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What to say in insurance M&A

The_Insurance_Journey

In a recent post I wrote about why communication is important during mergers and acquisitions, especially for the insurance industry. In this post, the second in a three-part series, I’m going to discuss what specifically companies should communicate during M&A.

As I mentioned in the earlier post, all stakeholders need to know what’s going on when two businesses integrate their operations – employees, customers, suppliers and investors. Many insurance organizations, especially on the brokerage side, look to grow through acquisition. Organic growth is hard to achieve in insurance, so an M&A strategy is a quicker path to growth objectives. Often this takes the form of marrying two different companies, but it also can involve bringing on teams or bolting on capabilities. No matter how an insurance organization expands, it’s critically important to keep communicating with stakeholders. Companies that go through M&A aren’t just managing integrations; they also have to manage expectations.

Every stakeholder in a merger or acquisition is going to have expectations. Employees of both organizations are going to expect to know where their opportunities are in the newly combined entity – or whether to look elsewhere. Customers are going to expect to have a similar, if not better, experience with the company. Suppliers are going to expect to maintain or grow their relationships. And, not least, investors are going to expect to receive good value from the deal. That is a lot of different expectations to meet.

Whether you’re heading a household or running a global business, managing expectations is a key to sustaining happy and productive relationships. That requires conversation, and all conversations are two-way – they entail listening and talking. What should businesses listen for during M&A? They should keep their ears open for questions and concerns. Employee sentiment is an important thing to pay attention to. If employees aren’t supportive of a pending merger or acquisition, the integration isn’t going to go well – and customer service might suffer.

Now for the talking part. What should businesses communicate during M&A? Think of any merger or acquisition as a journey and pretend for a moment you’re driving your family somewhere. As any parent who has transported kids knows, common questions from the backseat include “Where are we going?” “Are we there yet?” and “What will we do when we get there?” Businesses must provide answers to the same kinds of questions. In addition, insurance organizations need to communicate why a deal makes sense.

Every business deal I’ve seen has the implication, or at least the hope, that the resulting whole will be greater than the sum of the parts. But saying it’s so doesn’t make it so. That’s where good communication comes in. For example, how will the proposed deal fit the business strategy? How will M&A help a brokerage serve existing clients better and win new clients? Will the combination of two carriers preserve their underwriting cultures or just create a larger balance sheet with more surplus? These are things that insurance organizations need to think about and communicate.

There is a common thread to the questions that stakeholders ask during M&A. In a word, it’s uncertainty. Everybody looking at a deal is uncertain about how it will play out, whether it will be successful and if it can provide the value that looks so promising on paper.Insurance is about providing certainty where little to none exists. There’s a big lesson in that for insurance organizations in communicating during business deals. They must keep their stakeholders informed.

Let me stress that there’s a difference between communicating everything you know about a pending deal and only releasing necessary information to those who need to know it. Publicly traded companies in the United States are subject to Securities and Exchange Commission regulations. The SEC has a waiting period, often called the “quiet period,” that limits companies from publicly communicating information related to a registration statement to offer securities. For insurance brokers, insurers and reinsurers, many deals involve combinations of cash and stock, so the SEC rules come into play frequently.

I believe the quiet period is misunderstood, and many companies use the rule to go radio silent – when instead they can provide important messages to their stakeholders that are fully compliant with SEC rules. Even during the quiet period, the SEC allows companies to continue to publish regularly released factual business information and forward-looking information. That’s important, because it’s the facts that stakeholders need to know. Speculation is not really helpful, and it might fall outside the safe harbor provisions of the Private Securities Litigation Reform Act.Insurance organizations – and all businesses – should be up front about the facts surrounding their M&A plans. That’s how they can manage expectations and keep everybody focused on realizing the full value of the deal.

In my next post, I’ll discuss how insurance organizations can communicate more effectively during a merger or acquisition. To learn more, please follow me on LinkedIn, check out my other on business communication and stay tuned for more in the future. Thanks for reading!

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