Will the Property/Casualty Insurance Market Soon Be Consolidated?

Property/casualty insurers are undergoing a wave of consolidations, a trend which is likely to continue, according to insurance officials. There are several reasons for the mergers.

Two important factors driving consolidation are the tepid economic recovery and government regulations. These factors have made it more difficult for insurance companies to rely on investment income, pushing them toward action to increase their market share.

Another factor is a matter of scale. Larger firms simply have more resources. They have the financial power to stay afloat in a very competitive market, as well as reinvesting in the company. Big firms also have advantages of scale in their cost of operations and are able to work with a larger number of distributors.

Larger firms also have an edge in another area that is becoming increasingly important – big data and analytics. Larger firms are able to better grow the size and profitability of their companies by using data-driven strategies to meet the needs of their customers. Using analytics, larger firms can develop marketing and risk-assessment strategies to cater to more sophisticated and demanding customers.

One example of this is Progressive Insurance, which has been out front within the industry with the use of analytics. Progressive Insurance used credit scores to insure nonstandard risks at profitable rates for auto insurance.

Companies using the best analytics will gain market share, while those who don’t use analytics will have risks that perform poorly. Some experts say that the huge growth of data, along with the strength of analytical tools, will likely transform the insurance industry over the next decade.

The small business insurance market is currently an $81 billion business, but no company now has more than a very small percentage of the market. Those companies which are able to consolidate and leverage analytics best may end up with a much greater market share.

The small business insurance market is projected to grow more than eight percent over the next five years. Larger insurers have made big strides in gaining market share over the last few years, and that may spark a consolidation drive among smaller insurers as they try to keep up.

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