Insurance strategy in Asia: Using programmatic M&A during the pandemic

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In the context of the public-health and economic crises of the COVID-19 pandemic, the empirical wisdom that companies cannot count on organic growth alone is especially relevant. Programmatic M&A has been an element of every resilient company’s growth.1How lots of small M&A deals add up to big value,” McKinsey Quarterly, July 12, 2019. However, the aggregate value of insurance M&A activity in Asia decreased by 30 percent year-to-date in 2020 compared with the same time in 2019.2 Macroeconomic effects will likely cascade throughout the insurance industry and squeeze margins, thereby revealing which companies are strong enough to invest in strategic acquisitions and which may benefit from the safety of joining forces with healthier competitors or interested new entrants.

During the global financial crisis of 2008, Asia-based insurers used M&A to consolidate and build scale, diversify and expand into new offerings, and optimize their geographic reach. Since then, digitization has emerged as a significant motivation for M&A. Indeed, M&A can be a direct way to acquire insurtech capabilities and technology talent, both of which can enhance insurers’ products, services, and customer experiences at a time when digital capabilities are a necessity. In fact, the pandemic has underlined how the Asian insurance industry’s structural weaknesses affect the resilience of its operations. The speed with which insurers adapt to remote operations and adopt hybrid digital agency and digital bancassurance channels is a sign of resilience, as is the ability to maintain a healthy and fast-paced product innovation pipeline. Despite the new challenges associated with the pandemic and remote work, some insurers will continue to innovate quickly; those that don’t are likely to lose market share. Such operational demands and weaknesses make it crucial to reset strategic priorities quickly and improve operations, for which M&A can be an important catalyst.

To prepare for the next phase of M&A activity, insurers in Asia might commit to a set of strategic priorities that ensure resources are allocated—whether to internal (organic) or external (inorganic) investments—to effectively deliver the greatest possible return on investment. Insurers that think beyond the core and invest in new capabilities, technologies, operating models, and ecosystems may improve their strategic positioning relative to their competitors. Insurers should also prepare for faster-paced, more complex deals and stay alert for opportunities and threats from a rapidly restructuring industry. They could evaluate possible closed-book consolidations if it fits their strategies. Finally, insurers in Asia should plan for and dedicate resources—both funding and high-performing talent—to programmatic M&A. Insurers that thoughtfully combine these approaches and stay better connected to their customers set themselves up for growth in the postpandemic next normal and will be more resilient to disruption. Those that don’t could lose ground and decline.

M&A and the digitization imperative

Big data, artificial intelligence, and digital marketplaces were already changing the insurance industry, and the pandemic has jolted existing trends forward. Insurers have a small window in which to redesign processes, optimize and innovate offerings, provide better experiences, and get better commercial results. Innovation in operations and processes is as urgent as product innovation; if insurers operating in Asia fail to update processes and get closer to the customer quickly, they are likely to fall far behind the competition.

Crucially, insurers may need to reinvent the value chain to serve customers’ stronger desire for remote interactions. This customer demand means insurers will also need to consider building and optimizing digitally enabled distribution networks and even reassess the value of a physical presence. Indeed, the growing level of venture investment in insurtechs is one sign that the market recognizes the increased value of remote operations. Despite a decrease in overall funding for start-ups, insurtechs in India drew $186 million from January through July 2020, a 66 percent increase compared with the same period in 2019.3 In the short term, a hybrid distribution model will be valuable for a traditional insurer that already has a physical presence in the region.4

The most significant industry-level change often comes from the nimblest players, and insurtechs and fintechs—both participants from outside the traditional insurance industry—have been among the most responsive to customers during the COVID-19 crisis. They were the first to launch products focused on COVID-19. For example, one Chinese insurtech released an array of such products that covered nearly 15 million people after only a few months on the market. Other insurtechs offered around-the-clock video consultations with healthcare providers and even home delivery of medicine. These pandemic-related offerings underscore the benefits of having digital capabilities that facilitate rapid responses to customer needs and market conditions.5Industrializing data and analytics among Asian insurers,” July 13, 2020.

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Preparing for M&A in the next normal

As with past crises, insurers operating in Asia are likely to pursue consolidation, optimize resource and capital allocation among assets—including disposing of non-core legacy holdings—and strategically diversify and expand into new products. Insurers may accordingly look beyond their core offerings for M&A prospects, prepare for faster and more complex deals, and monitor the regional industry structure. Insurers could also consider closed-book consolidations and commit to disciplined programmatic M&A.

Target assets to reinvent the core

In the wake of the pandemic, insurers in Asia could work to refresh and reinvent their core offerings. Insurers might therefore look for M&A prospects that can create or strengthen ecosystems, provide much-needed capabilities in advanced analytics, tap into connected mobility solutions that can provide continuous monitoring, and support distribution in ways that complement traditional channels and networks.6A new industry model for insurtech,” May 8, 2019.

Because a good fit can be hard to find, insurers must maintain a full M&A pipeline so they can react decisively when they encounter a valuable opportunity. The cornerstone of any M&A strategy is a set of clearly articulated inorganic goals that include M&A as well as alliances, partnerships, and joint ventures. These goals will inform the composition of insurers’ M&A pipelines, which should include both high-priority and second-order targets.

The high-priority pipeline includes assets that are strong strategic fits, such as those that bring unique assets or capabilities or can help the insurer enter markets. Second-order targets would also have assets or capabilities that fit the acquirer’s strategy but were not identified during a proactive target search. Recognizing such targets requires discernment and—crucially—detailed preparation. Specifically, decision makers should link their strategic goals to investment criteria that they can commit to, including company types, sizes, and strengths. This work may help decision makers identify unexpected targets in the context of their companies’ larger inorganic goals. For instance, our analysis suggests that mature insurtech start-ups will be high-demand M&A targets for insurers looking to tap into digital capabilities and mature processes for optimizing user experiences. Identifying targets from that field would require decisive action, or deliberate attention to emerging insurtech startups, from insurers.

