There will always be some smaller ones that will continue to
exist as they are or ultimately they be acquired, but they will face
challenges given the required investments to keep pace with the
changes taking place in our industry. The amount of capital and
number of years it would take to match what we have in place
and are continuing to develop would be a long, expensive, and
complicated process. I don’t think you will see any new significant
players in the core solutions market. Even with all the acquisitions, it’s still an overcrowded space.
RYU: Change is always a constant. In the early 2000s, people said
the core solution market was already decided with PMSC, CSC and
maybe Accenture. I’d like to think we’ve proved that conventional
wisdom wrong. Far be it from me to say the market will never
change. I just think it’s difficult to be a core system technology
company. The functional footprint to have a minimal offering is
substantial. You can go a long time before being rewarded. That’s
a risk prospect. When we started Guidewire, we had more of an
open field. It was difficult, but the competitive landscape now is less
favorable for new entrants. Entrepreneurs interested in the industry
are not generally looking to build a core system, but are looking at
starting a new style of MGA or applying some horizontal technology in Io T, drones or machine learning and apply it to an insurance
problem. That’s much more of the orientation we’ve seen.
Jackowski: I believe there are new players that will challenge
some aspect—a smaller dimension in the overall value chain—
that may get players to think of creative ways to solve business
problems. Are there too many players and will new players
challenge the holistic platforms? I’m not so sure. Duck Creek has
invested heavily over the last two decades and we have more than
450 people in R&D today. We have put a lot of investment in our
cloud platform and Duck Creek On-Demand. There is a hurdle
to overcome to become a core platform vendor. We’re paying
close attention to what these new players are doing because there
is some cool innovation they are bringing into the marketplace.
One example of our strategy in action is our acquisition of
Agencyport. We had a native front end for our policy administration system, however, we also saw a large need for an independent portal to help carriers with their distribution. Agencyport offered carriers a digital platform that could transcend
not only a modern policy system, but a multitude of vendors
and legacy systems. The Agencyport acquisition provided the
perfect opportunity for us to build on our strategy and deliver
a distribution front end regardless of the back-end technology.
We’re going to pay close attention to these new entrants. Where
it is germane to our strategy, we may acquire them; where it
is good for our customers, we may form a close alliance or
partnership or figure out if there is something we need to react
to. Insurtechs have a long way before they can go head to head
with today’s leading core platform providers, but I think they
will take on some aspects of the value chain and figure out how
to incorporate that into their products.
AL-DOR: In the North American property and casualty space
there are many vendors, some of whom will not make it in the long
run. You cannot justify the R&D investment required if you only
sell one or two systems per year. There is an economy of scale here.
Selling more systems gives you the ability to further invest in the
systems, which require heavy investments, and gives you access to
more customers that share their needs and allow you to develop
and enhance systems most effectively. A few of the new players
might become a challenge, if they have the funding. But in the long
run, there will be further consolidation and smaller vendors will
either become bigger, get acquired by a larger player, or disappear.
METHA: We feel the insurance industry right now offers various points of entry for a new insurtech company to create a new
core system in a short period of time. Some niche products offer
a natural play for insurtech. However, core solution vendors
have broader capabilities and domain expertise. The combination of core companies with insurtech companies will provide
more comprehensive solutions.
OSSIE: I think we’re in the early stages of change in the market.
Ninety percent of the core systems providers are under $20
million sales and have fewer than 10 customers. If you are a
CIO thinking about making a change you need to make sure
you have someone with the capacity to continually invest in the
core system for the next chapter of growth. Many of the systems
we replace are 15- to 20-plus years old. Core systems need to be
reliable. The other battles are systems of engagement and systems of insight—analytics and the digital journey for customer
on-boarding. We see capacity there for more vendors vs. fewer.
It reminds me of 1999 when hundreds of dot-coms came along
and 400 of them went out of business in December of 2000. A
bunch will not make it, but the benefit will be to yield intellectual property coming down the road.
GARTH: The systems of engagement—some of the digital
stuff—and the systems of insight are part of the core platform
as well. If you think about customer insight, you are moving
beyond putting up a portal; it’s creating customer journey and
experience. That’s what differentiates Lemonade or Slice. They
add another aspect around the customer journey that brings in
new offerings. You also have traditional content—ISO, LexisNe-xis—but there is emerging data such as Io T, social media, localization data. These are new data sources that are emerging from
insurtech startups that will change the customer journey and
the front-end process because you don’t have to ask as many
questions. Different models, products, and processes are driving
a different engagement process and ultimately an experience.