These vendors are, I believe, the next generation and are
striving to wrest market dominance from the highly configurable vendors that have owned the market in recent years. These
new vendors, it should be noted, also have highly configurable
solutions, on which they are building new delivery models.
Changes in Deal Volume
Another feature of the market that has changed is deal
volume, which is beginning to tail off. In addition to anecdotal
evidence, various analyst reviews are beginning to point to a
marked slowdown on core system acquisition. In one survey,
the number of IT leaders placing core system at the top of their
shopping list halved
from 2015 to 2016.
This of course was
inevitable. Given the
rate which carriers
have purchased and
systems for the past
few years it was only a
matter of time before
the vendors began to
It’s worth noting
for any reader from
a carrier that has yet
to make the journey to the new systems world that soon it will
start to feel more like a buyers’ market than has been the case
for several years. Part of the generational wave experienced of
late has been that successful vendors have been extremely busy
and therefore more capable of dictating timelines and, to an
extent, prices. This may be about to change significantly.
So, the vendors have generally gotten better at building and
selling software solutions; but have the carriers gotten any better
at acquiring and implementing solutions? The answer is yes, but
a qualified yes. Carriers are better informed than they were and
are more aware of their own limitations than they used to be.
What I used to tell carriers with reference to software selection;
“this is complicated, you don’t know how to do it, you haven’t
done it for 20 years”; they now tell me. This is major progress.
Many carriers now use third-party consulting services to
lead them in software searches; however it has been a personal
experience of late that this has become a reductionist situation.
Now, instead of carriers not knowing how to select software
vendors, they don’t know how to select consultants to help them
select software vendors.
I am intimately and painfully aware of situations where car-
riers have taken six months to choose a consultant. This “reduc-
tionist problem” aside, carriers generally make more informed
decisions about software acquisitions than they did four years
ago. Anecdotal as it may be, those occasions on which I hear of
selection decisions that make me think “they chose who?” seem
less and less frequent.
Not only are carriers choosing more appropriate solutions they
are also getting better at structuring appropriate business deals and
contracts for software and services. This is partly a reflection of the
willingness of vendors to share risk and get paid for performance,
but this happy circumstance didn’t arise solely from the goodness
of the vendor community’s heart. Carriers’ began to pay more
attention to risk and cost, and vendors responded in kind.
On the Other Hand
On the bad news side it would seem that core system replacements
still sub-optimize more often than they should, and for those that
succeed, “success” comes on a sliding scale. One thing that surely
has not changed over the past five years is that there are no industry
statistics on this subject. This is all insider guesswork and anecdotal
evidence, but that doesn’t mean it’s not correct.
So why the lack of improvement in this third key area given
the stated improvement in the first two? My guess, which we refer to at CastleBay as “the Carnegie Hall problem” is as follows.
Core system legacy modernization (replacement) is complicated and hard to do. By definition carriers do this once every
15 to 20 years so they are not prepared for this once (or maybe
twice) in a career event.
Many carriers, especially smaller ones, lack the IT infrastructure—strong project management, formal requirements gathering, rigorous QA—needed for such an extensive undertaking.
Further, many carriers lack the funding to employ third-party
expertise to shore up these weaknesses; assuming they even recognize their existence. The response from many carriers is to look
to the software vendor for the expertise they lack internally.
However, while the vendors have improved at software
development, only some are good at software implementations.
Further, it’s not the vendor’s job to run client implementations.
Vendors do those parts of the project which relate to the implementation, configuration and integration of their software.
Carriers, not vendors, are responsible for requirements definition, software testing and acceptance, legacy integration, rollout
and training, conversion, and legacy retirement. These are areas
about which the carrier is expert, not the vendor. If the carrier
fails significantly in one or more of these project domains, the
project will probably not be as successful as it otherwise might.
Not that it is always the carrier’s fault.
So there is still major room for improvement. Legacy modernization will continue apace. Some carriers have yet to make
the journey and there are signs the journey is less hazardous
than it was four years ago. It will be interesting to see what the
report card looks like in another few years. ITA
George Grieve is a popular writer and speaker on the subject of insurance technology solutions. He is the author of
a book composed of a popular collection of his columns,
“Shop Talk,” and is CEO of the consulting firm CastleBay
have yet to make
the journey and
there are signs
the journey is less
it was four years