Insurer Software Deals Slow

Property/casualty and life/health insurers’ software buying continued at a slow pace between 2009 and 2010, reports Celent, a Boston-based financial research and consulting firm.

According to a new Celent report, “North American Insurance Software Deal Trends 2011: Life/Health/Annuity and Property/Casualty Editions,” insurers continue on with extended decision times, with a slowdown in the number of closed deals.

In a like-on-like comparison of vendors from the 2010 report (2008/2009 deals), the 2011 report shows a 2.9% decrease in deal volume. As these 26 like-on-like vendors represent 95% of the deal volume, their experience is representative of overall deal activity for this data set.

In its previous Deal Trends report, Celent found that although the economy created a strain on IT department budgets, deals were getting done, but the decision timeframes—or sales cycle—was longer than in previous periods.

Further, recent times of financial restraint, insurers stayed with vendors they know, and expansion within accounts by incumbents was for deals that were small in dollar value.

Celent collected data on 1,764 deals between insurers and software vendors that occurred in 2009 and 2010. Of this total, 62% of the deals involved property/casualty insurers, and 38% involved life/health/annuity insurers.

This seventh edition of the report indicates that deal flow has decreased despite the recession ending. This finding from the data supports Celent's belief that insurers are reacting to a “New Normal” way of operating. Given the outlook of an extended period of low growth in the general economy, insurers are rethinking their corporate objectives and strategies. Although deals are getting done, there is still a concern about expenses relative to slow growth, resulting in a smaller volume of deals in the time period.

Activity is spread across all four metacategories. While the document/content management category leads in volume, as in previous years, there is similar strong activity the core processing category. Carrier investments in software were directed at a host of functions in this reporting period.

Software-as-a-Service is growing in acceptance in the marketplace. SaaS delivery made up over 10% of all reported deals.

The Deal Trends reports cover both life/health/annuity and property/casualty.

Life/Health/Annuity Results:

• Volume within life/health/annuity fell in 2010, although volumes increased from quarter to quarter. The fourth quarter of 2009, with 135 deals, saw the highest volume of deals for the two year period across all metacategories.

• Activity in the core processing metacategory was strong, reversing a trend observed in 2008 and 2009. Celent believes that the business case for core systems replacements continues to strengthen, given higher service level expectations and speed to market pressures.

• The life/health/annuity deal flow was spread across carriers of all sizes. But deals were surprisingly numerous in the upper tiers, considering how relatively few companies there are in this category. For all metacategories combined, Tier 1 and Tier 2 carriers accounted for 59% of all deals analyzed, while Tiers 3, 4, and 5 accounted for 41%.

Property/Casualty Results:

• In terms of carrier size, the property/casualty pool of deals was distributed more heavily in Tier 3, 4, and 5 insurers

• Q4 2009 was the strongest quarter of the period with 346 deals. 2010 saw overall volume for P&C deals drop, and Q2 and Q3 being the strongest quarters

• The core processing metacategory was a key driver of this volume; when compared with the previous report, the category rose slightly

• The distribution metacategory saw increases in deal volume over the time period while document/content management fell