- 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.
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 firstname.lastname@example.org with your comments and thoughts around SaaS and Cloud Computing usage and adoption.
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.
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.
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.
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.