Although North American life, annuity and pension administration systems technology providers have seen a decline in deals since 2009, vendors with stand-alone systems have increased their deal volume. In a new report, “Deal Trends and Predictions in the Life Insurance Policy Administration Solutions Market: 2012 North American Edition,” Celent notes that deals are down 12.8 percent since Celent published its 2009 ABCD Vendor View report. Since that time, Celent notes only six major deals have occurred in the policy admin space.
That said, the outlook for the North American policy administration system market is expected to be cautiously upbeat over the next three years, with a compound annual growth rate of 10.2 percent, according to the report.
Trends and data presented in the report represent Celent’s ongoing discussions with the industry, and vendor RFIs submitted as part of Celent’s 2009 and 2011 policy administration systems research.
"The North American market is made up of many established players with large client bases. The age of some of these client systems means that revenue from upgrades will remain a large portion of the policy administration market over the next few years,” says Karen Monks, analyst with Celent’s insurance group and coauthor of the report.
Two issues tend to dominate Celent’s findings: the amount of movement within the technology solution provider space is affected by both life insurers’ measured demand for improved core systems, and by the amount of merger and acquisition activities by these vendors as they cull from key areas to complement their existing offerings and meet the demand.
Celent notes that the North American life insurance PAS market remains a competitive one served by 16 vendors, with none of them owning more than 15 percent of the market. In the last three years, six of those 16 vendors in this analysis have been involved in a merger or acquisition as a result of new capital fueling the sector.
More good news for vendors in this space is Celent’s prediction that the market for life insurance policy administration systems will be buoyed by a large number of insurers upgrading older systems. Vendors have been active in updating their systems to include more modern languages, improved functionality and user interfaces, and advanced reporting and analysis capabilities. Upgrading existing vendor systems often presents insurers with a stronger cost rationale for staying with existing vendors, notes the report.
Celent predicts a “cautiously upward” trend in North American policy administration sales when upgrades are added to the equation. The total value of the market is estimated at $192.6 million in 2012 and $257.8 million in 2014, a 10.2 percent CAGR over three years. Upgrades account for approximately 26 percent and 39 percent of the market, respectively.
“The industry is slowly breaking its bad habit of living with severe legacy system constraints,” says Craig Weber, Celent's CEO and coauthor of the report. “There is no mad dash to replace every legacy platform, but rather a thoughtful, measured approach by many carriers to refreshing their system portfolios.”
As such, the authors offer life insurers advice on how to proceed: Insurers must continue to apply detailed evaluation processes to ensure careful selection of a partner that is the right fit. In addition to the traditional focus on functional fit, this process should take into consideration harder to measure factors such as product roadmap and investment strategy, the services record and client feedback.
Further, vendors need to improve their awareness and understanding of the markets they serve and their competitive set. In Celent’s view, vendors are often unaware of the market perception of their solution/company and woefully ignorant of their competitors’ offerings. The authors point to the complexities of long sales cycles and high cost of sales to stay in the game as adding to the challenges vendors face. “To come through this, vendors must have a clear (and evolving) view of their market position and take heed of feedback and advice from customers and prospects,” notes Monks.
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