The insurance industry is facing an unprecedented wave of consolidation. In the past two years, more than 60 insurance companies have been acquired, with the total value of transactions exceeding $100 billion. The pace of consolidation is only accelerating, as insurers look to bulk up in order to compete in a rapidly changing marketplace.
The insurance sector has long been subject to consolidation, but the recent wave of deals is notable for its size and scope. The largest transaction in the industry’s history was the $37.5 billion merger of Aetna and Humana, which was completed in 2018. This was quickly followed by the $54 billion acquisition of Cigna by Anthem, and the $66 billion acquisition of Express Scripts by Cigna.
The primary driver of consolidation is the need to scale. In order to compete in the rapidly changing health insurance landscape, insurers need to be larger and more agile. The Affordable Care Act, which was passed in 2010, introduced a number of reforms that have upended the traditional insurance business model.
The most significant reform was the individual mandate, which requires all Americans to purchase health insurance or face a tax penalty. This has resulted in a significant expansion of the individual insurance market, which is now estimated to be worth $400 billion.
The individual mandate has also created a new class of insurance customers – those who are healthy and do not use their coverage very often. These customers are highly desirable, as they help to offset the costs of those who are sicker and use their coverage more frequently.
In order to be able to compete for these customers, insurers need to have a wide network of doctors and hospitals, as well as robust provider networks. They also need to be able to offer a wide range of products and services, including those that are tailored to the needs of specific groups of customers.
The wave of consolidation is likely to continue in the coming years, as insurers look to position themselves for the future.