A consolidation wave is reshaping the EMEA PAS vendor landscape

At Celent, we have been writing reports profiling policy administration system (PAS) vendors for a long time. In the European, Middle East and African region (EMEA) we have covered up to 50 vendors in some of our bi-annual reports and we know there were approximately twice more active in this region of the world.  The most recent report focused on life PAS in EMEA can be found here. Since our first look at the PAS market in the EMEA region in 2007 we have predicted that its fragmentation and its heterogeneity would lead to a consolidation. It is fair to say that we have been wrong with our prediction or without less humility we can say we have been right but our timing was bad. Indeed, it seems that the consolidation phase we predicted has started to materialize a few year ago but certainly not as early as we thought. In other words we have observed a surge in mergers & acquisitions over the past few years and we think it will still accelerate in the coming months. The most recent acquisition that validates our view is the acquisition of the Danish vendor Edlund by  KMD Group that has been announced this week. Overall we see various kinds of acquisitions:
  • Software integrators-driven acquisitions: large software integrators are trying to diversify their service offering through the acquisition of insurance system IP. The best example of this type of strategic move is for instance the acquisition of Wyde by MphasiS a few years ago.
  • The Private Equity (PE) firms-driven acquisitions: there is a growing interest to invest in the insurance core system space for PE firms. The best examples of this type of acquisitions are the contribution of Riverside in the merger between Charles Taylor and Fadata or Waterland Private Equity investment in Keylane that now combines activities of various PAS vendors including formerly branded LeanApps, Quinity, Mantcore and more recently the German vendor called Geneva-ID.
  • The core system vendor-driven acquisitions: PAS vendors understand they can grow quicker if they merge with a competitor. Sapiens acquisition of FIS Software and IDIT or Prima Solutions acquisition of Albiran a few years ago are good examples.
As already mentioned we expect more M&A to come and we are glad to help our insurance clients to navigate this changing market.  

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

Mind the Gap. Are Insurers and Vendors in Latin America on the same page about SaaS and Cloud Computing Usage and Adoption?

Almost with the end of the year around the corner we are yet immersed in some very important reports for all of us which, by the way, will be produced integrally with Latin American focus for the first time. The CIO Report and the Policy Administration System ABCD Vendor View Report are on their way.

From our past and recent discussions with Insurers and Vendors about different topics around technology, architecture, trends, features and functionality something has been driving my attention: It seems to be a gap in the perception about usage and adoption of SaaS models and Cloud Computing in Insurance, at least in Latin America. While the detailed reasons and how large is the gap between Insurers and Vendors will be part of a report next year, initial findings point in the direction that Vendors perceive more benefits from adopting these models while Insurer’s CIOs do not feel the pressure and do not have it as a priority.

A SaaS approach, applied to a Policy Administration System for example, appears as a perfect fit to the business model of many Vendors. SaaS enables Vendors to target small and medium Insurers as they can consistently manage a single scalable version of the solution and offer support very cost effectively with prices that fit smaller Insurers wallets.

On the other side, CIOs seem to feel more comfortable with on-site, self-controlled environments. Hardware and communications prices are more accessible to them providing more processing power and bandwidth for their dollars that a few years ago. In some countries even regulation presents a challenge to these type of offering as regulators still question where the system and the data needs to reside.

Something to consider is that Insurers in this region have yet not been exposed to much SaaS and Cloud offering so the perceived associated benefits and the price difference between traditional on-site and the new alternatives is still a discussion to mature.

Another aspect that might help to build the bridge and cross the gap is that core system replacement is starting to show increased trends and it will expose Latin American Insurers to new architected solutions with technology and functionality much more flexible and robust but at the same time more complex to administrate. Specially smaller Insurers will need to consider how to remain competitive, improve processes and deliver better quality products and services through diverse and new distribution channels at a cost they can bare.

Interesting times to come as we unveil what to expect in the region. In the meanwhile if you are interested in participating in the Latin America CIO Report or the Policy Administration System Report please let me know. Also feel free to reach me at jmazzini@celent.com with your comments and thoughts around SaaS and Cloud Computing usage and adoption.

Happy Holidays!

