By Cyril Tuohy
If financial advisors feel as if they are facing a raft of new software platforms and applications, if they feel as if their agency management systems are working a little differently than they are used to, it’s not an illusion.
Deal volume between insurance carriers and software vendors has increased 17 percent in the two-year period from 2011-12 compared to 2010-11, a sign that life insurance carriers are busy upgrading their systems.
A 17 percent increase may not sound like much, but because most of these deals have more to do with improving a carrier’s distribution networks instead of with core policy administration or claims systems, agents, brokers and advisors, who make up the backbone of the insurance distribution chain, are most likely to be on the front line of the changes.
Indeed, said Karen Monks, an analyst with Celent and co-author of a report titled North American Insurance Software Deal Trends 2013 issued earlier this month, insurance carriers “are in an upgrade cycle.”
There were 1,475 total deals between insurance carriers and 43 software vendors from Jan. 1, 2011, and Dec. 31, 2012, and 36 percent of these deals, or 531, involved life/annuity and health insurers, according to Celent.
What does that mean for agents and advisors? It depends on the carriers’ systems, but it could mean anything from faster processing and cycle times, to more holistic views of their clients’ portfolios, to being able to make more policy changes on the fly.
Monks also said that while it would be hasty to conclude that carriers’ purse strings are “fully open,” especially in an era of low interest rates, the reason carriers are spending information technology investment dollars in distribution systems is that the investment is most likely to yield a higher return on their technology investment.
“Now they seem as if deal wise, they are spending money on distribution and those are definitely lower-cost systems,” Monks said in an interview with InsuranceNewsNet. “They are changing what they are spending their money on.”
“They are spending money on things that is helping with sales growth,” Monks also said.
Several years ago, larger shares of the IT budgets were going toward back office systems: claims, billing, document management, core policy administration and underwriting systems — the so-called back end, she said.
But because these back-end projects often take longer and are more complex than the upgrades of distribution systems, carriers have chosen instead to focus on distribution. “They might just live with that old legacy system a little longer,” she said.
Investing in distribution software provides agents and advisors with the tools to manage new business and service tasks, connects the agency management systems to back-office systems to avoid re-keying data, gives agents Web access to core policy administration systems, calculates commissions and incentives, quotes price information using different assumptions, offers financial advice and product selection, supports agents in the field, and validates licensing and contracts.
Based on sales patterns between carriers and vendors, Monks said that life, annuity and health carriers appear to be encasing their older legacy policy administration systems with new, faster distribution and infrastructure systems.
While deal flow was spread across carriers of all sizes, distribution deal between a carrier and a tech vendor “increased dramatically in life,” and accounted for 27 percent of all deals in two-year period from 2011 to 2012, up from 15 percent from the two-year period from 2010 to 2011, according to Celent.
The report also notes that more insurance carriers are choosing to buy off-the-shelf software, which traditionally was the preferred strategy of smaller insurers. The largest carriers still prefer in-house systems, Monks said, but with larger carriers adopting that model, off-the-shelf strategies are making inroads.
Software as a service and hosted solutions continue to gain acceptance in the marketplace as well, Monks said. Software-as-a-service delivery models, which are used heavily in distribution deals, have risen from between 10 and 14 percent of all reported deals in the two-year period from 2010 to 2011, to 27 percent of all reported deals in the two-year period from 2011 to 2012, the report found.
Software as a service lets companies use software hosted by another company without having to pay maintenance fees or investing in expensive upgrades. Leading vendors of distribution software by deal volume were iPipeline, Ebix, Vertafore and IBM, Monks said.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].
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