The technology needed to support the property and casualty industry isn't always a sexy topic, but software platforms and information technology systems are essential for insurance company success, as well as the success of insurance agents and brokers.
A basic understanding of technology modernization trends are needed for planning and decision-making that directly impacts your customers and your bottom line.
"Insurers' Core Systems Buying Trends," a research report by Karen Furtado with Strategy Meets Action, investigates patterns in insurers' core modernization decisions, including:
- Which core components are being purchased.
- What core-adjacent functionality is included (e.g., data and analytics tools, portals).
- Which lines of business will be supported.
- How the capabilities will be deployed.
This research gives insurers insight on industrywide core modernization efforts through the lens of insurers' core buying decisions in 2015.
Core systems 101
Here are some basic concenpts you need to understand:
Single-component core systems include:
- Policy administration system.
- Billing system.
- Claims administration system.
Multi-component core systems include:
- Policy-plus: The purchase of two core systems at once. The most typlical confirguration is policy and billing, followed by policy and claims. A single billing and claims deal is also included inthis category but is not a common purchase type.
- Suite: Purchase of policy, billing and claims in one transaction.
Insurer tiers:
- Tier 1: Direct written premium (DWP) over $5B.
- Tier 2: DWP between $1B and $5B.
- Tier 3: DWP between $250M and $1B.
- Tier 4: DWP under $250M.
Strategy Meets Action has identified the following eight key insurer software platform trends that have continued to grow in the past year:
Core system software providers have been extending their capabilities to include core-adjacent functionality such as portals and data and analytics tools as well as a number of more standard components such as rating and customer communication management. (Photo: iStock)
1. Core system suite buys continue to increase.
Over the past five years, there has been an increase in the purchase of core system suites, surpassing the single-component buying pattern that had previously dominated the market.
Suite deals rose from 37 percent of the 2014 market to 43 percent in 2015.
At the beginning of 2015, Strategy Meets Action research showed that personal lines of business were the farthest behind in policy administration modernization. (Photo: iStock)
2. Most of the core systems purchased in 2015 support personal lines.
Of all suite transaction in 2015, 78 percent support personal lines. New core systems purchased to support personal lines only are particularly likely to be suites (83 percent). One out of every three core transactions in 2015 was a suite purchased to support personal lines.
Many of the personal lines core systems that the 2015 core purchases are replacing were implemented 10-15 years ago, during the first core modernization wave. Today, the capabilities and functionality of a modern core system are well beyond that of a 15-year-old system.
Consumers' changing expectations for their interactions with insurers have a more direct impact on personal carriers today. These insurance companies face a greater pressure for more advanced capabilities, from the ability to incorporate telematics and emerging technologies to accelerated product development that can compete with insurance startups.
Suites are trending among insurers with direct written premium under $1 billion. (Photo: iStock)
3. The smaller the insurer, the more likely they are to purchase a suite.
Tier 4 insurers are purchasing suites at a staggering rate: 72 percent of all core transactions by Tier 4 insurers are for suites. One out of every four core purchases in 2015 was a suite for a Tier 4 insurer.
Functionality can be an important decision point for insurers comparing different core systems. (Photo: iStock)
4. Core purchases are distributed evenly between transactions for a single core component or for multiple components.
Although suite purchases represent a significant — and increasing — number of insurers' buying decisions, SMA's research indicates that purchases of stand-alone core systems still make up just over 50 percent of the 2015 core market activity.
In 2015, the major growth was in core systems purchases that supported both personal and commercial lines. (Photo: iStock)
5. Insurers are increasingly purchasing core systems to support both personal and commercial lines.
Strategy Meets Action research published in "Policy Administration: P&C Plans and Priorities" found personal lines on the verge of a major transformation push, one which had already affected commercial lines. The volume of 2015 purchases that support personal lines shows this push in action.
All personal lines core purchases made up a slight majority of the market (52 percent), while they accounted for only 40 percent of core transactions in 2014. The increase is due to a higher volume of core systems purchases that support both personal and commercial lines: these transactions rose from 23 percent of the market in 2014 to 35 percent in 2015.
The increasingly advanced functionality found in core systems, especially those with more than one core component, is facilitated by cloud and hosted deployment. (Photo: iStock)
6. Rise in cloud hosting.
Core systems that support both personal and commercial lines are contributing to a rise in cloud hosting. The proportion of these transactions hosted in the cloud shot up from 17 percent in 2014 to 37 percent in 2015. By comparison, 24 percent of all core systems purchased in 2015 will be hosted in the cloud, an increase of 5 percentage points from 2014.
The core systems most frequently deployed in the cloud in 2015 are suites and claims. One reason that suites and claims are so frequently hosted in the cloud is the interest of noninsurers (municipalities, self-insureds, state Fair Access to Insurance Requirement plans, etc.) in cloud deployment.
On-premise deployment has only dropped in personal lines of business: 62 percent of all personal lines transactions were on-premise in 2014. A year later, on-premise personal lines purchases are less than half that, at 30 percent. (Photo: iStock)
7. On-premise deployments on the decline.
Strategy Meets Action has found that 2015 was the first year a minority of new core systems were deployed on-premise versus hosted elsewhere. On-premise deployment made up only 42 percent of core transactions in 2015, down from 54 percent in 2014.
Do you have the functionality that your competitors are acquiring with the modern core systems they are purchasing today? (Photo: iStock)
8. Hosted core systems include more functionality than on-premise core systems.
Extended capabilities in core systems that complement core functionality, such as data and analytics, underwriting rules management, and document management/imaging, are much more likely to be found in hosted deployments of core systems than in on-premise deployments.
The capabilities and integrations that insurers acquire in core modernization purchases will support their ability to compete in the future. It's critical for insurers to be aware of the rise in cloud deployment, enhanced functionality and software suites.
Want to get a copy of the full SMA report? See "Insurers' Core Systems Buying Trends: Core Modernization Creating a Path to the Next-Gen Insurer."
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