A small but important segment of the core systems market in Europe is choosing to implement claims as a stand-alone legacy modernization project, according to a new report, Deal Trends in Claims Systems: 2012 European Edition, from Celent, an international financial research and consulting firm.
Growth in claims deals will be slow over the next five years and these deals will increasingly go to only a handful of vendors, according to the report.
Key findings include:
Insurers in North America and Europe have differed somewhat in their claims system approaches. In North America, building a claims system has become extremely rare, while assembling one from components (e.g., claims, illustrations, policy and billing) has become increasingly common. This has been driven by the availability of one-time frameworks that have matured into off-the-shelf but heavily configurable claims administration systems on one end of the spectrum, and fully developed, end-to-end claims administration suites on the other end.
The European landscape is beginning to look more like North America. Historically, across Europe, large insurers have custom-built their systems using a framework, while midsize insurers have opted for end-to-end packaged solutions. Increasingly, large insurers are opting for highly configurable packaged solutions for delivering new propositions. In emerging markets in Europe, a number of insurers prefer to either source a package from a local vendor or revert to custom build. Local market knowledge and presence are valued. With the entry of new vendors, from both inside and outside Europe, buyers across the region have more options in an increasingly crowded vendor landscape.
Going forward, Celent forecasts that the European market will grow at 6 percent CAGR between 2012 and 2016. There are two components contributing to this growth. First, there will be an increase in the number of deals over this time period-an estimated 4 percent CAGR. This growth will come primarily in the large and midsize deals as insurers choose to undertake claims-only replacement projects. Celent’s belief is that the core drivers for core system renewal remain across the region. The other variable contributing to the overall CAGR is that of an increase in deal values.
The growth of total deal value will be 8 percent CAGR by 2016. This growth is driven by several factors, including the maturity of the solutions and increasing success in these types of projects.
There were 26 new claims system deals reported between January 2010 and June 2012 by the 19 profiled claims administration systems in the European claims report. There were a similar number of new deals for the period of 2008 to 2010. Note that these are deals where claims will be implemented in a stand-alone manner. There are other deals that include policy administration, claims, billing, and reinsurance functionality in a single deal. To avoid duplication, these will be counted under policy administration deal trends reports. Celent believes that this represents approximately 90 percent of all new deals in this category across Europe, bringing the total to 29 new deals across the region.
Of the 19 vendors profiled, Celent can track new deal performance for 18 vendors between our 2010 and 2012 reports. The deal data for 2010 covers the period of January 2008 to June 2010. The deal data for 2012 covers the period of January 2010 to June 2012. Using this data and adjusting for overlaps, there is no apparent change between the two years. What can be noted is the nominal increase in large deals at the same time as a drop in small deals.
By 2016, Celent predicts the new deal count of 18, broken down by eight small deals, five midsize deals, and five large deals. Celent believes that this represents a market opportunity of about $65 million. In this year, Celent forecasts an additional 11 upgrade deals. Once revenue from upgrades and extensions has been factored into this number, Celent believes that the total market revenue opportunity in 2016 for licenses, extensions, and professional services increases to about $78 million.
The European claims market is competitive, particularly if seen through claims-only deals. There will be several vendors chasing a limited number of deals in the next five years. However, this is not deterring entrants in the form of startups or in the form of North America-based or Asia-based vendors expanding their geographic footprint.
To be successful, vendors must have:
1) An accurate view of their current market position.
2) An understanding of the local market conditions for each region and country-in particular local distribution and regulation.
3) A compelling roadmap that recognizes the local market differences and clearly demonstrates investment in the core proposition.
4) A clear go-to-market strategy, based upon the core proposition’s differentiating features.
To successfully navigate this field, an insurer needs a clear understanding of:
1) Its business goals and strategies, and how a new claims administration system would add value.
2) The costs and benefits of pursuing a best-of-breed solution versus an end-to-end package approach.
3) The vendor/systems landscape with a balanced focus on features and implementation capability.
4) Screening and selection criteria.