Traditional M&A Loses Favor as Insurers Take “Capability-Based” Approach to Restructuring
LONDON and NEW YORK; July 29, 2002 – In a departure from traditional corporate restructuring strategies, insurers are choosing ventures, alliances and outsourcing over mergers and acquisitions as their preferred vehicles for corporate restructuring, according to new research from Accenture (NYSE: ACN).
Accenture surveyed executive decision-makers at 68 major property & casualty (P&C) and life insurance institutions in 16 countries regarding their plans for restructuring their business models in response to current economic and industry challenges.
Asked to rate the "most likely" restructuring vehicles insurers will use, 36 percent of respondents rated joint ventures, strategic alliances or co-sourcing most likely, followed by 33 percent who rated outsourcing, in-sourcing, or net-sourcing most likely. That compared with only 18 percent who rated mergers and acquisitions highest and 13 percent who rated divestments highest.
“Based on our conversations with survey respondents, insurers are realizing that traditional M&A has not produced the results they’re looking for, particularly during the current global economic slowdown,” said Dee Lehane, global managing partner of Accenture’s Insurance industry group. “Insurers have caught up with their financial services peers and are now undertaking what we refer to as ‘Capability-Based Restructuring’ — in which they grow their businesses by leveraging a variety of vehicles, beyond M&A, transforming their business models into networks of both internally and externally sourced capabilities.”
Among other findings of the survey, 97 percent of respondents said they believe that restructuring will continue in the insurance industry. Nearly 90 percent of respondents said they are specifically planning to undertake Capability-Based Restructuring (CBR)* initiatives within the next five years.
Asked to evaluate the objectives of CBR from five options, 40 percent of respondents rated “reducing costs” as most important, followed by 26 percent who rated “increasing growth and market share” highest and 21 percent who rated “allocating capital to maximize returns” highest. In aggregate, only 13 percent of respondents rated the remaining options, “altering risk” and “reducing capital investments,” as their most important objectives. When asked to rate the environmental factors driving CBR, 20 percent of respondents scored traditional “competition” highest, followed by 19 percent who scored “more sophisticated customers” and 15 percent who scored “increased shareholder demands for improved returns,” as their top three out of 10 options.
“Our experience indicates that insurers are using CBR to identify the distinctive capabilities they require to grow their businesses and add value to their customers,” said Lehane. “They are evaluating the sourcing options available to deliver their distinctive capabilities, internally or externally through alliances with third-parties. For those remaining capabilities that do not need to be truly distinctive, insurers are engaging in outsourcing, spin-offs and divestments with other organizations that may do a better job.”
The survey was completed in July 2002, and the findings are founded on structured questionnaire-based interviews conducted by Accenture with CEOs, CFOs, COOs and senior executives from 68 major insurance institutions in 16 countries, eliciting both qualitative and quantitative data. Thirty-seven percent of survey respondents were from the United States, the United Kingdom and Australia, 54 percent were from continental Europe, and the remainder were from Asia. Forty-six percent of the respondents were from life insurance companies and 54 percent were from P&C/general insurance companies.
*CBR is a patent-pending term developed by Accenture.
Accenture is the world’s leading management consulting and technology services organization. Through its network of businesses approach -- in which the company enhances its consulting and outsourcing expertise through alliances, affiliated companies and other capabilities -- Accenture delivers innovations that help clients across all industries quickly realize their visions. With approximately 75,000 people in 47 countries, the company generated net revenues of US $11.44 billion for the fiscal year ended August 31, 2001. Its home page is www.accenture.com.