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A Review of Aetna's Acquisition of Interglobal in Dubai
UMI reviews how Interglobal's integration with Aetna has been going and the outlook for clients and distributors working in 2015 and beyond.
UMI recently witnessed one of the most significant events to occur in the world of International Private Medical Insurance (IPMI) in 2014 with the acquisition of Interglobal by Aetna in April this year. The purchase was initially announced in 2013 but the completion was not finalized until April of this year. Six months on, UMI now reviews how the integration has been going and the outlook appears for clients and distributors working with Aetna in 2015 and beyond.
Aetna, one of the goliaths of global health insurance took over Interglobal, one of the long standing independent specialist players in the world of IPMI earlier this year. Despite being an event of such significance, the takeover was not a surprise as Aetna has made similar moves before when it took over Goodhealth almost 10 years ago, a company of similar size to Interglobal and also specialists in IPMI. In fact, there is a long standing tradition of global health insurance giants buying out specialists in the IPMI sector over the last few decades, almost all of the global giants have done this, such as Cigna. The purchases are typically driven by a variety of different business rationale, to gain scale, expertise, market share and compliance. The global giants typically have massive scale and dominate market share in their domestic markets but lack presence, knowledge, skill and expertise in the international sector.
In UMI’s opinion, this was also the case for Aetna who, despite maintaining a massive international book of business (historically driven by outbound US Corporates and the student market from certain sectors), may still have lacked scale and growth in the individual, SME and corporate international private medical market where decision makers are not based on US soil.
Aetna’s purchase of Goodhealth a decade ago was most likely an attempt to kickstart this growth but that does not seem to have happened. As an outsider looking in, there is no certainty as to why this might not have occurred as planned, but it could be related to a clash of business models and approaches. From UMI’s point of view, when Aetna bought Goodhealth they assumed that their US approach to mass market health insurance management could be imprinted on to Goodhealth and that with the power of the Aetna brand being put to use, the rest would take care of itself. However, this type of service approach stuttered and in a market dominated by broker intermediary distribution relationships, it would appear Aetna/Goodhealth encountered several issues. With respect to Aetna though, insurance companies like Cigna have had a similar experience with their M&A activities to a greater or lesser degree depending on one's point of view regarding their purchases of IHI and Van breda respectively.
InterGlobal had been groomed for sale for a number of years ever since the venture capital specialist 3i bought into InterGlobal in 2006. Not everything went according to plan for them however as the 2008 global financial shockwave rocked valuations and global growth. UMI believes this was then followed by a drive for growth at Interglobal at the expense of sustainable profitable business. In other words, most purchases in the IPMI industry are based on multiples of Gross Written premium and, if sold at the right point then this strategy can work, but Interglobal was not sold soon enough it would appear. This was almost the undoing of Interglobal when no deal was made and the consequences of the unprofitable growth then had to be managed. 3i exited at this point, but with some key restructuring, the strength of Interglobal’s management started to shine. Over the next few years, Interglobal’s management team successfully restructured the book of business with stronger financial footing, enabling them to enter some clever markets (such as Singapore) and carefully manage exposure to markets with potential for poor loss ratios (China and the UAE. for example). At this point, with Aetna looking to grow in the IPMI sector and Interglobal looking like an attractive option, the deal was done.
The first observation to note about this takeover was the way Aetna entered with a more ‘humble’ approach than we have seen compared with previous M&A’s by other successful global giants where in the IPMI world, managment confidence can often be misplaced. On this occasion, we witnessed a slow and careful exchange between Aetna and Interglobal, whereby it is now clear that the Interglobal brand will cease and organization will be assimilated into Aetna.
However, it can also clearly be seen that senior figures in the Interglobal organization are taking up senior positions in the larger Aetna team, i.e. Les Carter the CFO of Interglobal has taken up the same larger role in the Aetna team. Aetna very much appear to be trying to extract the maximum value from the Interglobal organization, not just in terms of clients and Gross Written Premium but perhaps more importantly, in terms of market understanding, expertise and knowledge.
We have seen significant changes in the approach taken by Aetna to the management of claims (historically outsourced but now moving back in house) in the past 6 months. Interglobal products will not be wholesale removed from market and simply replaced by Aetna’s, as Aetna in fact appears to be conducting some serious research into how the Interglobal products are successful, the new information presenting opportunities for Aetna to similarly deliver successful products. Not all the news is positive however as a few staff have and will reluctantly be lost in the merger of the organizations but overall the news is positive and the outlook for Aetna and Interglobal clients is better than it was 12 months ago. Aetna’s financial strength integrated with Interglobal’s knowledge and skill will likely see both client groups experiencing better service and more stable policy plans well into the future. Brokers are also regaining confidence in the Aetna service model and Aetna is becoming a more serious competitor in the IPMI sector.
Perhaps the biggest risk to both these stakeholders, clients and broker, as well as to Aetna’s ambitions in the IPMI sector, is one of scale. The IPMI business is somewhat of a rounding error in comparison to Aetna domestic business and thus there is the risk that senior managements ambitionss for the sector get distracted by domestic concerns. In the short term this is understandable and a real risk but in the long term might be short sighted, the IPMI sectors has historically served the expat community but it is increasingly about the local High Net Worth’s. With the economic rise of Asia, India, Africa and South America the IPMI business is likely to be a smart way to develop and expand beyond domestic boundaries.