Despite a near-hibernation of life/annuity PAS core systems replacement projects in 2008-2009, the policy administration systems market as a whole has grown larger over the past few years, driven largely by growth in the P/C market for these systems. There are a number of factors at play here.
First, unlike in the life/annuities market, there has been a ton of innovation in the P/C PAS space, dating back to the early part of this decade. With carriers starting to adopt these solutions in earnest starting in 2004-5, the modern solutions have truly begun to mature and have referenceable client bases, a broad set of supported insurance products, a mix of personal, commercial, and specialty lines functionality, and much more. Further, many solutions have added, are adding, or have partnered for billing, claims and other functionality. These factors have driven adoption up to a strong but very much sustainable level. That, in turn, has created a “keep up with the Joneses” need for insurers to offer functionality and products offered by competitors.
Although there are nearly 60 vendors in the U.S. alone, the market should be able sustain the survival of the many different vendors. Many of the smaller vendors live primarily on maintenance streams and a deal or two every other year. On average, each vendor gets about 2 deals per year, though in reality this number is considerably larger at the top end and zero on the low end.
Generally speaking, each year 2-3 vendors disappear through either acquisition or attrition; however, in their place, 2-3 new vendors crop up. It’s hard to imagine this is sustainable, but for now it seems to be the natural order of things! Those vendors that keep their solutions truly modernized and refreshed–and not just cosmetically speaking, or by rewriting existing systems into a new codebase, for example–have potential to survive, but other critical factors exist. For example, vendors need to have exceptional delivery track records, to be price competitive, and be large enough for carriers to feel comfortable selecting. The trend is that carriers are leaning towards a greater number of components being replaced, but this is occurring in a modular fashion. While sometimes a single vendor is getting the whole enchilada, it’s also not uncommon to see the projects split across several vendors.
This is not as often the case in L/A, since most replacements are either policy only or all-in-one deals; billing-only or claims-only deals are the exception rather than the rule. In the next year or two, we will likely see the Life/Annuities systems market have a strong recovery after several years of near-dormancy. Indeed, we have seen significant shopping that seems to indicate a significant amount of pent-up demand being released. 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.
Further Reading
- Novarica Market Navigators for PAS: P/C, L/H/A
- US Policy Administration Projects: Averages and Metrics: P/C, L/H/A
- What Commercial Lines Carriers Expect from a Policy Administration System
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