(Los Angeles, home to Farmers Insurance Group. Photo Credit: D. Ramey Logan.)

Farmers Insurance Group (Los Angeles) joins Nationwide and The Hartford among the nation’s largest personal lines carriers to adopt Guidewire Software’s PolicyCenter system as a target policy administration platform. The $18.6 billion carrier has selected Guidewire PolicyCenter and Guidewire Rating Management for its personal lines business.

The Guidewire systems will serve as a technology platform to integrate various underwriting and policy administration systems toward the end of accelerating a customer-centric approach to serving consumers, according to a statement from Guidewire.

“This is a big step forward for Farmers and our customers. Farmers is focused on making customers smarter about their insurance decisions, and our investment in the right technology helps us keep that promise,” comments Jeff Dailey, CEO, Farmers Group. “We’re looking forward to working with Guidewire, and to putting additional technological muscle behind our customer-focused philosophy and practices.”

(Related: The Hartford Selects PolicyCenter as Target Platform for Policy Admin Replacement)

The choice of Guidewire by Farmers—which had $18.6 billion in direct written premium in 2014—represents another step forward in the acceptance of packaged systems for policy administration, according to Matthew Josefowicz, president and CEO of research and advisory firm, Novarica (New York).  “Since Nationwide and The Hartford committed to Guidewire, top tier P&C insurers’ resistance to commercial off-the-shelf core insurance systems has crumbled,” Josefowicz notes. “Most top-tier insurers now realize that packaged software is a realistic solution to their legacy systems problems.”

The adoption of package systems by top-tier insurers is an indication that core insurance processing software is increasingly regarded as commodity, suggests Karen Furtado, a partner at Boston-based analyst and consulting firm SMA. “There is a meaningful trend for large insurers to view their differentiation existing beyond policy administration, furthering the view that companies can buy these policy capabilities rather than create them uniquely,” she says.

Locus of Innovation Will Shift

Policy administration systems will remain the focus of carriers’ modernization efforts for some time as the trend toward packaged systems plays out, Novarica’s Josefowicz suggests. Over the longer term innovation will likely be seen as driven by other system areas, such as those directed at customer experience or that utilizing data and analytical technology for underwriting and other purposes. However, Josefowicz stresses, there is much work ahead in the interim.

“The tide may have turned, but there’s a long hard slog of implementation to come, and although the platforms have matured, insurers can still get stuck in a war of attrition if transformation projects aren’t well-managed,” Josefowicz cautions. “Good core systems are a necessary platform for growth, but analytics, digital channels, and rethinking of products and processes are where the real differentiation will happen.”