Gerry Goodwin, Chief Commercial Director at Dufrain, has a look at the power of data when it comes to M&A activity.
Merger and acquisition activity in the insurance sector is surging. It reached its highest rate of growth in a decade during the first six months of 2022, soaring 9.5% to a level not seen since 2012, according to new research by Clyde & Co. And that’s just risk-carrier M&A. The broking sector is also experiencing a merger boom, and neither shows any signs of slowing down.
Every deal is intended to deliver the magic maths which make one plus one equal something more than two, but unfortunately it doesn’t always add up that way. Poor data governance is often the culprit. The insurance sector is in the early stages of its digital transformation, one component of which should be the recognition of data technology as an essential component of the M&A process. Put simply, data tools help business amalgamations become successful, and the right time to get this issue sorted is before an acquisition takes place.
Legacies and silos
The industry is burdened with legacy systems. Data siloes continue to plague the sector. Too often, the wealth of information held by an insurer is separated not just by line of business, but also by the systems which hold them. Having one platform for motor, another for household, and still others for speciality lines makes invaluable data inaccessible across departments. That traps the insights and opportunities held in those datasets.
As has so often been said, there’s serious power in big data, but many firms lack a single internal data pool, which puts a massive break on cross-selling and upselling opportunities. The insurer misses their greatest potential clients – existing customers – and may even be leaving them under-protected. Furthermore, siloed data may give rise to compliance problems that can attract regulatory penalties and fines.
One goal of many mergers is to renationalise, improve, and better-exploit data systems, but data siloes are best addressed before the amalgamation process. The inability to sort and analyse data prior to the merger delays the new entity’s capacity to maximise the sum of its expanded data pool. That may make it impossible to optimise the opportunities that drove the merger in the first place. One plus one ends up worth something less than two.
Reorganise and a digitise
Unstructured data further complicates the process. Insurance companies typically have actual and virtual reams of it. Proposal forms, risk assessments, and letters contain a trove of invaluable information, but the technology to read those documents and transform them into useful, accessible formats is limited and rarely deployed. Similarly, Word documents, PDFs, and emails must be parsed by human eyes to make their insights actionable.
To maximise efficiency, it is essential to organise this data properly, digitise it, and incorporate it into the central data pool, because it is typically the source of customers’ own indications of their circumstances and needs. These inputs may powerfully impact the services insurers will chose to offer them, but a five-year-old call note in the form of a Word doc is of very little value until it is transformed into accessible data.
Migration solutions accelerate data sharing at a reduced technical cost. They can be used alongside other specialist tools to call out potentially non-compliant unstructured data before the insurer is placed at financial or reputational risk. Robust data governance isn’t optional, it is the pivotal difference between a merger that turns a profit and one that doesn’t add up. Three critical processes will help to ensure that a merger is not only sustainable, but delivers the magic maths.
Preparation and consolidation
The first step is to prepare existing data for migration. No doubt some of the partner firm’s data will be unavailable to IT teams in advance, but it is essential that each merger partner prepares their own data ahead of completion. This will significantly simplify the process and create valuable insights into the information they hold. In other words, insurers should smash their internal siloes before they tie the knot, to ensure that efficiency issues and compliance liabilities are surmounted before the transaction begins. When both companies understand and have documented their data, the paired data sets can be brought together much more easily.
Second, the parties should each make the effort to digitise unstructured data. Volumes of unstructured data impact transactions because they form barricades against project goals. But unstructured data is difficult to keep track of, so companies often struggle to avoid these pitfalls. Technology exists to tame this data, quantify existing compliance risks, understand the breadth of information held, and free trapped data held across the business for positive, practical action.
Third, all the data held by the merger partners should be combined into a single repository. The sooner this is achieved, the faster the enlarged firm is able to leverage all their joint, pooled knowledge by consolidating it into one accurate and accessible source. That allows the merger maths to add up sooner. The more efficient and effective the data migration, the more likely a business is to achieve post-merger targets around savings, growth, and efficiency.
One route to such efficiencies is Dufrain’s FlightPath tool, which accelerates data migration to support M&A activity and digital transformation programmes. The solution speeds up and simplifies the data migration process without sacrificing quality. It is simple, reduces the need to hire costly technical expertise, and can bring substantial savings to the migration process. Another is ControlTower, Dufrain’s unstructured data accelerator, which transforms trapped information into useful, accessible knowledge.
Such off-the-shelf tools can be implemented incredibly quickly and will deliver results rapidly. They eliminate the siloes, and free trapped information to create a uniform and useful repository comprising all of the company’s data. From there, the gains of merger are very much more easily within reach.