Celent's new report "Deal Trends in Life, Pensions & Annuities Policy Administration Solutions: EMEA Edition" reveals a challenging situation for vendors in that region that may make North American (NA) purveyors of policy administration systems feel smug. However, the comparative strength of the NA market may attract more Europe/Middle East/Africa-focused vendors. That's a potential problem for vendors here, but it can only be good for insurers.
Celent senior analyst Nicolas Michellod, a co-author of the report, describes the EMEA policy admin space as "extremely crowded" and economically "relatively flat." New deal activity for core systems across Europe has been in decline since 2009, down 19% since 2009, Celent reports.
"The average market share based upon client implementations is just 2.7 percent, and the average number of clients per country is 2.9. Vendors trading at or below this level may find it difficult to maintain momentum in these tough regional conditions," Michellod elaborates.
Celent co-author Jamie McGregor, senior analyst, notes that EMEA insurers' IT budgets are being diverted from core system investment somewhat by regulatory requirements associated with both pan-European legislation, such as Solvency II, and also local country market reforms, including the U.K.'s Retail Distribution Review and the Netherlands' Pensioen Akkord. Other localized across the region also present barriers to market entry and success on the part of vendors, according to McGregor.
[For more on European influence on the North American insurance industry, read Another British Invasion? The New Wave of Insurance Regulation.]
"The differences in tax, regulation and local distribution structures between countries results in insurers preferring to select vendors with proven local market experience and a physical local presence, making it difficult for new vendor to break in," McGregor tells Insurance & Technology. "The result is a fragmented vendor market with a bias toward smaller, local vendors, and many experiencing varying levels of success by country."
The EMEA region is following NA's lead in adopting modern, package-based policy admin systems, especially in emerging markets, where the focus is on speed-to-market entry to capture market share, according to McGregor. Insurers, and hence core system vendors, are enjoying opportunity through the introduction of "tried-and-tested" product types from mature markets on modern policy admin package systems. Emerging markets present simpler product requirements and trust in financial institutions tends to be higher, McGregor notes.
Established insurers are using packages for launching new lines of business rather than undertaking legacy replacement efforts, even as they agonize over the costs of maintaining old systems and the increasing difficulty of finding skilled people to run them.
While the NA life and annuities insurance industry shares some of these difficulties, the outlook for policy admin system vendors is rosier than for their EMEA counterparts for the time being. Celent foresees the market's value growing from $190 million in 2012 to $258 million in 2014.
However, the richness of the NA market may attract more EMEA-domiciled vendors to compete there. McGregor notes that at least two vendors have entered the NA market from Europe -- FIS and Wyde -- and that these vendors have continued to gain market share.
"Celent believes that this trend is likely to continue as European vendors will have to look further afield to find the growth they need to sustain their business models, and historically the natural first step outside of Europe for many vendors is North America," McGregor comments.
That may be a daunting prospect for NA vendors, but it will mean more of a buyer's market for insurers in the region. And just as those insurers can learn from their EMEA counterparts' experience with regulatory change, vendors from that region are likely to become more innovative through addressing those challenges, McGregor believes.