Understanding the EMEA life and pension Policy Administration System market dynamics

My colleague Jamie Macgregor and I have published the Celent’s regular report profiling policy administration system (PAS) vendors in the life and pension space in Europe Middle East and Africa (EMEA) back in November 2011. This report profiles 34 systems offered to EMEA insurers on the market. Beside this research we thought it would be valuable for our subscribers to understand our view of this market. To do so we have decided to add three other pieces of research, whose objective is to explain the dynamics of the life and pension PAS market in EMEA:

1. Deal trends: First of all we have tried to have a deeper look at past life and pension PAS deals in EMEA and to evaluate how this market might evolve in terms of size going forward. In the frame of this analysis, we have identified which vendors were having good traction in the recent past and evaluated PAS provider’s market shares. The EMEA life and pension PAS market is highly fragmented with a downward trend in terms of new deals. Therefore we expect the market to rationalize going forward.

2. Insurer’s perception: It is difficult to comprehend the dynamics of a market for a PAS provider without understanding what customers think and what are the differences of perception across regions. In this report, we identify how customer satisfaction and perception of IT vendors capabilities as well as life and pension PAS has evolved recently in three geographies: UK, Continental and Eastern Europe. Through this analysis it appears clear that PASs are not uniformly used across regions and that a core feature for a specific insurer could just be perceived to be a simple support function for another one conducting business in a different geography.

3. Functionality and technology trends: The last piece of our work around life and pension PAS in EMEA consists in providing our views on solution’s functionality and technology aspects. While the deal trends and insurer’s perception rely mainly on factual data, our view on the future of PAS in terms of functionality and features as well as technology is an extrapolation of what we have been seeing on the market over the past few years based on our discussions with IT vendors and insurers.

Jamie Macgregor and I are going to present a webinar on the functionality and technology trends tomorrow. If you are interested in joining us then do not hesitate to register here: http://www.celent.com/node/29433

Count down to RDR – Are you having pre-exam jitters?

We are now in the final stages of our report on the opportunities and challenges facing the Life & Pensions industry resulting from the UK’s Retail Distribution Review (RDR – see my June blog entry ) and will publish shortly. In total, we have conducted 22 interviews from across both the industry and technology partners supporting the implementation of RDR and surveyed 5 of the top product providers to understand their level of readiness.

What is interesting to me is the seemingly low levels of confidence that some firms have in their own post-RDR business strategy and operating model. Clearly, there is still a lot of uncertainty over what the winning strategies post-RDR might look like and what this could mean for the end consumer. What is clear, however, is that the industry is taking it seriously and that there could ultimately be more than one winning strategy as the market segments further.

Even with all of the good preparatory activity underway across the industry, there is still a feeling of nervousness in the air. It reminds me of taking my exams. You’ve done your homework, you’ve focused on revising the things that you think are important (and probably aligned to what you know best in the hope that it will come up as a question), you have a clear plan in place for sitting the exam…but you haven’t yet sat the exam. Adding to the anxiety, in the case of RDR, the examining body hasn’t yet released all of the chapters in the core reference text from which to revise. Hopefully, the guidance on commission for legacy products and the time-table for cash rebates will be released by the FSA soon.

As we approach the final two months of 2011 and you work through your 2012 budgets and detailed implementation plans, why not join us together with the FSA, Focus Solutions, Altus and AT8 for an additional revision session on the 15th November 2011 at the Barber Surgeon’s Hall?

Follow this link to register Count-down to RDR – Are you ready?

About Density and Penetration of Life Insurance in Europe

We are currently looking at the life insurance market in Europe and more specifically saving and retirement solutions involving wealth management by insurance companies. In the frame of our initial work, we have tried to identify the differences between the main European markets comparing each of them in terms of density and penetration: Life insurers have suffered since the financial crisis and the economic downturn and it is difficult to predict what is going to happen to this market in 2010 and maybe in a longer period. But based on this analysis there is at least two observations that can be drawn in today’s context: The unbalanced UK economy: Since the 80s and under Margaret Thatcher, the UK has operated a drastic shift in terms of economic focus neglecting the industry to concentrate on financial services. This explains why life insurance premium represents more than 10% of the UK GDP right now. We believe that the lack of balance of the UK economy has been a major weakness recently as it obliged the UK government to take drastic actions to help financial institutions in difficulty during the financial crisis at an unprecedented level in comparison to other European countries. The level of debt and deficits have worsened and the strong emphasis in financial services remains a threat for the UK economy. The bancassurance model does not bring the same success across geographies: Banks are the most important intermediaries in terms of life insurance distribution in Spain, France and Italy. However, it is important to point out that life insurance density is much higher in France than in Spain and Italy. This difference cannot be only explained by the difference in GDP ranking between these countries. Following our discussions with French insurers, we have noticed that the French bancassurance model remains an example worldwide and it seems that Italian and Spanish insurers have not managed to take full advantage of the banking network to leverage potential synergies. Our objective is to understand the differences between the main European insurance markets and then anticipate how they might fare in the coming years taking into consideration the current macro-economic environment. There are plenty of uncertainties right now but asking the relevant questions is already a good step towards the right direction.

What European Insurers Think

Life insurance companies have different perspectives in terms of policy administration systems (PAS). Expectations are different geographically and IT vendors must adapt to insurers needs if they want to be successful in the long run not only in a dedicated market but on a larger European scale. “Getting The Value from Life Policy Administration Systems: The European Insurer Perspective” is the title of a report Celent is about to publish that provides key information not only for IT vendors but also for insurers desiring to understand what their peers experience on the market.

49 insurers from 20 different European countries have contributed to provide their evaluation of various life policy administration systems offered on the market. Celent has classified the respondents in three geographical categories (UK, Continental Europe and Eastern Europe) and tried to identify what were the main differences in terms of value perceived by companies in each region.

The above chart shows clearly some important differences in terms of new technology adoption between regions. For instance, it seems that UK insurers are in advance in terms of PAS replacement. Indeed, around 80% of them have been using their PAS for more than 3 years. Celent thinks that this figure demonstrates clearly that UK companies are a step ahead in terms of core applications replacement and modernization. In addition, it might also be a good proof that UK insurance companies have a higher acceptance of value of buy over the build approach. This figure also demonstrates that Eastern European insurers are currently adopting new technology. In opposite to insurers based in the UK, the majority of Eastern European companies having contributed to our survey have been using their PAS for less than 12 months. In other words, it seems that Eastern European based insurance companies are currently in the process of upgrading their core applications to new technologies. Finally, there are laggards in Continental Europe. If we trust the sample of our participating companies based in Continental Europe, it seems that there is a clear difference between insurers having already replaced their PAS (almost two thirds of the respondents from this region) and the ones that have just completed this exercise during the last 12 months period.

For those of you who are interested in what life insurers think about policy administration systems and IT vendors on the European market, I invite you to read my report.