(Image source: Cyence homepage.)
Guidewire Software (Foster City, Calif.) has announced that it has entered into a definitive agreement to acquire Cyence (San Mateo, Calif.), a software company that applies data science and risk analytics to risks that have been under- or uninsured in the past. The transaction, valued at approximately $275 million, is expected to close early in Guidewire’s second fiscal quarter.
In a statement about the transaction, Guidewire identifies cyber, reputation, and new forms of business interruption risk as among the emerging risks that Cyence’s technology addresses. These risks are evolving rapidly with technology change in general and typically lack extensive claims history to inform insurers’ underwriting and pricing determinations; also, their complexity and nonobvious patterns of risk linkage and risk accumulation require more diverse and dynamic data sets to be modeled effectively, the vendor elaborates. To solve these challenges, Cyence offers a data listening and risk analytics solution combining Internet-scale collection and curation of external data with sophisticated machine learning and risk modeling, which supports insurers’ product management, actuarial, underwriting, and enterprise risk management functions.
Eugene Lee, VP, Business Owner, Data and Analytics, Guidewire, places the acquisition in the context of the early stages of a transformational shift whereby data and analytics is embedded in all decisions made across the P&C lifecycle. “This includes key decision points within a digital customer journey, important internal decisions within an insurance operation—e.g., claims, underwriting, policy administration, billing—and augmentation of traditional actuarial methods with machine learning and curated external data.”
“Guidewire’s aim is to help insurers more effectively harness the data generated by their internal processes, collect and curate data from relevant external sources, and provide advanced analytical capabilities and insights,” Lee adds. “In order to drive smarter insurance products and core operations, our plan is to embed those insights directly into the customer, producer, and insurer user journeys to improve the quality of the decisions made by insurers every day.”
“Cyence is an exceptional technology company that, like Guidewire, focuses on serving the strategic needs of the P&C industry,” comments Marcus Ryu, CEO, Guidewire Software. “While Guidewire has focused on core operations, data management, and digital engagement, Cyence applies expertise in data science and machine learning to the modeling needs of insurance product design, pricing, and underwriting for 21st century risks. As traditional actuarial approaches struggle to address the unique characteristics of emerging risks like cyber, Cyence’s next-generation approach will enable insurers to broaden the scope and value of the products their policyholders need.”
Evaluating Cybersecurity Risks From Outside the Firewall
“Cyence has a very advanced methodology for evaluating cybersecurity risks from outside the firewall,” comments Donald Light, Director, North America Property/Casualty Practice, Celent (Boston).
Light says it’s likely that Guidewire plans to adapt that methodology to access new types of data—from social media and general internet domains—to offer new generations of data and analytics solutions to its customers and prospects.
“Successful CX and UX needs to be smart and fast,” Light adds. “Smart and fast need data-driven analytic insights. Guidewire’s acquisition of Cyence is important because it demonstrates the hunger of core system providers and their insurer customers for those data-driven analytic insights.”
With Cyence, Guidewire has made an astute early stage acquisition, according to Stephen Applebaum, Managing Partner, Insurance Solutions Group. “This puts them into the fast-growing standalone cyber insurance policy coverage space at a relatively low entry cost and leverages their impressive existing customer base and relationships to drive new revenue in short order—without the typical implementation cycle delays experienced in their core systems installations,” he comments. “This quick entry go-to-market format should also enhance Guidewire’s broader effort to develop cross-enterprise relationships including IT before carriers can commit to bigger core replacement projects.”
Cyence started applying our data science engine to cyber risk given the significant demand from the insurance industry with regard to what they consider an existential threat for their insureds, according to Arvind Parthasarathi, co-founder and CEO, Cyence. “We look forward to joining Guidewire and continuing our mission to enable insurers to enter new markets by insuring emerging risks like cyber,” he comments. “We are excited by the opportunity to power our approach with operational data and policy lifecycle support from Guidewire’s core systems and to join forces with the technology leader serving the P&C insurance industry.”
Guidewire reports that total consideration for the acquisition is approximately $275 million, or $265 million net of $10 million cash on hand, subject to customary transaction adjustments. Consideration provided at closing will consist of net cash of approximately $140 million and approximately 1.6 million shares of newly issued Guidewire common stock. Of those shares, approximately 260,000 are in the form of deferred equity consideration, which are subject to the achievement of certain retention and operating milestones.