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Survey Shows the European Non-Life Policy Administration System Market Is Growing, but Challenges Remain

The market for non-life policy administration systems in Europe is highly fragmented, with more than 50 vendors competing in this segment and most operating in a single- or few-country model. The market experienced growth in 2010, with most vendors winning, on average, 2.2 new deals. However, there are still gaps for solution buyers wanting Pan-European, software as a service (SaaS) and modular solutions.

Key Findings
  • Half of the vendors offering non-life policy administration systems in Europe considered 2010 a better year than 2009, and more than one-third of the software providers reported bigger deals than in the previous year.
  • More than two-thirds of the vendors encountered long purchasing cycles of nine months or longer, with European non-life insurers requiring more top management approvals before selecting a new policy administration system.
  • Only 26% of the surveyed vendors were able to add more than three new customers to their portfolio in 2010, which implies that the market environment won't be sustainable for most vendors in the midterm.
  • The European vendor market is highly fragmented, with often less than three software providers having customer references in a country. This is unlikely to change a lot in the future, since less than 20% of the vendors see geographical expansion as a cornerstone of their strategy.
Recommendations

Non-life insurers should:

  • Create detailed functionality and solution checklists to guide vendor comparison, including geographic footprint, local functionality needs, hosting/delivery model, and breadth of functionality (for example, policy management modules versus policy administration suite).
  • Thoroughly compare the terms and conditions of policy administration software vendors, since licensing models vary considerably and because vendors are open to renegotiation – especially in markets with many competitors.
  • Carefully do technical and financial due diligence when signing new contracts for policy administration, as Gartner expects that the market will shrink in the next three years, with some vendors exiting the market, selling policy systems or merging/being acquired.
ANALYSIS
Introduction

Gartner conducted a survey with 51 European vendors of non-life policy administration systems in 1Q11. This includes vendors that continue to offer policy administration suites and those that offer stand-alone policy management modules. Both are represented in this research. Of the 51 that were contacted, 34 vendors responded to Gartner's request for information (RFI). The market is summarized in this research to provide business and IT managers with a better understanding of the market structure and patterns. This research also updates our previously published market overview (see "Seven Vendors Dominate the European Market for General Insurance Policy Administration Systems").

The European non-life market for policy systems has some interesting dynamics that must be clearly understood by buyers of new solutions. First, the market remains focused on policy administration versus policy management. Gartner released a definitional report in 2010 that highlighted the distinction between policy management (or best-of-breed solutions that are sold as policy functionality only, lacking claims and billing modules) and policy administration systems (suites that are sold to support policy processing, claims and billing all in a single solution; for more information, see "North American Property and Casualty Policy Administration Systems: Overview and Definitions"). More than 60% of all local European vendors have continued to focus on delivering policy administration suites, rather than on rearchitecting systems for buyers to purchase policy functionality in isolation. However, many new market entrants from Europe and abroad have started to challenge existing offerings with new policy management solutions. Breadth of solution capability should be carefully assessed to ensure proper solution size to fit business requirements.

Second, the European market for non-life policy administration systems is highly fragmented. Europe is not a single market, and as a result, most vendors offer country or regional systems that meet the local market needs. It is limiting to have one system that is built out for Pan-European operations. Multinational insurers wanting a single system for their European business will continue to find limited options.

Across Europe, the market is crowded with a long list of vendors targeting non-life policy administration processing. Gartner currently tracks more than 50 vendors across the countries. The siloed footprint of these solutions makes the market very complex, with a variety of vendors with different backgrounds: established European vendors that are broadening their footprint across Europe and new entrants from North America and Asia that are now marketing in Europe as well. It is critical for non-life insurers to understand viable vendors, the local presence, the maturity of the solution and the amount of prebuilt content for their local needs (including the ability to support local taxation and tariff requirements, local language support, multicurrency, and local reporting guidelines). This knowledge ensures project success and a full understanding of the level of configuration required during implementation to make the solution fit the country of operation.

Even with these risks, European non-life insurers have continued to invest in new systems in 2010 and early 2011. Gartner has seen a spike in interest among customers in identifying new systems for their European operations for both personal and commercial line processing. However, there are a few things to note about the European market:

  • Many insurers continue to run legacy environments with no plans to replace their policy administration systems in the short term. Instead, they are focusing on legacy modernization initiatives to improve existing system performance, including Web-enablement, building out an SOA, moving to lower-cost platforms or consolidating systems.
  • Many buyers of new solutions are starting to prefer policy management best-of-breed solutions versus policy administration suites. This creates a level of complexity in identifying suitable solutions and integration between policy management modules with surrounding legacy systems and complementary modules for claims and billing.
  • Building a business case for core system replacement is challenging for many non-life insurers, including justifying the investment in system replacement.
  • When selecting a new policy administration system, larger insurers are looking at global solutions rather than sticking only to local "created here" solutions that were built for their local geography. This has opened the door for international competition to enter Europe and challenge the local vendors.

