Insurance Market Report 2009-2014

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This applications market sizing report analyzes the 2009 performance of the top 10 applications vendors in the insurance vertical, which continues to gain traction as insurers seek to gain a competitive edge through process automation and better customer information management.

The key for insurance companies is to shave costs by streamlining business processes. As a result, elimination of paper-based procedures and improvement of the customer contact and field service operations have become the guiding principles of insurance carriers to aggregate and disseminate real-time information to customers, brokers, partners and their own employees.

Top Line and Bottom Line

On the top line, insurers, which have seen lackluster returns on their investments because of the sluggish economy, have directed their attention to sprucing up their operations. As a result, the relentless push toward cost cutting has become one of the biggest drivers behind new and expanded applications implementations by insurance companies.

This comes at a time when insurance companies are bracing for another round of industry consolidation as the remaining players are racing to expand globally. The failed attempt by Prudential PLC to buy the Asian assets of AIG could trigger a wave of mergers and demergers from interested parties. That in turn would result in new applications projects to replace and upgrade existing systems in order to gain visibility into the entire operations. In addition economic growth in the BRIC countries will translate into higher demand for insurance policies.

The bottom line is that the insurance vertical, still licking its wounds from the financial market meltdown, appears to be resilient enough to withstand further shocks because of favorable macro-economic trends. Applications vendors that cater to the insurance industry are in a good position to capitalize on those opportunities as their customers continue to expand their insurance-line offerings on a global scale.

Market Overview

The market for applications for the insurance vertical rose 3.7% in 2009 as a confluence of factors drove insurers to investing in new and expanded IT projects.

In 2009 AXA Insurance, a major UK insurer, extended its license of CSC’s Colossus personal injury claims assessment solution for an additional three years, while Zurich Financial Services signed a seven-year, $1.3 billion outsourcing agreement with CSC giving it the responsibility of enhancing and managing more than 4,000 existing applications for one of the world’s largest insurers.

These deals encapsulated the amount of legacy systems being used by insurance companies worldwide and the growing pressure of the carriers to boost efficiency through new applications implementations.

By partnering with business process outsourcers and harnessing a range of new tools from mobile devices to cloud services, insurance companies hope to become more engaged with their customers, brokers, partners and employees.

The applications vendors have been doing their part to retool their operations.

Nowhere was that more evident than in Europe where FJA completed one of its biggest acquisitions with the purchase of COR AG Insurance Technologies to become the leading insurance applications vendor in countries such as Germany and Switzerland.

Similarly Sword Group of France acquired AgencyPort last year to shore up its presence among the property and casualty insurers in the United States.

On the other hand, the largest insurance application vendor Vertafore embarked on a major reorganization effort by creating three business units – Vertafore Agency Markets, Vertafore Carrier & MGA Markets and Sircon to better align its resources to meet present and future customer requirements.

Following the costly rescue of AIG, it may be too early to suggest that the insurance industry is finally on its mend. However the ongoing efforts by the customers and vendors to reinvent themselves are setting the vertical on a solid footing, which may well be the best answer to a near-collapse in confidence in the industry not too long ago.

Implications Of The Great Recession of 2008-2009

Who will take the place of AIG?

For a long time, the once reigning insurer of the world had the biggest market cap among insurance companies until the credit crisis hit in 2007. Its $4-billion-plus market cap is a fraction of its former self underscoring the distressed state of the industry in boosting its valuation.

While Allianz, AXA and China Life are racing to become the most valuable insurer, much more is needed to assuage the fear of the investors and the public at large that their investments and policies are in good shape.

Hence the challenge for insurance companies is to attain a higher degree of transparency with their operations and their interactions with partners, customers and investors, all of which will require systematic changes to their applications environment, which is still awash with legacy systems.

Large carriers as well as their independent agents have made it their top priority to fix that by turning to a growing list of on-demand applications and cloud-based services that could ease the migration from client-server systems to more agile applications with little IT resources required upfront.

