selection and replacement of policy, billing, and claim capabilities. This was, and still is, a generational change in our industry
born from a combination of market imperatives and vendor
The generational wave, although still very much alive, will
fade over the next five years and will probably return to or near
to “historical norms” as measured by deals reported. The modernization wave will be superseded by an upgrade wave.
One of the key aspects of the remarkable activity of the
past 10 years has been the rise of a new generation of software
vendors with new, better engineered, and more flexible software. These vendors have been successful in the marketplace in
recent years as carriers have made the journey to new, modern
The issue, of course, is that given the newness (read immaturity) of the software and the length of time it take to complete a
core legacy modernization program, many carriers will find they
have a software upgrade waiting at the end of their modernization program. Some carriers actually found they were undertaking an upgrade in the middle of their implementation project.
The shape and size of an upgrade will depend on several
factors—the number of releases to be caught up, the delta for
each release, one-off enhancements done to the system during
the implementation, and last, and most important, how well the
vendor designed their system to support upgrades.
For some, vendor solutions upgrades are no big deal; for
others, they are a very big deal. It would seem obvious that as
the modernization wave crests and passes it will be superseded
by a wave of upgrades as a logical follow on.
Still Too Many Vendors
What other observations can we make concerning the core systems marketplace? One thing that has struck me over the years
is how consistently over-subscribed the insurance core systems
market has remained. Given all that has happened in recent
years with the rise of new vendors, the M&A activity (which is
always well covered in the press), and the aggregate increase in
recent years of carriers buying solutions, the overall number of
vendors in our marketplace remains at about 50.
Indeed, there appears to be something magical and immutable about the number 50. How did we get so many vendors
in the first place? My rough guess is there are 10 to 15 vendors
that really count in our market. The remaining 35 to 40 are
marginal and win a new customer every few years, but these
marginal vendors are not the ones disappearing.
They appear to be low budget operations that can eke out a
living with a small number of small clients. Generally, the M&A
activity we have seen in recent years has seen some of the larger,
more vibrant vendors getting acquired either for technology
and/or market-share acquisition.
So as you read about some relatively recent vendor acquisi-
tion what you don’t hear about, necessarily, is the newest startup
to throw its corporate hat in the P&C core systems ring. I esti-
mate three or four new companies emerge each year.
The important thing to bear in mind is one of these new
vendors may be the next market leader. New vendors can come
to market unencumbered by the mistakes and limitations of
their predecessors and take advantage of the newest and best
technologies available. It would be wise for us all to remember the market leaders of today will have to work hard not to
become tomorrow’s legacy vendors.
Making predictions about the future shape of our market is nigh
on impossible, outside of noting general trends, such as the rise of
cloud-based vendors and solutions. Prognosticating on the size of
the market seems simple. There will be 50 vendors in 2020 and again
in 2025, a prediction that is both safe and, unfortunately, lacking in
practical use. But you have to admit it’s a quirky little factoid.
Insurance is Technology
Lastly, it seems to me the overall position of technology in the
P&C world will go from strength to strength. My prediction is
in the next five to 10 years technology will become the defining
factor between insurance companies. Insurance carriers with
the best technology will win.
We now use technology for almost everything. Technology
has moved out of the strictly volume-based operational process
areas to encompass sales, product development, and many
of the skills and judgement-based parts of underwriting and
claims settlement. Technology is now a competitive differentiator in our industry. Recent studies have shown consistently
that the new generations of insurance buyers use technology—
smartphone apps, website capabilities and the like—as the basis
for choosing their insurance carrier.
Case in point: My daughter recently selected her first auto
insurer: she chose her carrier because they have a “very cool app,”
which is daughter-speak for ease of doing business. In a business
with no physical product, data and service are everything.
Our industry remains on the lagging edge of technology and
has spent huge amounts of money in recent years to upgrade
the back-office functions. This has created an environment in
which it is easier to add incremental capabilities that reach out
to insureds, prospects, and agents and integrate more and more
with diverse data sources, which provide new insights into the
nature of a given risk and how it should be priced.
IT has found its way out of the “cost center” dungeon and
now plays a major role in setting and executing the corporate
strategy at many carriers. As long as IT continues to deliver, it
will solidify and grow its seat at the corporate top table. Don’t be
surprised if you start to see CIOs becoming CEOs. ITA
George Grieve is a popular writer and speaker on the
subject of insurance technology solutions. He is the author
of the book “Shop Talk” and is CEO of the consulting firm
CastleBay Consulting. The views and opinions in this column are those of the author and do not necessarily reflect
the views of the Insurance Technology Association.