Overall, the European non-life policy administration market continues to be a buyer's market with an average of 2.2 new deals per vendor per year. At this pace, Gartner believes this is, in the midterm, not a sustainable environment, which will ultimately lead to a vendor shakeout with a high likelihood of future mergers and acquisitions among vendors, as well as vendors exiting this business. This equates to risks for technology buyers, which need to be considered during contract negotiation and due diligence.

2010: A Better Year for Most Vendors, but Not Necessarily Bigger Deals

2010 was, for most vendors of European non-life policy administration systems, a better year than 2009. A symptom of the difficult economic times in 2009, most vendors had limited sales during the year. As the economy picked up in 2010, vendors saw more new customer wins as well. Almost two-thirds of the surveyed vendors reported more new deals in 2010 than in the previous year. The average number of new deals per vendor and year increased from 1.03 in 2009 to 2.24 in 2010. The 34 vendors acquired 76 new customers in 2010, an increase of more than 240% compared with 2009 (31 new deals). More than two-thirds of the vendors were able to gain more new customers, and only 6% had fewer new deals than in 2009.

The compound annual growth rate (CAGR) of new customer wins for the market between 2008 and 2010 is almost 15%, which is significantly stronger than the life insurance segment in Europe, where the CAGR was actually negative (-14%). The vast difference between life and non-life insurance is an indicator of the fact that long-term consequences and follow-up costs of legacy modernization in the non-life segment are less of an issue than in the life insurance segment. One example is that migration costs for existing customer portfolios often account for 25% to 30% of a typical life insurance policy administration implementation, while non-life contracts are generally not migrated and are simply renewed in the new target system.

Vendors are optimistic. Half of the vendors told Gartner they considered 2010 a better year than 2009. Only one vendor thought 2010 was worse than 2009. However, the positive perception and the increased number of customer wins aren't correlated with deal size. Fifty-two percent of the vendors in 2010 saw no difference in their deal size, and only 36% saw bigger deals compared with those in 2009 (see Figure 1). Non-life insurers should be aware that this highly fragmented and diversified market continues to be a buyer's market, and they should negotiate hard for license discounts and other terms and conditions, because it's essential for many smaller vendors to be willing to compromise.

Figure 1. Deal Size Reported by European Non-Life Policy Administration Vendors
figure 1
Source: Gartner (May 2011)

Although the majority of non-life policy administration providers had more new deals in 2010, this doesn't mean it is a mass market. In 2010, 55.8% of the vendors acquired one or two new customers. Actually, more than 20% of all vendors had no new wins in 2010, and only 26.4% were able to acquire three or more new customers in 2010. There were only three vendors reporting an exceptionally high number of deals: COR&FJA with seven, CSC with six and RGI with nine.

While the overall number of deals is relatively high across the entire market, each vendor had little growth in 2010 overall. This deal volume for individual vendors won't be a sustainable business environment and will likely force them to look for additional revenue sources in the professional services space or adjacent solution markets. Gartner has actually already seen vendors substituting software licenses with services revenue, which may, in the midterm, threaten their future growth and viability, as well as building out new solutions to augment their policy administration systems, including sales platforms or claims systems.

Market share may also be challenged during the next two years. Some new entrants come into Europe from North America and Asia with additional solutions, and some platforms may already be used in foreign operations of the large multinational insurers. As a result, Gartner ultimately expects more consolidation in this market segment over the next three to five years, highlighted by some vendors exiting due to their inability to continue market growth, and some vendors becoming noncompetitive because they cannot provide adequate R&D in their solutions to keep them up to market demands. Non-life insurers need to consider this likely development in their technical and financial due diligence and long-term IT sourcing strategy. Relying entirely on one vendor without a fallback scenario will present a significant operational risk.

Long Purchasing Cycles Are Challenging for Many Vendors

One root cause for the small number of new deals per vendor is the long purchasing cycle of European non-life insurers. Almost three-quarters of the surveyed vendors estimate that the average purchasing cycle of their prospects is from 10 to 18 months, with almost 12% seeing procurement cycles of more than 12 months (see Figure 2). These long decision cycles are in line with Gartner's experience during system selection processes. European non-life insurers usually follow a rigid and highly structured decision process, including a thorough RFI/RFP analysis, demonstrations of shortlisted vendors, proof of concept, reference customer visits, test deployments and detailed contract negotiations. Most companies are approaching selection with a committee format, involving representatives from both the business and IT in making buying decisions. There are, in Gartner's opinion, a number of reasons explaining these long cycles. For example, the lack of price transparency among vendors makes it difficult for insurers to compare their options, and the limited risk appetite of insurers requires a solution life cycle of usually several decades.