It will be quite some time before someone assumes the lead held by AIG as the insurance industry finds its own bearing by winning back the confidence of customers and investors. Rest assured that technology will play a key role behind the transfer of power as insurance companies race to boost their productivity and profitability by accessing real-time information on everything from billing to customer service and from claims processing to financial reporting, all with the help of applications vendors.

Customers

Scalability will become the determining factor behind vendor selection in the coming years as both insurance carriers and agencies choose to consolidate their front and back-office operations through system standardization.

While large carriers will seek to use the latest technologies to help them address such operational issues as contract lifecycle management, incentive compensation and international billing and accounts receivable, a number of ERP vendors appear to be in a good position to meet such requirements with their integrated offerings as well as add-ons from their ISV partners.

SAP, for instance, has been focusing on the operational needs of the carriers, which could be considerably more lucrative in the long run, given the ongoing consolidation in the insurance industry.

Business process outsourcers, many of which have invested heavily in their insurance practices, could also emerge as key contenders for such implementations.  The same applies to a raft of on-demand applications vendors ranging from Ebix to iPartners that have been gaining traction in the insurance vertical.

Top 10 Applications Vendors In Vertical

The following table lists the 2009 shares of the top 10 applications vendors in the insurance vertical and their 2008 to 2009 applications revenues(license, maintenance and subscription) from the vertical.

Vendor2009 Share(%)2009 Applications Revenues From

Insurance($M)

2008 Applications Revenues From

Insurance($M)

Vertafore10.1%136130
Applied Systems7.8%105103
Oracle7.4%10095
SAP7.4%10095
StoneRiver6.7%9088
CSC4.0%5452
SunGard3.0%4038
FJA3.0%4037
SSP2.8%37.434
Sword Group2.3%3125
Subtotal54.4%733.4697
Other45.6%613.6601
Total100.0%13471298

Vendors To Watch

On the global level, the rise of vendors such as FJA and Sword Group could usher in a new breed of global applications vendors for the insurance vertical as they start delivering multi-currency and multi-language solutions for customers that operate in different countries. A much bigger challenge lies in the seamless integration of document management software into their applications allowing for more effective workflow and risk management regardless of the origination of the customers or policies.

Other vendors worth watching include:

Ebix has transformed itself from a traditional insurance app vendor to an on-demand provider of software, custom development services and data exchanges for life insurance, annuities, employee health benefits, and P&C insurance companies.

iPartners is turbocharging its business intelligence applications for the insurance vertical by delivering an intuitive dashboard that provides key performance indicators as well as relevant reports on an insurer’s business performance. The result is that customers will have better data to tweak their pricing and other mission-critical functions like marketing in order to boost profitability.

Consolidation is on the rise once again among insurance applications vendors. Blue Frog, which received funding from private equity firm Bluff Point Associates in 2008, acquired Prospect 9 for its client management and marketing applications in late 2009. In early 2010 it picked up Insurance Online Network for its Web-based multi-carrier term insurance platform.

Similarly iPipeline with its sales distribution applications for insurance companies raised $15 million in late 2009 following its acquisition of AgencyWorks for agency management. The new funding will be used to help it further expand through acquisitions.

Outlook

Insurance applications vendors are making all the right moves to prepare for sustainable growth through continuous innovation and tucked-in acquisitions in order to offer new products and lock in customers in a hurry.

On the upside, after years of reducing their exposure to expensive homegrown applications and warming up to the idea of business process outsourcing and on-demand applications, insurance companies have demonstrated they can lower their operating costs by leveraging new tools to boost their productivity and profitability. The result could be an accelerated growth in the insurance vertical buoyed by incremental spending from fast-growing insurers in developing countries such as Brazil and China.

On the downside, the market is still fraught with uncertainty after the ignominious fall of AIG, which has dragged down the valuation of many other insurance companies causing them to be extra sensitive about investing in large-scale IT projects. A full recovery could depend on whether insurance companies, which probably have become more risk averse than ever after the credit crisis, would muster enough courage to reinvest for the good of their customers, partners, employees, and shareholders.

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Insurance Market Report 2009-2014

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