L.E.K. Insights for July-24

Themes within the insurance market

As we cross the half-year point of 2024, I thought it would be helpful to reflect on all the developments happening across insurance. It’s been a busy year, and it looks like it will continue that way:

• M&A in distribution channels remains strong, building on last year's momentum. While valuation uncertainties linger, expect more activity – interest around market players with retail and wholesale capabilities is strong.
• International expansion is a clear theme, with both commercial (and to a less extent personal lines) distribution players and investors eyeing Europe and increasingly beyond, with a view to building multi-country platforms. Driving this shift is the more limited headroom in mature markets like the US and UK where doubling is feasible but doubling again looks harder. Platforms are seeking new markets to access a larger addressable market – in the US, could we see consolidation of the consolidators? The Equity value creation story of this international thesis is less mature but we see significant potential in driving best practice and managing capacity markets across borders (London and specialty is a significant enabler here).
• Personal lines markets, particularly the UK motor market, has reached the top of the cycle – we think this will bring some of the long overdue impacts of GIPP around switching levels and competitiveness around the full cost of cover back into focus.
• Innovation in claims management: We're seeing increased investment in the claims sector, particularly in areas like bodyshops and home repair/remediation. This opens doors for strategic partnerships between insurers and service providers with the potential to unlock significant value.

This month, we have a newsletter full of insights:

1. Commercial MGAs: Evolving the Distribution Landscape

2. Specialist Lending - The New Challenges and Opportunities in Participation and Investment

3. From Survival to Success: Scaling Strategies for US Midsize Banks

1. Commercial MGAs: Evolving the Distribution Landscape

Commercial managing general agents (MGAs) are gaining prominence within the insurance distribution landscape globally, capturing share due to their use of technology, attractiveness to underwriting talent and increasing capacity from carriers, including fronting carriers. Within this arena, L.E.K. Consulting has been working with clients to develop their MGA strategies.

Continue reading: Commercial MGAs: Evolving the Distribution Landscape

Authors: Ashish Khanna , Sam Halliday , Marcela Santacoloma Valencia , James West

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2. Specialist Lending - The New Challenges and Opportunities in Participation and Investment with Richard McDougall (Cabot Square Capital)

Watch now

How are different types of lending institutions adapting to higher interest rates and other macroeconomic challenges and what opportunities does this present to investors? In the video, L.E.K.’s Peter Ward sits down with Richard McDougall of Cabot Square Capital to discuss trends and opportunities in different segments of the specialist lending market, in which they cover:

o??The Impact of Macroeconomic Environment on the Overall Lending Market

o??How this Impacts Different Segments of Lenders, including Specialists vs. Major Banks

o??What Opportunities this Presents to Specialist Lending Investors and How They Should Assess Opportunities in the New Environment

Get an important perspective on the current state of the market, from interest rate hikes to credit risks and arrears.

Watch now

Featuring: Peter Ward Richard McDougall

You may also be interested in:

The Business of Private Equity Investing (with Richard McDougall)

Interview: ThinCats’ growth, SME lending, and market opportunities (with Ravi Anand)

3. From Survival to Success: Scaling Strategies for US Midsize Banks

As banks and their clients continue to feel the economic squeeze, regional institutions must go back to the basics to address their root challenges. A few years ago, bank leaders and board members were focused on the need to drive to scale — often a balance sheet of $300 billion or more being the marker. With macroeconomic challenges of earning cost of capital and an intensified competitive landscape, the importance of scaling these businesses is even more critical. Fintechs and other non-bank (e.g., Big Tech, telecom, consumer retail, transportation and industrial) players continue to expand their footprint into financial services, stealing market share from less nimble institutions. Emerging technologies including artificial intelligence (AI), advanced data analytics, open APIs and cloud computing offer a key lever for regional banks to scale while addressing heightened regulatory scrutiny.

Continue reading: From Survival to Success: Scaling Strategies for US Midsize Banks

Authors: Aaron Byrne Gigi Wong Mohammed Akuma, CFA

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