International Acquisitions Can Spur Growth For Life Insurers, According To Watson Wyatt
WASHINGTON, D.C., Feb. 3, 2009 — While life insurers in developed markets cope with the current recession, they still have opportunities for growth with carefully planned expansions into international markets, according to Watson Wyatt, a leading global consulting firm.
“No one knows how damaging the current recession will be or how long it will last,” said Mike Williams, senior strategy consultant for Watson Wyatt’s Insurance & Financial Services group. “But some companies can continue to grow by keeping an eye out for international acquisition opportunities, and navigating these opportunities in a thoughtful way.”
For companies contemplating international expansion, there are three basic steps to consider:
Determine what drives growth. Companies choose to expand internationally for many reasons, such as pure growth, to spread their risk or to earn foreign currency.
“Trying to grow internationally can lead to a bewildering maze of questions and options,” said Williams. “Having a clear understanding of your reasons to grow, and matching these with your capabilities, helps to forge a path ahead by narrowing these options considerably.”
Assess options and opportunities. Once the “why” has been answered, the “how” must be assessed, said Williams. Conducting a market analysis in the context of the products, services or skills that can be applied will be productive and will show which countries could make appropriate targets.
An alternative approach is to preselect a country that exhibits high growth potential, such as India or China, and then consider where the opportunities lie within that region. Because these markets evolve rapidly, an “on the ground” presence is vital.
“Russia is an excellent example — industry data has indicated a significant life insurance market here for many years,” said Williams. “Our research, however, has shown the reality to be very different, as reported life policies were historically set up almost exclusively for tax purposes. A genuine life insurance market has started to develop much more recently.”
Determine a market entry strategy. Once a market has been identified, entering it typically takes one or a combination of three forms: greenfield (that is, growing organically in a new market and starting operations from the ground up), partnership/joint venture or acquisition.
In making these decisions, it is crucial to keep in mind the context of each country and its policies and regulations on foreign ownership. Of course, if a government has limits on foreign shareholding, joint ventures will be the only option.
If companies establish a joint venture but later become unhappy with the partner or the pace of growth, a situational analysis can identify gaps in that organization’s capability and pinpoint blockages to growth. In these cases, clarifying the long-term business goal can help both partners agree on new strategic initiatives.
“Although current conditions might constrain some companies, others will seek to seize opportunities. If and when they do, clarity of purpose, diligent assessment and carefully considered reasoning are all fundamental requirements,” said Williams. “Entering new geographies carries significant risk — but for the well-prepared, the potential returns can be worth the effort.”
About Watson Wyatt
Watson Wyatt (NYSE, NASDAQ: WW) is the trusted business partner to the world’s leading organizations on people and financial issues. The firm’s global services include: managing the cost and effectiveness of employee benefit programs; developing attraction, retention and reward strategies; advising pension plan sponsors and other institutions on optimal investment strategies; providing strategic and financial advice to insurance and financial services companies; and delivering related technology, outsourcing and data services. Watson Wyatt has 7,700 associates in 32 countries and is located on the Web at www.watsonwyatt.com.
Eagle Public Relations