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Perspectives

For Insurers, a Strong Integration Management Office Can Unlock M&A Value

2021-03-10


Following a merger, there are myriad challenges around integration. A powerful integration management office (IMO) helps by establishing and measuring key success factors.

The insurance industry has experienced many acquisitions over the years. Our analysis finds that many of the carriers involved have not achieved hoped-for growth and cost synergies.

Based on our experience, most post-merger integrations (PMIs) take much longer than originally anticipated. There are several obstacles in such blendings, leading to delays and lost synergies. Insurers face complex decisional hurdles, typically in their business operations and IT integrations, due to an unclear understanding of scope, priorities, cross-dependencies and challenges.

Keys to success include having a robust integration plan, adopting an agile approach with a focus on minimum viable product releases of integrated processes or platforms, and engaging a strategic partner to help guide the business through the process.

The IMO: Ensuring success through holistic integration strategy, planning and execution

Given the challenges noted above, we believe that an integration management office (IMO) can and should play a vital role in integration success, as it manages strategy, planning and execution. This office represents the “home base” that orchestrates efforts across diverse groups. It is responsible for establishing program standards, governance, reporting, change management and measuring key performance indicators (KPIs) to assess integration program outcomes.

An IMO requires representation from all the business and IT groups involved. Playbooks, skills, methodologies and tool kits must be cross-leveraged when progressing through the many acquisition initiatives.

The IMO, whose functions are shown in the following figure, should ensure proper coverage and oversight of all integration components and help teams deliver on time and within budget. What follows are IMO guiding principles that we recommend for insurers involved in merger & acquisition (M&A) activity.

Manage the cultural shift.

Change can introduce anxiety and confusion across management levels and departments in both organizations. This often leads to higher attrition, particularly in functions such as underwriting, claims and finance. Managing employee expectations through effective change management and strategic and timely communication is critical. Retaining underwriters, claims adjusters and actuaries needs special attention, as they may be especially anxious about their future.

Follow an agile path.

Successful integration planning and execution must be agile to deliver value incrementally and quickly and to gain stakeholder trust. Business and IT need to approach and execute integration with a minimum viable product (MVP) mindset, focused on incremental business integration and value delivery. The IMO should serve as the central organization that manages the MVP scope and ensures that the mission stays on track.

Additionally, insurers must keep the scope and assumptions flexible, with room to make adjustments along the way. Regulatory shifts, channel resistance and geographic differences often lead to unforeseen requirement changes. These complex issues — especially those related to multinational needs — can impact integration plans. Managing changes, communication and rollout through the IMO will enable teams to focus on their committed milestones. 

All options need to be evaluated through an execution lens, and the role of a strategic M&A partner is not just to define the strategy and plan but to bring learning from prior integrations, customize approaches and lead execution with an agile mindset. For example, one insurance M&A MVP addressed claims-system integration, while another M&A focused first on policy-administration consolidation. A clear, agile plan needs to be devised during due diligence.

Manage scope through integration phases.

Insurers must conduct the integration in phases based on parameters such as business appetite, speed to market, team availability and required change management. It’s important to treat integration and transformation requirements differently. Approaching integration with undiluted attention helps prevent teams from switching contexts and contributes to completing the committed integration goals on time and within budget.

Establish a rollout and adoption plan.

Once the execution work is divided into releases and waves, it’s time to devise an effective adoption plan. Starting in an area with maximum resistance will stall the program with paralysis-by-analysis. To avoid this, within each wave the IMO must leverage a “will vs. ease-of-bill” approach to ensure that steps along the journey don’t fall victim to delays in decision-making.

To that end, we recommend that the IMO identifies integration supporters who are eager to embrace change and can act as change agents. For example, business functions with inefficient workflows are more open to change. Leverage these quick wins to inject confidence and break the initial change inertia with the other business units.

We also recommend that insurers unleash IT capabilities in phases and incrementally add business value to secure business support. The IMO should establish federated services to streamline business processes impacted by the integration of business applications. This will help minimize disruption until applications are rationalized. For example, a federated policy service would help downstream systems such as claims, finance and reporting systems obtain required policy information and would support continued service to customers and internal users.

Set measures, monitor KPIs and communicate.

The IMO must establish program standards, governance, methods, tools and KPIs to assess the complete integration program. Reporting dashboards and policy standards provide assurance, transparency and quality control. Insurers can scrutinize all workstreams to ensure that they are in line with the integration guiding principles. Communication forums should be established, through which program progress, challenges and milestones are constantly communicated, updated and monitored. The IMO must enforce change management through approval governance.

Manage change costs in the cloud.

For large PMIs, changes will inevitably surface new needs and threaten to halt workflows. To address change scenarios, the IMO should encourage teams to manage activities via cloud platforms. Cloud options range from building short-term, interim solutions for the integration through strategic business applications.

Moving applications into the cloud allows businesses to pay for only what they use and gain agility, faster services and additional economies of scale. This improves cost management and reduces CapEx. During the PMI, it is imperative to retain and archive all data and applications. We find that legacy applications tend to live longer than anticipated. Managing such applications with a cloud solution provides myriad ways to attain cost efficiencies.

Track synergies and key financials.

The IMO must meticulously track key metrics such as cash flow, internal rate of return, and net present value to monitor spending and cost overruns. After the deal closes, almost every acquisition requires a transition service agreement (TSA) to maintain business continuity. The IMO plays a key role in drafting a TSA that encompasses all scenarios for running the business and developing the governance policies and process to monitor the provision of transition-related service agreements.

Procurement, IT, infrastructure, and finance and accounting are just a few functions that are ripe for TSA synergies. Also, tracking TSAs helps manage day-to-day deliveries, resolve conflicts, ensure invoice payments are made, identify cost-saving opportunities, and monitor program progress and performance. The IMO should serve as headquarters for this critical function.

Establish an advisory council.

Many successful integrations adopt advisory councils, which are set up by the IMO. In a recent acquisition, the IMO established governing councils with multilevel representation from key business units such as product and underwriting, finance, claims, actuarial and IT. The IMO leveraged these councils to strengthen project management capabilities, share best practices, review approaches, ensure milestones were met and encourage continuous improvements.

To learn more, see our white paper, “How P&C Insurers Can Unlock Value from Mergers & Acquisitions.” You can also visit the Insurance section of our website or contact us.

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