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acquisitions such as increased market share, gain new markets, acquire new technologies, reduced taxes, and low costs. According to Bitzenis, Papadimitriou, and Vlachos (2012) firms will prefer to invest on opportunities that give the highest probability of “success on their business plan”. The motivations of firms are always under change based on the strategy that each company has, taking into consideration the country in which the firm operates in and the general characteristics of the market.
The literature review refers to some other important factors that motivate organizations to implement a merger such as the labor cost, the education level of employees, the culture, the political situation, and the financial stability. According to Bitzenis (2012), firms have interests based on which they develop their strategies without there being a unified model that determines their investment choices.
Insurance companies are businesses that actually offer a product, the insurance. Because the demand for insurance products is high, the competition between insurance companies is intense which intensified after the liberalization of the markets in the ‘80s. Today the competition is at its peak with many organizations resorting in mergers and acquisitions in order to strengthen their market position. At the same time and in the same competitive environment, the evolution of technology and information systems has created opportunities for diversification and competitive advantage. In fact, insurance companies have a great dependency on information technology, in a way that any technological development directly affects the core of the business.
Information systems were adopted very early by insurance institutions. In fact, in the early stages, when the use of computers was negligible, their organization was based on photocopies, archiving, folders, and material warehouses. Today there is no insurance company that does not own and apply an information system. The scope and the number of insurance operations is now quite complex, therefore only an information system can be implemented. The number of insurance premiums is so large that only through information systems is it possible to manage and monitor the insurance process. Finally, there are so many areas of administration and day to day issues that need to be addressed that the absence of an information system would create chaos and would be inefficient.
76 Information systems have created opportunities for many companies to increase their profits and conquer the market. Many companies seized these opportunities and had impressive performances. The future further belongs to information systems. Artificial intelligence systems will organize transactions, make formal decisions and propose solutions. They will be based on their high processing power of modern computers and will be able to reflect the real financial situation of the business to managers. Today online insurance transactions over the internet may give us a first impression of what is to come in the world of insurance information systems.
In this thesis, we focused on the Greek insurance industry due to the huge investments in information systems that was made in the last decade. These investments aimed at the full digitalization of insurance companies and were due to the high competition in the insurance industry. Also, due to the economic recession and the difficulties that every company operating in Greece faces, the pressure was exerted in all areas of production, such as the European Solidarity Directive, which is now applied to every insurance company. As a result, many businesses choose the process of mergers and acquisitions, seeing it as a safety valve for future survival in the ever-changing business environment. Companies that did not invest in information systems and in their digitalization are faced with serious problems resulting from market competition and from not being able to follow the market leaders.
We examined the case study of Ergo, one of the most recent and large mergers in the Greek insurance industry, and the contribution of information systems in the new company. The company's successful merging and the effects of information systems in the digital transformation of the company will be used as a guide by other companies in the industry in future mergers.
In this case study, the merger of ERGO Insurance Company, ERGO Life, and ATE Insurance had positive effects since the former strengthened its position and the other two escaped the risk of bankruptcy, due to lack of reserves, big damages and having obsolete information systems. In addition, it was found that the financial data of the new company are significantly improved, at least in terms of the technical net result, which was negative in total before the merger of the three companies. The company after the merger showed profitability that was limited in the years 2016 and 2017 due to the coverage of the damages for the companies
Ergo Life and ATE Insurance.
ERGO Property before its merger had the necessary capital adequacy to cover its capital requirements. The company increased its production with the increase in the sales of insurance premiums in 2016 from 114.0 million euros to 120.3 respectively. Also, the company's compensation costs, as well as the operating expenses, were increased in 2016 due to the increase in the company's staff. The technological infrastructure of the company was adequate and ensured the execution of all its operations online. The company held 19% of the Greek insurance market in premium sales with the strategic goal of expanding into the market through the acquisition of portfolios of competing companies.
On the other hand, Ergo Life at 2016 was facing significant liquidity problems without being able to find vital space in the area of health insurance in order to increase its sales. In 2016, the company had a dramatic increase in its compensation costs and operating expenses. The net profits of the company were decreased by 0.3 million Euros and the company's reserves were not sufficient to cover future liabilities. Apart from that, the information systems of the company were obsolete and there was a need for huge investments in the technology infrastructure of the company. ERGO Group in Germany, after consideration of all the financial details of its subsidiary and acknowledging its weaknesses, decided the merging of the company in Greece. ATE chose the merging solution due to the large losses at 2016 and the lack of capital reserves.
ATE Insurance was a historical company in the Greek insurance sector. The company in the year of 2016 faced significant financial difficulties. More specifically, ATE Insurance faced a reduction in gross registered premiums from € 122 million in 2015 to 114 million euros (- 6.6%). Apart from that, in 2016 the operating expenses were increased by 12.7% as well as the compensation costs to third parties. The company, although it had modern information systems, failed to translate this into profitability as it did not convince insurers and policyholders to trust its digital platforms. ATE chose the merging solution due to the large losses in 2016 and the lack of capital reserves. ATE proved the theory that companies must find alliances in order to survive during the periods when they face difficult financial problems.
78 During the year 2017 when the merger took place, the gross registered premiums of the new company were decreased by 7.1%. The confidence of the Greek customers in public companies such as ATE made them reluctant to trust a private company. Apart from that, the new company imposed the registration of insurance premiums only through information systems with the majority of the insured not being familiar with the use of information systems, a fact that was recorded in the fall of the premiums. At this point, the theory was confirmed which points out that mergers and acquisitions require some time to return profits to companies. Sometimes, as the case of ERGO, the customers may not prefer the new company and turn to competitors. Nevertheless, the company after the merger continued to increase its profitability until today, gaining new markets with the help of ATE portfolios.
The company after the merging has invested in information systems that allowed it to carry out all its financial activities online, with the purchase and payment of insurance premiums becoming available only online. Ergo Life and Ate Insurance had dysfunctional information systems that did not allow the acquisition of premiums for the clients through information systems. In many cases, the premiums of customers were implemented through excel forms.
Often the top management of ΑΤΕ Insurance did not have a clear view of the total premiums that were sold daily. In addition, Ergo Life and ATE Insurance had information systems that could not be integrated into the core of the company. As a result, many systems failed to be used or caused problems to the existing technology infrastructure. Due to all of this situation, the company decided to withdraw all the information systems of pre-merge companies and invest in the existing systems of Ergo, which could support the digital transformation of the company.
The company continues to invest in its technological infrastructure until today, having associated its profitability with the use of information systems. Finally, Ergo after the merger does not face direct dangers since it has high reserves, the solvency ratios are satisfactory and it holds a strong customer base. In the future, Ergo will focus on the areas of life and health where there is intense competition.
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