Novarica’s 2020 edition of its Property Casualty PAS Market Navigator published last week, outlining several emerging trends, including the mass vendor migration towards cloud-based solutioning. A growing number of insurers are moving forward with cloud-first policies and requiring cloud capabilities for all future vendor partners. Vendors have prioritized Software-as-a-Service (SaaS) licensing and cloud hosting in response. The benefits of SaaS models and the heightened costs of core systems upgrades has vendors reporting demand for cloud solutions in the 80-90% range as of 2020-Q1.
Cloud and SaaS Become Table Stakes
Cloud and SaaS are no longer emerging. A majority of property/casualty insurers are now considering core policy administration systems in the cloud via a Software-as-a-Service (SaaS) model. Many existing clients still use an on-prem installation, but most vendors have moved their systems to the cloud and adjusted licensing models to allow ongoing subscription approaches.
Increasing cloud demand has, in part, influenced the emergence of derivative, cloud-optimized product offerings. Cloud technology and services that are unavailable in non-cloud versions are offering better performance, improved scalability and automation, and tighter integration and fault-tolerance. Some vendors have indicated these cloud-optimized versions will be their strategic focus, though none have discontinued support for on-prem products as of yet.
It is important to note, however, that customers opting to go the non-cloud route should expect to see investments decline in the coming years. Vendors will direct more development resources and apply more new features to the cloud sides of their businesses.
Multi-Tenant, Headless Systems Gain Insurer Attention
Another emerging trend is the growing insurer acceptance of and vendor support for multi-tenancy systems. The multi-tenant approach supports a single codebase for all customers, increasing the efficiency of hardware use, scalability, and the upgrade process, which allows for more frequent improvements. Investors are looking toward public enterprise technology companies to adopt this approach.
Insurers are also beginning to explore headless systems, i.e. when the user interface of the core system is unused or is not the primary means of system access. Some insurers have leveraged low-code or digital experience platforms (DXPs) to build multi-channel experiences on top of service-enabled core systems.
The market may take some time to reflect this architectural innovation; headless systems remain a “nice to have” capability in core system vendor selections today. However, the robust API capabilities that headless systems require should help improve speed to market for insurers and allow them to offer differentiated user experiences.
InsureTechs Enter Core System Space
Insurers still dedicate most of their IT budgets to the maintenance, modernization, and replacement of core systems, but startups are entering the InsureTech space to develop and sell core systems. The long sales cycles for insurers purchasing and implementing core systems may not be a good fit for the short financial runway of Silicon Valley startups, but some pilot programs are in place.
Novarica does not include vendors in Market Navigators unless they have a production client, but insurers interested in discussing these emerging startup core systems should reach out to Novarica directly.
For an in-depth look at these emerging trends and vendors in the P/C PAS market, see Novarica’s latest Property/Casualty Policy Administration Systems Market Navigator.
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