New York - Accenture has agreed to acquire NaviSys, a privately held company that specializes in software solutions for the North American life insurance industry. Terms of the transaction, which is expected to close within the next 60 days, were not disclosed.

The acquisition will give Accenture a life insurance platform with a full spectrum of processing capabilities, from front-office sales to back-office policy administration. Accenture will maintain and enhance NaviSys' existing services and leverage NaviSys software to develop new business process outsourcing (BPO) services for life insurers in North America.

The new BPO services will be designed to help insurers end their dependence on legacy systems, reduce their cost structures, increase operating efficiencies, and refocus their efforts on designing and delivering new products.According to research firm NelsonHall, the market demand for outsourced business processes, such as policy administration and claims processing, and third-party administration services in the North American life insurance industry is expected to triple in size by 2010, to $2.17 billion.

"The multitude of legacy core business systems in use at most carriers today is one of the most costly and problematic operational issues facing the North American life insurance industry," says David Hollander, senior executive in Accenture's insurance practice. "By acquiring NaviSys, we can help insurers overcome this problem with comprehensive solutions that enable them to reduce their cost structures, increase efficiency, and accelerate new product introductions."

NaviSys works with more than 50 insurance companies and insurance distributors worldwide, including 17 of the top 20 U.S. life insurers. The company will become part of Accenture's financial services operating group, which serves 44 of the top 50 insurance companies worldwide. BPO services will be delivered by Accenture Insurance Services, a unit specializing in insurance BPO.

"As part of Accenture's insurance practice, we will enhance the services we offer clients with the resources and scalability of a major global solutions provider," says Michael A. Roe, chairman, president and chief executive officer of NaviSys. "With deep industry expertise, proven technology leadership and extensive global sourcing assets, Accenture and NaviSys together can deliver powerful innovation to the life insurance industry."

This is the latest in a wave of consolidation that is starting to sweep the insurance software space, as predicted in May 2005 by Celent LLC, a Boston-based financial research and consulting firm. "The Accenture announcement marks the continuation of this trend," says Matthew Josefowicz, manager of the insurance group at Celent.

There have been several deals in the past months, notes Josefowicz: White Hill bought Insystems from Standard Register, expanding its position in insurance document creation and management; Insurity/Choicepoint policy administration system vendor purchased ePolicy Solutions, expanding its reach from packaged .NET based solutions to open J2EE architectures; IBM purchased SOA player Webify, a cross-industry vendor with a focus on insurance; and Insurity/Choicepoint bought personal lines policy administration system vendor Steel Card, expanding into personal lines. And Celent predicts an additional 5-10 acquisitions of core and ancillary systems vendors before the end of 2006.

"Overall, this is good news for insurers," says Josefowicz. "There are many innovative smaller vendors in the space that insurers have judged to be too high-risk to work with because of their small organizational size. Bringing these players under larger corporate umbrellas will expand their appeal and should give them additional resources to invest in their products."

In addition, he notes, unlike M&A in other tech sectors where players buy competitors to take them out of the market, most of the buyers in this sector are looking for assets, not just customer lists.

"However, insurers should also make sure they understand the change of control provisions in any contracts they currently have or are about to enter into with smaller vendors, since the likelihood of short-term change of control is high for many vendors in the current environment," says Josefowicz.

Source: Accenture, Celent LLC

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