Figure 2. Estimated Purchasing Cycles of European Non-Life Insurers for Policy Administration Systems
figure 1
Source: Gartner (May 2011)

Another reason for the increasingly longer purchasing cycles is the difficulty of European non-life insurers to construct a business case for legacy modernization. While there may be many qualitative reasons for replacement, building a quantifiable business case may be thorny. Measuring the return on investment for a new system would require creating value metrics related to cost savings, customer satisfaction improvements, any reduction in processing costs, or lowered IT costs associated with the maintenance of existing legacy policy environments. All of these have proven difficult to measure among non-life European insurers (for more information, see "How to Build the Business Case for System Replacement in Insurance").

System replacement overall involves high risks and costs, which makes many insurers shy of such projects. Gartner has observed that the financial crisis has actually led to even longer decision cycles, which is supported by this research. Almost 56% of the surveyed vendors identified an increasing demand for more top management approvals of their customers. Twenty-three percent of the vendors observed a desire among their prospects for higher discounts, and 11% told Gartner that their customers wanted to distribute licenses over a longer period of time.

Overall, risks are smaller and more controllable with the implementation of policy management modules compared to policy administration systems. This could be the reason some vendors are seeing shorter cycles than others. Size of footprint of the solution directly correlates with the time required to implement, the complexity of the implementation, and the difficulty in building out business cases. Vendors of stand-alone policy management modules report faster decisions than their peers offering comprehensive suites in general. Non-life insurers should carefully evaluate the integration capabilities of applications in their existing IT landscape to pursue a gradual legacy replacement strategy.

Growing Interest in SaaS Among European Insurers

The interest in alternative licensing agreements, minimizing the legacy footprint for core systems, and higher discounts will, in Gartner's opinion, also spark SaaS as an alternative licensing and deployment scenario for non-life policy administration systems. In contrast to life insurance policy administration systems that typically require the migration of existing books of business, non-life lines of insurance are even better suited for SaaS, as the conversion is less complex and policies could be migrated at one time or at the point of policy renewal (which would take 12 months maximum).

Vendors are already seeing greater interest for SaaS among solution buyers. Fifty-six percent of the vendors confirmed that their prospects and customers are more interested in this option, and more than 70% of the vendors claimed that they have or will invest more in the SaaS capabilities of their applications. So far, Gartner has seen limited investment, and vendors often position traditional ASP offerings as SaaS, although they typically lack true SaaS capabilities such as multitenancy. Applying the necessary architectural changes to their applications will, in Gartner's opinion, often surpass the financial resources and experience of many vendors. On the other hand, SaaS will be an opportunity for many vendors to expand beyond their home market without significant infrastructure costs. Non-life insurers should assess the viability of SaaS as part of their future sourcing strategy and should consider factors such as size of the business, available IT skills, existing regulations and risk appetite. Gartner believes, for example, that SaaS is already a viable option for greenfield operations in emerging markets.

Vendors Focus on Global Expansion and Alliances

Expanding into new geographies and creating functional diversification are primary strategic drivers of European non-life policy administration vendors. Expansion is generally across Europe and into adjacent countries or those that have similar attributes to the ones where they have established a base. Few are targeting movement outside of Europe and into North America, Asia or Latin America. While this is the long-term plan for these companies, today, the market breakdown is very country- and region-specific. In almost 50% of the European countries, there are fewer than three vendors present. Only six countries – Belgium, France, Germany, the U.K., Spain and Switzerland – are true battlefield markets where insurers will find six or more vendors actively offering their solutions. The U.K. generally has the most options, as many North American vendors have targeted this country as their entry point into Europe because it lacks a language barrier. Gartner believes that many vendors cannot realize their ambitious expansion plans because they lack the financial resources and expert skills to identify and build out additional country-specific functionality needs, as well as the local implementation resources able to ensure project success. While there are some similarities in retail/personal and even commercial product lines in many European markets, it is very complex for vendors to follow all regulations and country specifics, such as tax rules and prebuilt integration to local data providers, to fully localize their systems. Non-life insurers should, on the other hand, not limit themselves to vendors from their home country and should consider foreign vendors as well, provided they are able to localize their solutions and are willing to share risks with their customers.

