With this week's announcement of MphasiS's planned acquisition of Wyde, the insurance software market trended further in the direction of a field of larger, more global vendors, with loosely coupled suite offerings, strong implementation capabilities and delivery options.
The MphasiS/Wyde announcement reinforced an observation that Gartner analyst Kimberly Harris-Ferrante made in a phone conversation following the Accenture/Duck Creek acquisition announcement and the merger between Sapiens, FIS and IDIT. Industry observers continue to ask, Harris-Ferrante said, whether or when we will see a genuinely global insurance market.
Despite a few clients abroad, Duck Creek is a quintessentially American operation, right down to its Midwestern location and its homespun name. However, there is no denying the global reach and financial power of Accenture. Sapiens and its new partners are all headquartered abroad (FIS in Wales, and the other two in Israel), and two of the three have significant presence in North America. Wyde is itself an international firm -- with clients in North America, Europe, Asia and the Caribbean, not to mention an R&D facility in Paris -- and MphasiS is an IT services company headquartered in Bangalore.
The beauty of these deals is that the smaller companies now have access to further shores, and their partners gain an implementation in their home base, according to Harris-Ferrante. This is as true even in the case of New York-based Accenture's acquisition of Duck Creek's deep customer base in the U.S. mid-tier P&C market, though it is more, true, one might say for BPO provider MphasiS, which lacked any comparable software assets prior to the pending deal with Wyde. Mphasis, for its part, brings service capabilities and expertise and resources for alternative delivery, such as hosted software-as-a-service.
Sapiens' deal makes the Israel-based vendor much stronger vendor in the U.S., says Matthew Josefowicz, principal of New York-based Novarica.
"FIS is developing some good momentum in life/annuity, and RapidSure [added through Sapiens' 2010 acquisition of Harcase] has a strong reference deployment at Philadelphia Companies and several other customers," Josefowicz reports. "IDIT is less of a factor in the U.S. market, but its billing and claims modules might be leveraged to fill out the RapidSure offering.
However, the Accenture/Duck Creek deal is more representative of another trend. In the last decade-or-so, the industry has gone from "big box" core system solutions comprising a full suite of functionality, to the best-of-breed approach, according to Harris-Ferrante. The latest stage in this evolution is a model wherein a single vendor provides modules across the core system functional spectrum. "The cumulative cost of maintenance and integration [in the new model] will be lower than buying three best-of-breed systems from three different vendors," Harris-Ferrante says.
Deals that bring smaller vendors into a larger vendor modular suite offering have other advantages too. However sound a small, independent vendor's technology may be, CIOs need to wonder whether they'll be around to support an implementation in the years ahead. Also, the small vendors with the best technology are prone to being victims of their own success. A mismatch of growth and professional services can lead to less than optimal results, notes Donald Light, senior analyst, Celent.
"Duck Creek is pretty agile and has been very successful in growing its footprint, especially in the U.S. states with policy administration and rating, but they have had their challenges managing growth," Light comments. "Accenture is strong in terms of its delivery record, project methodology management."
Both Accenture and Sapiens bring significant research and development resources to their junior partners. Light notes a contrast between Accenture's higher-end software customer base and Duck Creek's concentration toward the middle-to-lower tiers. However, he sees the acquisition as a smart move and a stout reaffirmation of the Accenture Software strategy of building up package software as a separate business unit.
Smaller-carrier customers of vendors absorbed by industry titans may worry that they'll fall down the post-merger entity's priority list. However, the recent Navy Mutual contract for the Accenture Life Insurance Platform (ALIP) clearly shows that Accenture intends to compete in the sub-tier I markets, according to Matthew Josefowicz, principal of Novarica (New York).
"If Accenture is successful in serving smaller customers effectively, this will put additional pressure on many independent software vendors to buddy up with a 'rich uncle' who can provide top-class R&D and implementation resources, since the standards will have been raised," Josefowicz says. "However, this is all very much to be determined at this point."
Also to be determined is how well acquired companies will mesh with the larger partner's existing software base. In the case of Accenture/Duck Creek, both companies solutions are built on Microsoft .NET, easing integration. Executing on a common architecture for all a vendor's solutions will be essential, but some post-M&A companies may be unable to deliver on that criterion, suggests Gartner's Harris-Ferrante.
"For buyers to reap the full benefits of [acquired assets], vendors with large solution portfolios must have the point solutions operating in a suite manner, including having a common technical platform, the same data model, prebuilt services and plug-and-play integration," Harris-Ferrante says. "Many of the vendors may not be willing or able to do all of this in the short term. Therefore, the ability for buyers to have easy integration and implementation projects with a single vendor, and the ability to control these costs will be difficult if not impossible."