The insurance sector is currently facing challenges posed by outdated technology, disruption from increased merger and acquisitions, regulatory constraints, and persistently low interest rates. The pandemic also generated an unprecedented acceleration of digitization and a newly competitive field when it comes to designing the consumer experience. This digital transformation paired with rising consumer expectations pushes insurers to reconfigure their business to maintain returns on capital.
One option for structural change is divestitures, which allow insurers to cut costs, focus on core solutions, and reinvest in business and technology. While divestitures overall lead to enhanced shareholder value, it is a delicate process to keep all involved parties pleased and profitable. Our insurance experts break down the divestiture process into three stages to provide a strategy that leaves no details behind and ensures minimal disruption.
Before a company can launch into the divestiture process, there are many considerations to evaluate. Firstly, executives should define the goals of a divestiture and craft a vision for the end state. Next, an external assessment of the market is crucial to identify potential candidates who may be most compatible with the long-term objectives of the organization. In the pre-decision stage, executives should present a pipeline of candidates who would be interested in purchasing the asset. Once the candidate is determined, the divesture’s form and structure is determined to optimize the proceeds of the prospective divestment. From the beginning of these considerations, thoughtful positioning is important to demonstrate the firm is conscientious of the by-products of a divestiture and that it has good intentions on the welfare of its employees.
Once the goals are defined and external analyses are complete, executives can begin diving deeper into the planning process. The first step is designing a roadmap with timelines, effects, key milestones, and governance for each segment. Governance can be established by identifying subject matter experts (SMEs) from all departments of the business to build a committee. The committee’s goal is ensuring the planning properly addresses how the divestiture will affect each segment. If all departments and practice areas are not represented in planning, then executives risk omitting key impacts, and this may indicate to other departments that not all aspects were thoroughly considered.
Besides road mapping to establishing plans and governance, thoughtful communication strategies are essential to a successful divestiture. Executives must emphasize consistency and transparency when presenting internally and externally to detail the divestitures’ goals and how employees will be affected. This consistent positioning should be communicated to stakeholders to ensure that all parties have a full understanding of the divestiture goals, impacts and reasoning before initiating further planning. Divestiture planning often focuses on how the divestiture will be perceived in the market, but rather should prioritize the impact effect on employees as they are often the biggest asset of the organization.
Execution and Risk Management
Lastly, the divestiture process moves into its final stages of execution and risk management. A challenge to be mindful of is the underestimation of a divestitures’ scope and the inadequate provision of resources. Despite all the planning, the disentanglement is never easy. Our insurance practice is well-versed in handling these challenges and suggests preparing for continued focus on internal dependencies and, of course, the people. The basic message should be 'business as usual' and focusing on employee communications throughout.
Another key consideration is the talent selection determining who emerges as leaders, managers, and liaisons – this requires critical attention to maintain stakeholder satisfaction. Part of the execution process usually includes a transitional services agreement (TSA) which outlines how long the selling organization will continue supporting specific operations and technology. Clearly outlining these details and timelines and developing a “win-win” TSA will help ensure the separation is successful, even after the official close date passes. Amidst all these moving parts, the change management leadership team must demonstrate comprehensive communication tactics throughout the divestiture to mitigate risks and achieve goals.
In conclusion, every insurance company should be scrutinizing their books of business and including divestiture considerations as part of their strategic planning process – rest assured, the competition is. Although a divestiture may be a tremendous change for a company, our experts can lead current and future state analyses that lead to a roadmap with incremental change and nearly zero disruption to the business. As long as you commit to a thorough change management strategy that leaves no details behind, the divestiture will enable your insurance company to focus on boosting digital capabilities amidst an age of accelerated digitization and increase profits in the long run.