Other strategic vendor priorities include alliances, the enhancement of existing sales channels and up-sales to higher tiers. Almost two-thirds of the vendors focus on Tier 2 insurers with direct written premiums of €1 billion to €5 billion and Tier 3 insurers with less than €1 billion of direct written premiums. This customer structure reflects the market structure of the European insurance market, which is dominated by small and midsize enterprises that normally operate in a single country or a few countries. Most solutions have been built to run this volume, making it often a high risk for larger multinational insurers to use these solutions since scalability isn't tested or validated. Larger non-life insurers should carefully assess scalability when looking at the solutions market. Policy volumes planned for the next 10 years should be compared with the volumes managed today and the scalability tests provided by the vendors to ensure that the system can support the business growth projected.

Market Overview of Life Insurance Policy System Vendors in Europe

In total, 48 vendors were analyzed in this research. This includes the 34 responses that were collected during the survey process and public information for 14 vendors that were obtained for vendors servicing this market who had declined Gartner's request for information. Some points of the sample:

  • Fourteen vendors (Acturis, Akademi Consulting, Anodas, Comtec, Indra, Intersoft, ITN, Logica, Novum, Room Solutions, SFS Software, Target Harlosh, Total Systems, Xchanging) failed to respond to the call-out for information. However, public information was obtained to assess the market position.
  • CGI was included in the survey, but responded that it was no longer marketing its policy administration product GIOS in Europe.
  • Two other vendors (Javision and Sapiens) do not have any non-life insurance customers yet and are, therefore, not included in this research.

Table 1 provides an overview of the vendor landscape in Europe. For those vendors not providing information to Gartner, public information has been analyzed to ensure the vendors have at least one installed customer in Europe. Countries for marketing and sales have been filled in based on public information and Gartner insight into these vendors.