A holiday gift from Celent – Top 10 searched for terms and links to reports

Last year we offered a Christmas Carol themed post summarising some thoughts on the past, present and future. This time around I figured I’d go for one of the end of year top ten style posts that pop up as folks take a moment to look back at the year. So here I present a view on the top 10 searches insurance folks made on the Celent web site. 10. Model Insurer (Click on the words to do the search) In at number 10 are explicit searches for the model insurer series of reports. We’re still working hard on this years but here’s some links to last years and the one the year before. This year we’ll be holding the Model Insurer event in Boston along with our insight and innovation day. The model insurer reports can’t be beaten for offering a view of successful investment in change and technology across the insurance industry. Also take a look at the Model Insurer Asia report and 2012 event. 9. Fraud Sadly as pressure increases on the financial system, on wallets everywhere then the propensity for fraud increases. 2011 has seen an unprecedented rise in ill-feeling towards the financial services sector as a whole so it’s no wonder that fraud is on everyone’s agenda. Look out for work by Donald Light and Nicolas Michellod in 2012 on modern fraud systems across the globe.   8. CRM or Customer Relationship Management Insurers have made great strides in moving from policy and agreement centric thinking to a more rounded view of the customer. With ever increasing ways of reaching customers and intermediaries, of simply transacting business this focus on technology to support the customer relationship is clearly still a focus. 7. Claims Clearly a key focus for any insurer, from the systems supporting claims to the latest trends in claims analysis. In 2011 Celent examined the impact social media was having on claims and how insurers are interacting with claimants. We also looked at location intelligence solutions and below are just some of the reports looking at various angles of this key function. Look out in 2012 for the XCelent reports on claims system vendors.   6. Outsourcing 2011 has seen a more pragmatic approach to outsourcing in the insurance industry globally. Strategic outsourcing is still a key tool for any large organisation and this is reflected in the term appearing in our top ten. The CIO survey series of reports (which will be refreshed in the new year) offer insight into CIO’s views on outsourcing globally.   5. Policy Administration Ah the big core system question. What was interesting to me was this wasn’t number one, still number 5 is pretty high up the list. Searches in this area were looking for advice on the core systems themselves, building a case for them as well as general trends. This year we published the 2011 reports on policy administration systems around the globe, each offering a different perspective on what’s available as well as what’s required.   4. IT Spending In at number 4 is IT Spending – how are folks splitting their hard earned currency between projects? A key question on the minds of CIOs and others. A key insight into this is offered in the CIO interview series of reports as well as our emerging technology report – aimed at identifying technology gaining interest and investment from the insurance industry – take a look.   3. Asia – or rather searches for India, China and Japan A significant number of searches were for specific countries, the three top countries were India, China and Japan. Asia is a very diverse market and there is a great deal of opportunity in the region, not only financially but also in learning how insurance problems are being solved in these very different markets. Personally, I find one of the great things about working for a global company like Celent is the breadth of view it affords.   2. Social Number two in our list is social, social media and social networks. Technology is helping people to interact and changing the way they communicate. Customers, agents and members of insurers staff all expect very different things from an organisation now in a Twitter and Facebook world than just 10 short years ago. In addition, the relationship between the insurance industry and the vendors and service providers supporting it is changing. In all this newly collected and aggregated information there lies privacy and brand-busting dragons but also great opportunity for those intrepid enough to sail the social seas.   1. Mobile I recently tried going around London for the day without my phone – it was hell! The debacle this year regarding the Blackberry outage created a wave of such feelings, although raised some counter blog posts as journalists recounted how they spent more quality time with their family without answer emails. Regardless of for better or worse, humankind has wed itself firmly to being constantly connected through mobile devices. This is a global phenomenon from geeks seeking the latest 4G android handset, executives and music lovers with their iphones or Kenyan farmers with simpler phones, mobile has changed the we communicate, interact with technology and each other and will continue to do so – the insurance industry is still feeling the impact and in many cases still leading the charge in changing peoples lives for the better through mobile technology.   So there it is, a top 10 for you. I haven’t included links to the webinars, peer networking events and other events through the year but the links to each of the search terms will provide you with those. It’s been a phenomenal year of challenges, change and interesting times. Have a Merry Christmas, a Happy New Year or indeed just a great season – depending on what you’re celebrating this Winter. We look forward to working with you in the new year and beyond. Oo, look, I wrote an end of 2011 post without mentioning the Euro crisis – oops…

MphasiS to aquire Wyde

Today’s announcement by MphasiS an HP company, to acquire Wyde (with its Wynsure policy admin offering) highlights the continuing emergence in the insurance industry of globalization and the mutual dependence of software and delivery capability. While Wyde’s presence is strongest in the US and France; it also has been building its footprint in Bermuda, the Caribbean, Asia and North Africa.

