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December 19 2016 | Karen Furtado

The significant capital investments at work in the InsurTech world have also been active in the core systems space, including both new private equity and venture capital funding sources. Within the last week, two separate announcements in the core systems industry illustrate a trend we have seen throughout 2016: companies continuing to both consolidate within the core market as well as adding new core-adjacent capabilities like portals and analytics. Insurity announced on December 8th the acquisition of Systema Software, which offers a stand-alone claims solution for P&C insurance. One, Inc. announced on December 14th that they have raised $20M in funding from a number of venture capital firms, including AXA Strategic Ventures and MassMutual Ventures, as well as their earlier partner, H&Q Asia Pacific.

investmentEarlier this year, Sapiens acquired Maximum Processing, CSC acquired Xchanging, Guidewire acquired EagleEye Analytics and FirstBest, and Insurity acquired Tropics Software and now Systema. An influx of venture capital in the core systems space is also leading to consolidation: Apax Partners acquired a percentage of Duck Creek Technologies, then acquired Agencyport to expand DCT’s capabilities. This volume of capital investments, acquisitions, and ownership consolidation observed in the core system space has not occurred in years. 

Despite the M&A activity, the core systems arena is still crowded, with more than 60 solution providers active in P&C alone. In such a crowded market, providers are looking to offer a wide variety of capabilities. The very few remaining companies who are selling stand-alone core solutions are significantly challenged to participate in the new ecosystem. The impact on insurers promises to be substantial, as these market shifts are happening at an increasing rate. The purpose of these deals is not to retire existing solutions and homogenize the combined organization. Instead, they are intended to consolidate disparate capabilities, expertise, and business cultures and to leverage them in conjunction with the larger company’s existing assets. The resulting organization is meant to be able to offer their customers more than either of the two companies could have alone. Insurers are responding to this trend – there have been many new portal and data/BI buying transactions from these core system providers.

Guidewire, Insurity, and One, Inc. illustrate the very different approaches that solution providers are taking to expand their capabilities. With the acquisition of FirstBest and EagleEye, Guidewire is expanding across the value chain to deepen their relationships with customers. The goal is to provide “one-stop shopping” for Guidewire’s InsuranceSuite clients who also need underwriting specialists or predictive analytics.

Insurity is taking a different approach strategy. The acquisition of Tropics gave them an infusion of workers’ comp expertise, just as last year’s acquisition of Oceanwide enhanced their ability to service a greater variety of customers with Oceanwide’s rapid cloud-based deployment as well as providing key portal capabilities.

Venture capital is also a fruitful source of new funding for solution providers. In addition to Apax’s involvement with DCT, Insurity received additional funding in 2016. The One, Inc. announcement adds a new twist: a substantial source of their Series B funding is from the venture capital arms of insurers, in this case, AXA and MassMutual. This is a new development in core and one to watch carefully as we move into 2017.

Regardless of which growth strategies core providers are pursuing, capital investment is the name of the game. Here at SMA, we expect to see continued consolidation and changes of ownership in the core systems market, with venture capital playing an important role throughout the coming year. The real test in 2017 will be how these companies assimilate their acquisitions in order to bring maximum value to the insurance market.


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To learn more, please contact:
Karen Furtado
Partner
Strategy Meets Action, a ReSource Pro company
978.239.2741