Table 1. Non-Life Policy System Vendor Landscape in Europe

Vendor NameMain OfficeProduct NameNumber of Customers in EuropeNumber of New Wins in 2010 in EuropeCustomers in EuropePrimary Sales and Market Focus in Europe*
3i InfotechIndiaPremia30Cyprus, Greece, RussiaU.K., Cyprus, Greece, Romania
AccentureIncorporated in IrelandAccenture Policy Components130Belgium, France, Germany, Italy, Spain, Switzerland, U.K.Spain, U.K., Switzerland, Belgium, Germany, Italy, France
ActurisU.K.Acturis for UnderwritersN/AN/A UK
AdactaSloveniaAdInsure41Slovenia, Croatia, SerbiaCentral and Eastern Europe (CEE)
Akademi ConsultingTurkeyLife Insurance SolutionN/AN/A Turkey
AnodasU.K.PhoenixN/AN/A UK
CCSNetherlandsLevel-7272Belgium, NetherlandsNetherlands, U.K., Belgium, Nordics
ComarchPolandComarch NonLife Insurance40PolandPoland, Germany, Austria, Switzerland, Benelux, Scandinavia
ComtecIsraelTotal Insurance SystemN/AN/A N/A
COR&FJAGermanyCOR-P&C77Bosnia, Croatia, Germany, Montenegro, Serbia, Slovenia, SwitzerlandGermany, Switzerland, Austria, Benelux, Nordics, Spain, Portugal, CEE
CSCU.S.GraphTalk A.I.A76N/AFrance, CEE, U.K.
Duck CreekU.S.Duck Creek Policy Administration52U.K.EMEA
eBaoTechChinaeBaoTech GeneralSystem31Netherlands, U.K.U.K., Poland
EdlundDenmarkNonLife.Net30Denmark, IcelandDenmark, Faroe Islands, Iceland
EurobaseU.K.Synergy132Germany, Luxembourg, Russia, U.K.U.K., Germany, Luxembourg
FadataBulgariaInsis182Bulgaria, Denmark, Hungary, Portugal, Romania, Russia, Slovakia, Spain, SerbiaU.K., Ireland, France, Benelux, Scandinavia
FDCDenmarkF2100120Denmark, Norway, SwedenDenmark, Norway, Sweden
Geneva-IDGermanyaiDa322GermanyGermany, Southeastern Europe
I2SPortugalGIS – Global Insurance System71France, Portugal, SpainSpain, France, Portugal
IDITIsraelIDIT Software Suite153Belgium, Bulgaria, Czech Rep., France, Greece, Hungary, Netherlands, Poland, Russia, TurkeyWestern and Continental Europe, Russia, Former Eastern Europe, U.K.
IndraPortugalRectorN/AN/A Southern Europe
IN2CroatiaINsurance2192Bosnia and Herze-govina, Croatia, Serbia, SloveniaSoutheastern Europe
Innovation GroupU.K.Insurer Policy40Germany, Italy, U.K.U.K., Germany, France, Spain
IntersoftGermanylifestreamN/AN/A Germany, Austria, Switzerland
IT-FreedomU.K.ICE Policy10U.K.U.K.
ITNFranceClevaN/AN/A France
LogicaU.K.WinsureN/AN/A Nordics
msg systemsGermanymsg.PIA212Austria, Belgium, Czech Rep., Denmark, Germany, Greece, Hungary, Italy, Portugal, Romania, Russia, Slovakia, Slovenia, SwitzerlandEastern Europe, rest of Europe
NorthdoorU.K.N-DEX102U.K.U.K. (London market)
NovumGermanyV'gerN/AN/A Germany, Austria, Switzerland
Prima SolutionsFrancePrima Insure60FranceFrance
QuinityNetherlandsQuinity Insurance Solution162Belgium, Denmark, France, Germany, Netherlands, SwitzerlandNetherlands, Belgium, Germany, Switzerland
RDTU.K.Landscape154U.K., IrelandU.K., Ireland
RGIItalyPass439Belgium, France, Ireland, Italy, SpainFrance, Germany, Spain
Room SolutionsU.K.Subscribe, Subscribe IPF3N/AN/A N/A
SAPGermanyFS-PM51Czech Rep., Germany, Austria, NetherlandsGermany, Austria, Switzerland, Netherlands
SequelU.K.Eclipse Underwriting90U.K.U.K.
SFS SoftwareTurkeyWinsure.NetN/AN/A N/A
SSPU.K.•Pure Insurance
•Select Insurance
•Pure Insurance: 14
•Select Insurance: 2
•Pure Insurance: 3
•Select Insurance: 2
U.K.•Pure Insurance: U.K.
•Select Insurance: U.K., Spain, Italy, Nordics, Benelux
Steria Mummert ISSGermanywinsure214Austria, Germany, SwitzerlandGermany, Austria, Switzerland, U.K. and the rest of Western and Continental Europe
Sword InsuranceU.K.Open+393Belgium, Czech Rep., France, Germany, Ireland, Italy, Norway, Spain, Sweden, Switzerland, U.K.U.K., Germany, France, Spain, Italy
Target HarloshU.K.InsuranceFacesN/AN/A N/A
Tata Consultancy ServicesIndiaTCS BaNCS22Belgium, PortugalBelgium, Netherlands, Germany, Italy, France
TIA TechnologyDenmarkTIA Solution381Czech Rep., Denmark, Estonia, Finland, Ireland, Latvia, Lithuania, Netherlands, Norway, Poland, Russia, Sweden, U.K.Nordics, Germany, Austria, Switzerland, U.K., Benelux, Iberia, Poland
Total SystemsU.K.UltimaN/AN/A N/A
UnirisxU.K.Policy94U.K., FranceU.K., France, Spain, Czech Republic, Poland, Slovakia
WydeFranceWynsure82France, Germany, Italy, Malta, SpainFrance, Spain, Italy, Eastern Europe
XchangingU.K.Genius.XN/AN/A N/A
* This does not necessarily mean that they have an installed customer base in these countries, but that they are currently marketing in these countries.

Source: Gartner (May 2011)

Recommendations

Non-life insurers should:

  • Create detailed functionality and solution checklists to guide vendor comparisons, including geographic footprint, local functionality needs, hosting/delivery model and breadth of functionality (for example, policy management modules versus a policy administration suite). This should be leveraged to determine viable vendors that meet the needs of the organization and the level of configuration that is needed to fill functionality gaps.
  • Thoroughly compare the terms and conditions of policy administration software vendors since licensing models vary considerably and vendors are open to renegotiation – especially in markets with many competitors. This market continues to be a buyer's market, and many vendors are very flexible regarding terms and conditions, including pricing, payment options, consulting or integration services, and additional development to fill existing functional gaps in their solutions. Be cautious and do not "compare apples with oranges" when you evaluate different proposals and assess the total cost of different options.
  • Carefully do technical and financial due diligence when signing new contracts for policy administration, as Gartner expects the market to shrink in the next three years, with some vendors exiting the market, selling the policy systems, or merging/being acquired. Today, the market is too crowded with small vendors that have limited customer bases, and it is highly likely that consolidation will occur within the future. Ensure that you have proper backup plans if the vendor you select no longer is in the market, including ensuring that the vendor has professional services firms with teams knowledgeable of the system, that you have code in escrow and/or that you have knowledge transfer at the onset to build up strong competencies within your organization in case you need to take over maintenance of the solution.
Gartner Industry Research Note G00213042, Juergen Weiss, Kimberly Harris-Ferrante, 27 May 2011