Life and health insurance carriers shopping for software are most likely seeking to improve their document management processes, says a market study released in June at the IASA Educational Conference & Business Show in Minneapolis.
According to Boston-based Celent, which conducted the study–”Insurance Software Deal Trends: 2005-2006″–approximately 46% of the software deals tracked in the study for life/health carriers involved document management.
Overall, Celent says it has collected data on 1,405 deals between insurance carriers and software vendors that occurred in 2005 and 2006. Of the total, 45% of the deals involved life/annuity/health insurers, while 55% involved property-casualty insurers.
The total number of deals consummated appears to be rising, states the study report. “Overall, 2005 averaged 144 deals per quarter, while 2006 averaged 204, a growth rate of 42%,” the researcher notes.
Looking at life/health/annuity deals only, deal volumes rose steadily over the eight quarters studied. “The document management and infrastructure metacategories were especially robust, but the core processing metacategory grew as well,” says Celent.
In terms of carrier size, the total pool of deals was fairly evenly distributed across each of the five carrier tiers defined for the report, the study notes. Those tiers were: Tier 1 (more than $10 billion in direct premiums written per year), Tier 2 ($1 billion to 9.9 billion), Tier 3 ($300 million to $999 million), tier 4 ($100 million to $299 million) and Tier 5 (less than $100 million).
The study sought to determine what types of insurers (by size and lines of business) have been buying application and infrastructure software, what business processes are being supported by those deals, and what the broad trends are, in terms of deal activity, says Celent.
The study deals with data gathered about deals involving insurance-specific software, such as policy administration systems, illustrations software, claims handling systems, etc., the researcher notes. It also includes software that is heavily targeted at insurers–such as imaging, workflow and business rules engines–that are not specifically designed for the insurance industry. It does not include broad horizontal technologies such as Web servers, middleware or EAI platforms, unless they are designed specifically for the insurance industry. The report focuses on packaged insurance software solutions only.
Celent says it divided the deals into 30 categories, which are grouped into the four metacategories: core processing, distribution, document/content management and infrastructure.
“Property/casualty carriers appear to be more active [than life/health carriers] in replacing core systems, which makes sense, because their products do not have long lifespans like life insurer products,” the report states. “In addition, a wave of activity in the document space may have already passed over property/casualty carriers, whereas many life insurers are just now getting around to addressing document issues.”
Of the total 536 document management-related software deals reported, 281 (52.4%) involved life/health carriers, according to the report. The document management category includes document creation, enterprise content management, imaging and state policy/form filing.
For life/health insurers, “The broad category of document creation, as expected, was where most of the action was; it was the primary deal category for 63% of the deals in this metacategory,” the report explains.
Deals in this metacategory were also “significantly overweighted toward existing customers,” says Celent. “For example, among the five vendors that submitted deals in document creation, 79% of their deals were new functions or products sold to existing customers, while only 21% were for totally new customers.”
Celent attributes that difference to “the nature of these solutions, which are often implemented by line of business or even by major business process.”
The study concludes that for the fourth consecutive year, deal flow continues to rise, while solution quality is improving, “which gives carriers a reason to rethink traditional tools and methods.”
Celent adds that, “Software vendors in insurance–particularly in life/health–traditionally have had a hard time convincing carrier clients and prospects that their latest offerings offered significant enough advantages to justify the switching costs. This may be changing, with the advent of service-oriented architecture and other modern approaches. System replacements, even for complex systems like policy administration or document automation, are no longer unthinkable.”
Finally, the report suggests that carriers should leverage the insurance vertical expertise brought by vendors. In addition, “Carriers should use the data in this report and aggressive questioning during their RFI processes to ensure that their software vendors are well-versed in the particulars of insurance, which will help reduce implementation time and risks,” the study notes.