2016: Core Systems’ Year of Capital Investments

Regardless of which growth strategies core providers are pursuing, capital investment is the name of the game.

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The significant capital investments at work in the InsureTech 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 Dec. 8 the acquisition of Systema Software, which offers a stand-alone claims solution for P&C insurance. One, Inc. announced on Dec. 14 that it has raised $20 million in funding from a number of venture capital firms, including AXA Strategic Ventures and MassMutual Ventures, as well as the vendor’s earlier partner, H&Q Asia Pacific.

Earlier 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 majority stake in 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.

Crowded Core Systems Arena

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 its relationships with customers. The goal is to provide “one-stop shopping” for Guidewire’s InsuranceCenter clients who also need underwriting specialists or predictive analytics.

Insurity is taking a different strategic approach: The acquisition of Tropics gave the vendor 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.

VC a Fruitful Source of New Funding

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 its 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.

One, Inc. $20M Funding Round Marks AXA Strategic Ventures’ First Growth Equity Investment

Insurity Continues Aggressive M&A Strategy with Systema Software Acquisition

Sapiens Acquires Maximum Processing/Stingray System

CSC Closes Xchanging Acquisition, Positions as Digital Transformation Leader

Guidewire Rounds-Out Data and Analytics Capabilities with EagleEye Analytics Acquisition

Guidewire Announces Acquisition of FirstBest Systems

Insurity Acquires Tropics Software to Drive Dominance Play in Specialty Lines

Apax Partners to Acquire Majority Stake in Accenture Duck Creek

Apax Unites Agencyport and Duck Creek Technologies


Karen Furtado // Karen Furtado, a Partner at Boston-based research and advisory firm SMA, has an exceptional understanding of core systems in insurance and the transformations required to achieve success. Her expertise is comprehensive—policy administration, rating, product configuration, billing, and claims—and is combined with a deep understanding of how to integrate mature and emerging technologies with core systems. Those seeking an edge in today’s highly competitive world turn to Karen to capitalize on her unparalleled knowledge and experience in connecting solutions to business and IT requirements.

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