The Coming Wave of Insurance Software Consolidation
The Coming Wave of Consolidation in Insurance Software
Celent expects M&A volume among insurance software companies to more than double in the next five years.
The insurance software market is large and growing. Celent estimates that annual enterprise software spending by insurers in North America, Europe, Japan, and China stands at roughly US$10 billion in 2006 and will grow to nearly US$15 billion in 2011. In the US alone, there are over 150 firms serving this market, and Celent believes that the industry is ripe for consolidation. Celents new report The Coming Wave of Consolidation in Insurance Software provides an overview of the market, the reasons for this upcoming consolidation, and projections for what the space will look like in 2011.
"Consolidation in the insurance software industry is nothing new. What is new is that the dot-com/post-Y2K hangover has finally lifted and that significant new players are about to make themselves felt in the market, which was long the exclusive provenance of the 'big four' CSC, Fiserv, SunGard, and CGI," says Matthew Josefowicz, manager of Celent's insurance group and lead author of the report.
The new players include a group of what Celent terms "aspiring majors"companies like ChoicePoint/ Insurity, i-flex, some of the Indian IT services firms, and others. "In addition to these, the sleeping technology giants like SAP, Microsoft, IBM, and Oracle are finally awakening to the potential of insurance enterprise software," adds Chad Hersh, senior analyst in Celent's insurance group and a report co-author. "In addition, private equity firms are also making their presence felt."
Celent expects the hottest sectors to be P/C policy administration and claims. Other sectors will include billing, life policy administration, illustrations, business intelligence, and possibly document management. Celent also expects substantial acquisitions in Europe and China.
"There are over 30 policy administration vendors in Europe," comments Catherine Schmitt, senior insurance analyst in Celent's London office. "But few have more than 10 clients. We've already started to see acquisitions in this market."
By 2011, Celent expects the software market to look significantly different. SAP will become a major player, CSC is likely to have new ownership, SunGard and ChoicePoint will be vying for the position of "The .NET CSC," at least one Indian firm will have bought itself a significant market position, and many of today's smaller players will be rolled up, hunkered down in protected niches, or gone.
"The coming consolidation is no reason for insurers to avoid badly needed software purchases," adds Josefowicz. "But we advise insurers to be sure to understand the acquisition strategies of their large providers, and the change of control provisions in their relationships with smaller companies."
The report is 18 pages long. A table of contents is available here.