Celent sees increasing demand for alternative hosting and delivery options (traditional BPO, SaaS, Cloud in all its variations)—not only in smaller and emerging markets, but in certain segments of mature markets as well (e.g. greenfield startups and new initiatives in established companies. This acquisition will also build MphasiS’ own applications, BPO, and delivery capacity.

Coming right on the heels of Accenture’s acquisition of Duck Creek, it looks like some key global players are stretching out.

New competition for UK policy admin vendors and more choice for insurers

The PAS space is hotting up here in the UK. Talk of eviscerated IT investment spending has been vastly overstated. Before the crisis really kicked off, insurers around the world were looking at how to address legacy core systems, and the level of RFI activity and PAS deals supported this. The recent announcement of Allianz UK and TIA was an example of a large UK insurer taking on the challenge of the legacy drag effect. Today, this was followed by the announcment of Axa Commercial replacing the current mainframe system with Duck Creek’s Example platform. Deal activity levels in the UK have seen a lull in the last twelve months, but Celent sees these two deals as a sign of the new times. Insurers will look to get back on track in IT investment as soon as possible, and most will have to face the challenge of replacing outdated core systems or at the very least, consolidating to a few of the best systems in house. Both these examples highlight the investment that has been going on for sometime by policy admin vendors from outside the UK. Celent’s view is that the UK market has been underserved by PAS vendors for some time now, and an increase in competition can only mean more choices for the insurer.

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.

Market-specific core applications vs. Cross-border single application

Many insurers – especially in Europe – face the challenge of conducting business in different countries. Having activities in different geographies has its good side for instance it allows them to diversify their risk but it has also its bad side notably when insurers want to define a strategy in terms of core applications deployment. Insurance markets have very different distribution dynamics and risk pricing experience in one market might not be relevant for another. In addition, differing tax and regulatory treatment, as well as different currencies and languages can act as further roadblocks. Overall insurers can choose between two strategic alternatives: deploy a single core application cross-borders, or implement a dedicated core application in each market.

There are many important factors that have to be taken into consideration when making this very important decision. A cross-border deployment requires insurers to consider specific issues such as the following:

The complexity of the project: implementing a core insurance application in one market is already something difficult therefore deciding on a cross-border deployment is certainly very complex. In this context, it is important insurers take the necessary time to carefully analyse and plan all aspects linked to such a project. In particular, Celent considers it is highly important that insurers use integrators having already a strong experience in working in cross-geographies projects.

Shared service centre requires multiple language skills: providing a service centre for different European countries implies that multiple languages have to be offered without giving the impression to customers that their needs or requirements might be misunderstood for cultural reasons.

Product complexity: beside the project complexity, a core application such as a policy administration system has to offer a high level of flexibility if insurers want to have a single platform to deal with different set of regulations, taxes, requirements, etc.

Change management: such a project has more to do with managing complexity and change rather than process and technology. Therefore Celent thinks that the project management side must be perfect and coordination of activities and tasks between stakeholders during the implementation and deployment cross-borders have to be delicately thought and then professionally executed.

In Europe, some insurers prefer prioritizing the approach consisting in implementing a dedicated core application in each specific market. In emerging markets (Eastern Europe for instance) where it is important to acquire market shares rapidly, they believe that priority should be given to a partnership with a local vendor having a certain experience and expertise in the market. Then, as soon as the market will have reached its maturity, these insurers will certainly start rationalizing their core application landscape in order to gain competitive advantages. But for the moment, these players prefer acquiring market shares as fast as possible before these markets reach maturity.

Both approaches are interesting and deserve a careful attention. This is why Celent is planning to publish a research about this topic before the end of the year. In the meantime, Celent recommends insurers to have a look at the following report: Policy Administration Systems for General Insurers in Europe 2009 (Celent will publish a report about policy administration systems in the life sector in Europe in the 3rd quarter of 2009 too). Indeed, whatever the strategic approach insurers choose, they still need to find the best policy administration system(s) that will help them optimally execute actions supporting their long term strategic objectives achievement.

