Pressure Point

In comparing insurance software deals from the last three years, research group Celent found the growth factor in 2006 was somewhat less than what was discovered in 2005, but that fact can't deflate any of the excitement over last year's 44 percent growth rate, according to Craig Weber, author of the report titled "Insurance Software Deal Trends 2005-2006."

The increase in deals from 2004 to 2005 was 74 percent, indicates Weber, but the senior analyst in Celent's insurance group doesn't see any reason to be anything but optimistic. "We do not get the sense carriers are slowing their search for new software," he says.

Weber has no reason to doubt the numbers, either. "We've followed up with a lot of the vendors and our carrier-clients to do a little reality check on the numbers, and everything seems to be pointing toward increased activity," he says. "Everyone is optimistic about the sales environment for insurance software."

One reason for the upswing is the improving quality of software solutions now available on the market for both property/casualty carriers and life/health carriers, comments Weber, citing the continued adoption of what he calls "game-changing techniques" as the reason and pointing specifically to Web services and data standards such as ACORD XML as examples of the improved landscape.

"Those tools have been available for a while, but they've taken some time to reach critical mass," says Weber. "I think we're at that point where vendors support [Web services and standards] to a large degree. That means there are more products available to more carriers."

Other factors Weber sees as favorable to the market are the maturity level of the vendor solutions and the fact most insurance carriers are getting away from custom-built in-house solutions. For instance, a carrier that built a compensation system 15 years ago and has struggled to keep it operational is more likely to purchase a new solution on the market today, explains Weber. "There still are companies building solutions, and there is always an element of build in every new system, particularly around integration to existing systems," he says. "But the pendulum definitely is swinging toward buy."

The raw numbers show more deals taking place on the property/casualty side–55 percent for P&C compared with 35 percent for life and 10 percent for health–but Weber doesn't think the life and health field lacks momentum. He believes the outcome simply is the result of having more P&C carriers in this country.

"In actuality, it feels like the market momentum is the same across all sectors," he says. "Life insurers are buying just as aggressively as property/casualty buyers, although maybe in slightly different segments. For example, in the policy administration space, we've seen more activity with property/casualty carriers."

Weber sees no reason for vendor sales to slow down in 2007. "This is the fourth year we've looked at the deal trends, and the trend every year has continued to rise," he says. "All signs point toward good activity [in 2007], and I think the pace can continue."

The driver for this activity will be competitive pressure, predicts Weber. "As new solutions come on board, that tends to stimulate investment by carriers that have lagged," he concludes. "[Carriers] need to keep up, so I think we'll see the same level of investment next year."