Report: Ignorant Insurance Technology Buyers Put Price First

NU Online News Service, March 26, 2:30 p.m. EST

Insurers that make price the overriding concern when selecting a policy administration system, have failed to do their homework and are not serious about the purchase, a technology consulting firm advises.

This was one of a number of observations coming in a study conducted by New York-based Celent titled "Pricing of Policy Administration Systems In Europe."

Nicolas Michellod, senior analyst with Celent and co-author of the report with senior analyst Catherine Stagg-Macey, said by e-mail that while the report concentrates on Europe, because policy administration (PSO) systems are prevalent throughout the industry, including the United States, the findings can easily apply here and elsewhere.

His e-mail explained that (PSO) systems record all information about a policy transaction from issuance to termination.

Mr. Michellod said such systems can also include other functions, such as billing, rating, underwriting, and can be integrated with other technology solutions.

During an online presentation, he said that the major consideration buyers have when purchasing these systems is functionality and how much information technology understanding the vendor has of the insurance business.

"When an insurer starts at the beginning negotiating about price, this is a sign that they are not serious about a potential deal," said Mr. Michellod.

"Price is important, especially in a critical downturn we are going through now, but in a very critical project like policy administration replacement, we have noticed that pricing is certainly not the most important criteria."

He noted later by e-mail that when an insurer seeks to negotiate price at the outset "it often means they've not clearly analyzed and defined their business case internally."

There is no one size that fits all, he noted, and the key for the buyer is to have the flexibility with a vendor that they need in implementing the system.

Among some of the findings, the report indicates that having a technology vendor with a lot of outsourcing capabilities does not necessarily mean lower cost.

The report found that when it comes to the type of licensing offered, the usage price model (payment based on the number of users of a system) dominates the licensing models. When it comes to warranty coverage the majority of vendors give a standard 90 day warranty.

On pricing trends in Europe, Mr. Michellod said the expectation is that in Western and Eastern Europe overall pricing will be stable to moderate. He noted that the market is growing in Eastern Europe and that might translate into moderate increases there.

The report is available online at info@celent.com. Celent is a member of the Oliver Wyman Group that is a subsidiary of Marsh & McLennan Companies.