Setting up priorities when selecting a Policy Administration System

Celent is publishing two reports reviewing Policy Administration Systems (PAS) and IT vendors in Europe later this year. The first one will profile solutions available in the general insurance sector and the second one in the life and pension sector. For insurers the selection of a PAS requires the analysis of different parameters that have all their importance. Prioritizing decision elements is a crucial task in order to minimize the risk of choosing an inappropriate PAS and to face ultimately time-consuming and expensive customization efforts. In the frame of recent discussions with European insurers, I have noticed that European insurance companies conducting business in multiple countries are also facing difficulties to decide between two strategic alternatives when replacing their existing policy administration systems:

Implement a single application in all geographies where they conduct business, or

Select one specific vendor in each geographical region.

Knowing that insurers have their own specificity and objectives in terms of future expansion and strategy, I recommend them to define and rank priorities around four major key decision elements when reviewing this important question:

Functionality: I recommend insurers to define functionality priorities. To do so and based on our PAS reports, they should be able to build their own functionality matrix. This exercise can particularly support them to identify which functionality elements are more important than others and how they can support their strategic objectives in the long run.

Technology: I consider that technological flexibility is an important factor insurers should clearly assess when making the decision to replace their policy administration systems. Therefore, I encourage insurers to consider technology factors when prioritizing their IT requirements.

Experience: Since replacing a policy administration system can require considerable efforts in terms of customization, choosing an experienced IT vendor is important. Therefore insurers should emphasize factors related to insurance business know-how and expertise when evaluating vendors.

Geographical expertise: The insurance industry in Europe can be very different from one country to another and understanding insurance business drivers and challenges affecting a specific region is a must for IT vendors offering their solutions and services in a dedicated European insurance market. Regardless of their size, I recommend insurers not to neglect local and small IT vendors having specific expertise and knowledge in dedicated geographies.

Choosing the best alternative represents a key challenge for insurers’ CIOs since this decision can strongly impact their company’s ability to achieve strategic goals in the long run and I hope that our PAS reports will be helpful to them.

Blurring the lines: Business Processes instead of Core Systems

As Catherine discussed in her post on Monday, Celent is in the midst of writing several 100-plus page policy administration reports. Aside from the sheer size of the task, an added complication this year is the difficulty defining what the term “policy administration” even means. Each time Celent reports on the topic, the scope of policy administration grows, until it seems to cover all of a carrier’s core systems. This is all part of a positive trend in the space (even if it makes Celent’s job a bit more difficult). Each year it becomes harder to bucket projects and systems into discrete categories. More and more policy administration vendors include billing and claims as part of their solutions, agent portals tie directly to underwriting, rating and product configuration intertwine with rules and workflow, and insurers think about projects as reaching across the entire infrastructure. The lines are blurring across systems as the focus shifts from individual systems to business processes. Why has this shift begun? It’s partly an opportunity brought about by technology. With many vendor systems and insurer infrastructures embracing a service-oriented architecture, it’s easier to orchestrate a true functional flow across multiple areas of the business. But, more importantly, it’s a change in mindset. Carriers who focus on business processes rather than systems build better, more lasting solutions. There are two major processes that stand out. The first is new business automation, which follows a submission from the agent entering data into a web portal, to a set of automated underwriting rules, to human review and approval, to the generation of policy documents, and on to the policy administration and issuance. The second is the product definition lifecycle, in many ways the opposite of new business automation. The product definition lifecycle follows the business users who define and alter insurance products by designing the product data, modeling rates, building underwriting rules, and creating production document templates. For different insurers there are different steps, but the singular point is that no one system can truly modernize the business if entire processes cannot be redesigned. Some technology-leading insurers have approached this by working with vendors who provide end-to-end solutions. Others have taken a best-of-breed approach and integrated across multiple systems themselves or with professional service partners. While the technology is important, it’s the new approach that matters most. By thinking in terms of cross-enterprise processes, insurers see their relationship to vendors changing. It’s not enough to provide a specific set of functionality; instead any new system must fit into its place in a larger operation.