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Right Before Our Eyes, Technology Vendors Are All Grown Up

When it comes to the insurance IT vendor market the closer you look the more differentiated and specialized the vendors become.  Some vendors are still focused on either personal or commercial lines.  Some offer suites, others best of breed solutions.  Some are Microsoft, others Java.  Everywhere you look there are differences and distinctions. 

And yet the further back you stand the more you see some obvious and striking commonalities and patterns. The most striking pattern I see today is the rapid maturation in the vendor marketplace. I believe there has never been a better time for carriers to buy third-party core insurance systems. There are more options. The software is better. The acquisition options are more varied. The implementation success rate is higher. All these signs speak to the maturation of the vendor marketplace.

Let’s take a look at some of these areas in more detail.

Software Functionality

The first job of a software vendor is to build software that provides significant functional (and technical) improvements over what is currently available.  These improvements can be seen in both the scope as well as the quality of the software.  It is certainly the case that the functional footprint of insurance core systems has grown considerably in recent years. 

Consider the insurance suite.  A few years ago this term was synonymous with policy, billing and claims. Now, it more often than not includes document creation and (less often) document management; portal capabilities for agency and possibly insureds; some ceded reinsurance functionality; and a data warehouse/BI capability.  These are not minor add-ons, but rather are significant functional sub-systems. 

The vendor no longer gets to win based on who has the slickest out-of-sequence endorsement process; such capabilities are now no more than table stakes in the ongoing functional escalation which characterizes this marketplace.   It is no longer enough for a core-systems suite to support a series of insurance transactions.  These systems must now support improved service, promote business acquisition and retention, increase efficiency, reduce regulatory drag and facilitate speed-to-market.  

Software Configurability

The scope of an implementation project is largely driven by the gap between what the carrier wants and what the vendor has to offer; the narrower the gap, the smaller the project.  The obvious way to reduce the gap is for the vendors to embed more business functionality into their base offering. 

The second way in which vendors are reducing the implementation scope is by providing tools that facilitate the development of gap functionality. So called configurable software has been around for about 10 years, during which time it has gained wide acceptance in the marketplace and has been broadly adopted by vendors companies. Today, it is more likely than not that a core insurance system will incorporate a configuration toolkit as part of its software offering. In fact, I believe configuration is becoming the new table stakes.  I recall saying to a vendor CEO several years ago that he would not sell another COBOL-based solution; it’s getting close to the point of declaring the same with reference to non-configurable software. 

Not only does the configuration toolkit enhance the ability to develop gap functionality during the implementation it also supports the speed-to-market and reduced regulatory drag business drivers mentioned above.  The promise of configurability is that, starting with an off-the-shelf package, the carrier can end up with a highly customized solution, which was achieved with minimal programming and which is still upgradable going forward.


Software is now simply better built than in the past.  It is better designed, better coded, much better tested, more easily integrated, and in some cases, is even documented. The upgradability mentioned above comes from the separation of base-system code from user configurations and extensions.  This allows for base-system upgrades, which can (generally speaking) coexist with user defined configurations and extensions. 

The other salient technical feature is the greater ease of integration provided by mature, modern core systems.  The incorporation of xml and web services as well as the delivery of more pre-built interfaces has significantly eased the task of integrating the new system with other components of the application systems environment. These features, plus aforementioned configurability, provide the user with a more robust, more readily implemented and more easily maintained and enhanced solution.

Best of Both

The other key maturation feature in recent years has been the race to the middle. Best-of-breed vendors, recognizing that an integrated implementation is sometimes favored by clients, have built out major additional functionality and have “put there solution in a box” allowing it to be implemented as an integrated suite. 

By contrast, the suite vendors have recognized that not ever client wants to undertake a full rip and replace implementation and have componentized their systems, essentially allowing for a best-of-breed implementation if required.  This best of both development provides more software choices and more implementation options to insurance carriers and is another maturation sign on the part of the vendor marketplace.

Implementation Delivery

Not only are vendors maturing in terms of the software they build. They are also making great strides in the ways in which the software is delivered and implemented. Ten years ago it wasn’t unusual to deal with vendors that wrote decent software, but were pretty horrible at leading their clients in successful implementations.  It always stunned me that vendors could do the incredibly hard task of building decent software and then fail at the less arduous job of getting the software implemented. 

To me this was a case of snatching defeat from the jaws of victory. I think 10 years ago some vendors still thought it was their job to build the software and the client’s responsibility to get it installed. While it is true that many aspects of an implementation project are client-driven e.g. requirements definition, user acceptance testing and data conversion, the vendor must be responsible for leading critical implementation tasks and providing options to the client to support other project areas.

Some vendors simply improved their delivery capabilities. Others developed partnership programs that allowed carriers to contract not only for software specific skills, but also for program and project management, QA, integration and conversion capabilities. These developments are, I believe, behind a gradual increase in the success rate of core system replacement projects. 

As I have lamented elsewhere, it is very difficult to get reliable statistics on how many projects succeed, how many fail and what these terms even mean. No CIO is interested in publicizing a failure and neither are the vendors, so estimating success rates is a dicey business. 

Qualifiers aside, my take, based on talking to vendors, carriers and analysts is that the success rate of core system replacement projects is on the rise and seems to be sustained.  I think the fact that more carriers are undertaking legacy replacement projects supports the perception that more projects are succeeding.

We cannot leave the topic of implementation success without mention of one of the key reasons for the perceived success, and that is the wide adoption by vendors of some flavor of agile methodology.  The core of agile is to build, review, adjust, and build some more.  This simple formulation, which involves business users early and often, leads to better defined, more accurately delivered software and allows the users to feel ownership and promote in their respective parts of the business operation.  Agile has done away with the “look what IT has done to us now” experience that was once so common.

Software Delivery Models

Another vendor maturation feature is the increased options that carriers now have for how they use and pay for software.  Beyond the traditional license model there are lease options, various premium- or transaction-based usage models, and emerging SaaS and multi-tenant cloud options.

The Partnership

Perhaps the best indicator of maturity on the part of vendors is the move, which I believe to be genuine by most vendors, toward a partnership rather than a vendor/customer relationship.  More vendors are committed to their clients’ success and know that is the only way they will succeed.  This partnership mentality is reflected in many ways—contracts and pricing schemes that normal humans being can read and understand, willingness to embrace pay for performance, a greater transparency in sharing roadmaps, issues, and solutions, taking responsibility for guiding clients and supporting carriers best interests, even at the expense of short term revenue. 

Growing, growing . . .

If you take the key elements of better software functionality and technology, improved software implementation and delivery, and a genuine partnership commitment it is apparent that the vendor marketplace has matured significantly in recent years.  While this is great news for carriers we are nowhere near an end state. The process will continue, driven as it is by competition. To illustrate, let me leave you with a quote by an executive from a very successful vendor company when asked about his new job: “My new job is to figure out how to halve the cost of a client implementation.” 

Halleluiah, brother!




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