Impact of Private Equity in Insurance: The Accenture and Apax Partners Transaction

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The insurance industry is abuzz with the recent announcement of a joint venture between Accenture and Apax Partners, a private equity group, to further develop Duck Creek solutions into end-to-end, cloud-based core systems. Significant outside capital has become a game changer in the industry in general, but this is a transaction to watch.

M&A activity among insurance solution providers has tended to be an all-in-the-family affair, for better or worse. The Accenture/Duck Creek Technologies acquisition is one example of many: Insurity with AQS and Oceanwide comes to mind, as does Majesco with Cover-All and Agile.

Over the past five years, we have seen a new pattern emerging, where private equity (PE) and venture capital firms have begun to eye the insurance industry – and core systems in particular. 2011: Genstar Capital and Insurity. 2013: Volaris Group and Silvervine (formerly IDMI Systems). 2014: TA Associates and Insurity. January 2016: Carlyle Group and 1insurer (formerly Innovation Group). And now, in April 2016, Apax Partners and Accenture.

Those of us in the industry know the value of strong core systems providers and the role they can play in insurers’ ongoing transformation. But what’s the appeal for private equity and venture capital?

In a recent SMA webinar, Mike Connor, co-founder of the Silicon Valley Insurance Accelerator, explained. “Insurance is one of the most foundational industries and sets up or enables economies to thrive,” he pointed out. “It can lift the world.” The very aspects about the insurance industry that make innovation challenging – longevity, stability, long-established best practices – are what make it such a sizeable prize: Connor estimated the benefits of digitizing insurance to be over $5T.

With the insurance industry on the verge of transformation as it finds new business models and new technologies to cement its future in the digital economy, it will continue to need strong core systems providers able to support the changing insurance business. The Next-Gen Insurer needs Next-Gen Solution Providers to continue to thrive.

That is the opportunity that PE firms have identified. They depend on their ability to find sectors poised for greater growth and to invest in targets that can tap directly into it. Apax Partners is looking toward Duck Creek Technologies to step into that Next-Gen role.

This is not the end of the story, of course. But with increasing pressure on insurers to evolve and increasing incentives for solution providers that can help them do so, we can expect more PE firms to become players in insurance and its foundational systems, like policy, billing, and claims.

This blog entry has been reprinted with permission from SMA.

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