Finally, every insurer would benefit from defining what is outside the scope of their M&A strategy. A frequently overlooked exercise, articulating the boundaries of their areas of interest can save insurers energy and resources—as long as decision makers can maintain the discipline needed to focus on predefined criteria.

Monitor the region for changes in industry structure

Maintaining a close watch can help resilient and cash-rich insurers tap into emerging intraregional opportunities. Liquidity and capital pressures may lead some non-Asian or multinational insurers to exit some markets in Asia in the short or medium term, which could lead to block sales of in-force books of business. Insurers operating in Asia should watch for threats such as regional insurers seeking lower valuations to expand their reach and capabilities. Some international insurers have already started to sell off parts of their businesses in Asia, and others may follow in the next few months. Local insurers in Asia that are willing to consolidate their stakes can prepare by identifying potential businesses, assessing which could be a good fit for their portfolios, and proactively approaching those businesses.

Because of the way the Asian insurance market is structured, it may be more prone to greater numbers of M&A transactions. In many developed markets, the insurance space is fairly consolidated with a handful of large key players. In Asia, however, several players are part of local family-owned conglomerates that have expanded outside their core businesses into insurance. These smaller players may decide to retreat from insurance and refocus on their core businesses, which may lead to an uptick in M&A activity in the coming months.

Insurers should also stay alert for niche players that distinguish themselves with focused value propositions that traditional insurers may not offer, particularly if the value proposition is rooted in technology. Such competitors can parlay their strengths to access a larger part of the market through M&A. For instance, many fintechs and insurtechs are interested in acquiring insurance companies to supplement their core technology offerings. Digital entrants to the industry, particularly fintechs and tech giants with significant resources, can become a bigger threat as technology companies experiment with insurance offerings.

Incumbent insurers can defend against such encroachments by using M&A and partnerships to gain access to capabilities they lack. To move quickly, insurers can collaborate and learn from partners. Specifically, partnerships and joint ventures can draw on the strengths of multiple companies. Insurers that can stake out roles as builders and coordinators of regional ecosystems—cooperative networks of companies throughout the value chain—can gain safety, learn from other companies in the ecosystem, and build their own capabilities.7Insurance beyond digital: The rise of ecosystems and platforms,” January 10, 2018.

Prepare for more complex deals—at a faster pace

Buyers and sellers can both expect to encounter a wider variety of bidders that includes multinational insurers, technology companies, and private equity firms.8 Like insurers who have developed M&A investment criteria, prepared buyers will reap outsize benefits. Buyers could use an M&A pipeline to create the outreach plan. Proactive outreach can save buyers time, energy, and money because it bypasses the auction dynamic that often results from having multiple bidders. Indeed, bilateral discussions can provide richer insights on the potential fit between the buyer and the target. To support decisive action, buyers should define the boundaries of acceptable deal structures and financing (the balance between cash, equity, and leverage) before entering into discussions with targets.

Adding to the complexity, both parties in a transaction must also navigate regulatory requirements and geopolitical dynamics in different countries, and they must do it remotely. Because of the added uncertainty of performing due diligence at a time of global economic crisis, both parties should allot more time for remote diligence. If possible, buyers should de-emphasize scenario models that rely on historical data and use future-looking models to guard against the effects of macroeconomic events that can affect the value of the deal. Finally, buyers and sellers should invest additional time to ensure a smooth negotiation process and anticipate new legal risks created by COVID-19.

Consider closed-book consolidations

Low interest rates across Asia are likely to increase the number of distressed assets due to pressures on in-force books. Decision makers at insurers in Asia should therefore stay alert for runoff transactions in developed markets in the region and in large legacy businesses. Creative portfolio carve-outs can bring both financial and strategic benefits to buyers of legacy assets. Indeed, a large insurer with strong capabilities could acquire and turn around distressed companies in the region.

Plan for, and dedicate resources to, proactive M&A

Our analysis shows that to be successful, Asian insurers in the next normal have to be proactive in their inorganic growth.

Our analysis shows that to be successful, Asian insurers in the next normal have to be proactive in their inorganic growth. This forward-looking approach will be especially valuable in facilitating programmatic M&A and partnerships.

Programmatic M&A is valuable. Research confirms that publicly traded companies that pursue a larger number of moderately sized acquisitions produce higher shareholder returns than those that don’t. A recent study of a global set of acquirers showed that those that had programmatic M&A strategies outperformed competitors in total shareholder returns in the period from 2007 to 2017. Insurers in Asia can emulate this success and become as competent in M&A as they are in sales and other disciplines where they outperform competitors. To do so, they should continue to monitor their M&A portfolios, even during economic downturns, and keep their M&A pipeline full. Indeed, the global COVID-19 crisis requires insurers to reevaluate their competitive advantages (in particular the need for increased digital capabilities), weaknesses, and competitors.9The power of through-cycle M&A.” Such self-critical assessments can reveal opportunities to partner with complementary players such as insurtechs and fintechs when conditions are not ideal for M&A.

Finally, proactively pursuing programmatic M&A and partnerships requires a shift in strategy toward inorganic growth and a corresponding shift in resource allocation. Although the urge may be to conserve resources during times of crisis, insurers may benefit from committing to supporting the work required to maintain an M&A pipeline and to funding the research teams that may contribute to such efforts.


The current crisis will force insurers operating in Asia to reexamine their M&A strategies. Those that emerge stronger will be the ones that prepare to take advantage of unique opportunities. The key is to begin the work now.

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