Insurance Company Mergers a Sign of the Times

The number of private property and casualty insurers has declined by 25% within the last 20 years.  The good news is that this trend has stabilized in recent years.  However, recent mergers and acquisitions by large insurers in the personal lines market have certainly increased market concentration among the market share leaders, with strong implications for the future of the industry.

The Nationwide-Harleysville merger is a typical example of a large insurer acquiring another large insurer that complements and expands the buyer’s book of business.  It was wasn’t long ago that Nationwide acquired Allied Insurance, both expanding and complementing Nationwide’s distribution channels and geographic footprint.  The 2008 financial crisis prompted AIG to put nearly its entire personal lines book on the block, which was subsequently purchased by Farmers (aka Zurich), again expanding and complementing the buyer’s distribution channels and geographic footprint.  Other recent acquisitions that fit the same mold are Liberty Mutual’s acquisition of Safeco and Allstate’s acquisition of Esurance.

One clear implication of these large scale acquisitions is having a number of massive insurers, each with equally massive stockpiles of data, which can conceivably be used to “out-segment” smaller insurers.  We are starting to see wholesale increases in the amount of segmentation in the rate manuals for these larger insurers.  Will smaller insurers still be able to compete?  Will increased segmentation of insureds create a more efficient market or lead to other issues?  Only time tell.

These acquisitions will have upsides as well.  Significant efficiencies of scale can drive down the cost of claims handling, regulatory and compliance costs should be less, etc.

Is the market better served by higher concentrations of business among the market leaders, or do the downsides outweigh the upsides?  Let us know what you think.