NEWs & TRENDs
CoNTiNued FroM PAge 28
Karen Furtado, a partner with SMA Strategy
Meets Action, agrees that the timeline needed to
develop technology has continued to decrease and
that technologies have continued to improve. She
adds that, “Many companies that had replaced their
systems or patched systems to prepare for Y2K find
themselves in need of replacing what has now become
legacy technology, therefore creating a strong market
of consumers for policy administration technology.”
Craig Weber, senior vice president at Celent, also
sees a convergence of factors at play. “one factor is
the escalating “arms race” between carriers to deliver
better service experiences,” he asserts. “For most
carriers, the realization that their current systems were
maxed out was a powerful incentive to invest in new
systems. Another factor is the steady improvement in
vendor solutions, which are more capable and more
full-featured than ever before. Finally, technology
fashion has created a buzz around policy admin
systems that wasn’t there several years ago. it’s like
the iPad—suddenly everybody wants one.”
How many will survive?
given a number of factors that are continuing
to drive the policy administration system market,
can the market actually sustain the survival of so
many vendors? Could it, in fact, grow even further?
“Technically, yes,” states Hersh. “Many of the smaller
vendors live primarily on maintenance streams and a
deal or two every other year. on average, each vendor
gets about two deals per year, though in reality this
number is considerably larger at the top end and zero
on the low end.”
Hersh concedes that, “generally speaking, each
year two or three vendors disappear through either
acquisition or attrition; however, in their place, two or
three new vendors crop up. it’s hard to imagine this
is sustainable, but for now it seems to be the natural
order of things!”
Furtado agrees that “there will be a small increase
in the number of new vendors, but i believe there will be
a continuous increase in the number of new solutions
that come from the existing vendor marketplace. it is
interesting that the market for policy administration
continues to be vibrant and has been running at this
pace for a number of years. Vendors are creating new
solutions but they are having a difficult time developing
transition strategies to move their current clients to
the solutions, which leaves them supporting multiple
policy administration systems.”
According to Weber, however, the market will be hard-
pressed to sustain so many vendors. “on the other
hand,” he adds, “predictions about older systems
being sunsetted soon after the appearance of newer
technologies are notoriously wrong. So the vendors
with customers—even a handful—will persist.”
Hersh believes the type of policy administration
systems vendors most likely to survive are “those
that keep their solutions truly modernized and
refreshed. He notes that this most go beyond mere
cosmetic changes “or rewriting CoBoL to Java,” for
example. other critical factors influence the potential
to survive, he says. “For example, vendors need to
have exceptional delivery track records, to be price
competitive, and to be large enough for carriers to feel
comfortable [in selecting them].”
Weber echoes those comments, noting that “the
leading vendors will provide a good mix of services,
technology, and proven delivery capability. That’s
what the market wants.” Furtado adds that surviving
vendors “will have strong relationships with their
customers; they will bring the greatest business and
technology value to the insurer and will continually be
investing in technology improvements.”
Just what are they buying?
Perhaps some of the policy administration market
growth is accounted for by insurers that are doing
modular replacements of parts of their systems with
more than one vendor, rather than a complete system
replacement from a single vendor. According to Hersh,
“Certainly the trend is toward a greater number of
components being replaced, but this is occurring in a
modular fashion, so while sometimes a single vendor
is getting the whole enchilada, it’s also not uncommon
to see the projects split across several vendors.”
“We see most carriers picking their battlegrounds
for replacement carefully,” states Weber. “The end
result may be wholesale replacement of a policy
admin system, but getting there in logical chunks
helps rationalize some of the required investment.”
According to Furtado, a variety of policy
administration solutions is available in the market
today because one size does not fit all. “Companies
implementing a modern architecture can chose to
implement a best of breed approach, an enterprise
solution or a hybrid model,” she explains. “The best
option is the one that works best for you based on
your skills and resources.” She adds that whether an
insurer opts for a complete system replacement or a
component approach, “the key is to be sure it can fit
into a modern architecture so that replacement in the
future, which will be inevitable, is manageable for the
business.”
What does the future hold?
With so much activity taking place now, how will
the policy administration market change over the next
year or two? “The Life/Annuities systems market will
likely see a strong recovery after several years of near-
dormancy,” states Hersh. “We actually believe the
P/C market is in a ‘steady state,’ with a strong 2010
flowing into strong pipelines for top vendors through
2011 and 2012.”
“i would expect to see some level of acquisitions/
consolidation taking place, therefore reducing the
number of existing players that will remain in the
market,” says Furtado. She cautions, however, that
there will always be new entrants in the market as
technology continues to change, “which will put
pressure on those not increasing in sales to either
cut costs to sustain what they have, therefore leaving
everyone with just a small piece of the pie, or it will
create enough tension for others to leave as they will
have little potential to grow.”
According to Weber, Celent believes that the view
of technology as the primary driver of vendor choice
will start to come into balance with the notion that
delivery risk, services capabilities, and out-of-the-box
functionality are also important.
“But if regulatory changes significantly shorten
product approval cycles, look out,” he cautions.
“There will be a lot of carriers trying to make good on
the promises of modern technology, which says that
development times can be dramatically shortened
and carriers can achieve real agility.” n
Ara Trembly, founder of Ara Trembly-The Tech Consultant, is a widely known and
highly experienced consultant, journalist and speaker in the technology field,
notably for insurance and financial services audiences. He has written literally
hundreds of articles for a wide range of business and technology publications,
including Computer Decisions, Beyond Computing, PC Today, Office Systems and
many more. He was formerly the technology editor and a columnist for National
Underwriter--and is currently a featured blogger for Insurance Networking News.
