor requirements—and associated overhead costs—to be effectively reduced. Thus, the organization’s planners are afforded better options when rightsizing or expanding the business.
3.) Fewer Losses Due to Human Error
As mentioned earlier, legacy platforms tend to require more labor compared to those employing newer technologies. Reducing human input in these systems is usually desirable as these will inevitably increase incidences of processing errors. These errors can be further compounded when back offices need to work with multiple legacy systems that they may not be completely familiar with.
Ultimately, the best course of action for most newly merged entities is to adopt a unified platform that offers the labor-saving automation features they need to reduce error rates.
4.) Better Data Visibility
Insurance agencies live on data. A major issue with so many mergers is that the data from the original entities’ systems are effectively siloed, making it difficult or impossible to implement a modern data management program. This kind of siloing effectively reduces the comparative advantage of being a larger insurer.
To be able to manage all their data sets effectively, all the merged components need to be on the same system and all the data has to be migrated to the new platform. Given this, choosing a modern insurance solution is an easy choice, as it would not only allow visibility across the whole enterprise, but it could also permit data to be leveraged effectively. With bigger, more visible data sets, insurers can perform more accurate forecasts, run smarter chatbots, and make dynamic data-driven recommendations.
Should You Move to a New Digital Insurance Platform After an M&A?
Is it a good idea to consider migrating to a single, more efficient platform after an M&A? Almost certainly. Mergers and acquisitions are a fairly traumatic situation for most organizations, particularly if the merged entities have completely different markets, organizational structures, business philosophies, approaches, and tech investments. Moving to a shared platform will not remove all the challenges associated with an M&A, but it will also help avoid preventable losses and greatly increase the chance of the merger becoming a success.
Insurance business leaders should understand that mergers are also golden opportunities for the newly combined parties to adopt new technologies for their platforms. This is because the difficulties of having just one merged entity adopt the existing system of the other will often be similar to adopting a new system wholesale.
Adopting a new system with new technologies may also help the newly merged business stay secure as far as insurance platforms are concerned for the medium term. Additionally, the adoption of newer AI and ML-enhanced insurance systems will allow the merged entity to easily avoid the organization bloat that often comes with these activities.
Updating to a current-generation digital platform effectively allows the new company a better chance at remaining agile and competitive even as it wrangles with the other unavoidable issues that stem from an M&A. When no longer hampered by legacy software problems, newly formed insurance companies can easily pivot to new market opportunities, operate with lower overheads, and serve customers to a higher standard.