CLM Magazine

DEC 2017

Claims Management Magazine informs and educates claims, risk, and litigation management professionals on the news, trends, products and services that lead to the efficient, cost-effective resolution of property & casualty claims.

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34 CLM MAGAZINE DECEMBER 2017 The 21st century has seen a marked increase in mergers, acquisitions, and consolidations in many industries, and insurance and legal- services businesses have not been immune to the trend. There are many reasons for these consolidations, including increasing market share, enlarging geographic footprints, achieving greater scale/efficiencies, accomplishing cost savings, brand expansion, diversification of portfolios/ service offerings, taking advantage of purchasing/pricing powers, achieving a higher return on capital, and keeping up with industry competitors. But, for all the benefits achieved by mergers, acquisitions, and other forms of combinations, there are unique challenges regarding how best to achieve desired strategic goals, and how to accomplish successful integrations, unified strategies, and cohesive and coherent execution plans. DRIVERS OF CONSOLIDATION While many factors are driving consolidation in the insurance and legal services industries, competition—specifically the need to keep pace with marketplace peers—is chief among them. As insurers face challenges such as barriers to premium growth in developed markets, competition from new market entrants, higher claims experience, and weak investment yields, the creation of scale through growth has become a greater strategic priority. In North America, the advent of Dodd-Frank and a host of new regulations provide additional motivations as larger organizations with greater scale are more able to possess the resources necessary to navigate the challenges that legislation and regulations present. In the EU, difficult market conditions and rising compliance costs make economies of scale a priority. And, in Asia, profitability pressures make insurance M&As more appealing. But scale is not the only factor motivating insurance industry M&A activity. Insurers are also looking to improve their returns on capital and their abilities to utilize enhanced data and management tools so they can better understand business operations, better control costs and spending, and maximize profits. Consolidations allow insurers to adopt more holistic views of aggregated underwriting segments across entire organizations and spread risks more broadly among diverse global markets. With respect to the legal services industry, law firms are challenged to offer "one stop shopping" to an increasingly international clientele. They are also growing to keep pace with competitors that offer greater geographic and practice group breadth. At the same time, technological advances have made it possible for law firms to expand and integrate more rapidly and operate in a decentralized and far- reaching fashion. Consequently, the pace of consolidation in the legal world has dramatically increased over the past decade. CHANGES IN PRACTICES Once the M&A wave begins in a given industry, organizations inevitably react to competitors' actions in order to keep pace. However, it's important to note that M&A is not a strategy by itself. There must be some greater business purpose that a proposed combination is expected to achieve. Achieving a successful consolidation requires a fundamental re-examination of the business model itself, with specific emphasis on strategic objectives and the steps necessary to accomplish those objectives. In the insurance industry, a company undergoing a consolidation will need The Challenges and Opportunities With Insurance and Legal Services Mergers and Acquisitions BY DION N. COMINOS Perfect Union A More to establish which market sectors it will focus on, which it will exit, how remaining business lines complement each other, and whether redundancies exist. The company will also need to consider how it will deliver a differentiated, streamlined, and integrated product to the marketplace that not only reflects the advantages of the consolidation, but also justifies the expense and disruption. Law firms will need to demonstrate to their clients that bigger is indeed better, and that they have not simply grown for growth's sake while passing the costs off to their clients. Meanwhile, big data is having a major effect on insurance/legal consolidations. Greater size and scale allow companies to aggregate, analyze, and act upon a far greater set of analytical information, which will, at least in theory, lead to greater predictability of costs/outcomes and superior evaluative tools to measure performance, savings, and profitability. Increasingly, companies in the insurance and legal industries will apply big data and related analytical tools to areas such as risk avoidance, product personalization, cross-selling, and up-selling. In the claims and litigation management arenas, big data has been helpful in fraud detection, claims management, loss prediction, and vendor oversight/control. The integration of systems—claims management, billing, data aggregation, etc.—is a challenge that law firms and carriers face in the post-consolidation world. In nearly all cases, there will be a legacy system that survives the consolidation as the primary modus operandi, and this system will not always be compatible with the acquired company's pre-existing, established system. A successful integration requires the development and execution of a well- planned strategy that runs the gamut from underwriting, to claims, to IT. Law firms will need to adapt to newly imposed reporting requirements, billing systems, approaches to claims handling, and policy interpretations. Newly merged law firms must carefully watch for conflicts (both actual and positional in nature) that will not always be apparent early on. As firms continue to take on new engagements, the vetting process must be constantly updated. Combined entities will also need to implement comprehensive and integrated approaches to cybersecurity. Data protections

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