Monday, 31 May, 2010 Leave a comment
Several large insurance technology companies have recently made significant investments in acquisitions, partnerships, or restructurings in a bid to strengthen their go-to-market approach. Ovum is not, however, convinced that insurance companies will spend enough money with each of these technology firms for them to realize a reasonable return on their investments within the next five years.
In the first half of 2010, several large technology companies have invested billions of dollars in acquisitions, partnerships, and reorganizations, in an obvious move to change their go-to-market approach to the global insurance industry. These investments are a clear admission that their current approaches or skills are not helping them to achieve their objective to strengthen their presence in supporting the insurance industry, either now or in the longer term.
Most recently, SAP announced on May 12 that it would acquire Sybase for $5.8 billion, while one of the speakers at EMC’s May 2010 EMC World Conference in Boston discussed the firm’s deeper partnership with SAP. In April, SunGard announced the formation of a 4,500-person Global Services Organization combining its consulting and technology service teams, and in February Xerox announced it had acquired Affiliated Computer Services for $6.4 billion. In addition, last September Dell announced that it had acquired Perot Systems for $3.9 billion.
Why are these technology companies making such large investments? The answer lies in the even larger amounts that insurers spend on technology. Datamonitor’s most recent report on the topic, Insurance Technology Industry Spending Through 2014 (December 2009, IMTC0364), estimated that global life insurance IT spend in 2010 will be approximately $32 billion, and that global non-life IT spend will be approximately $42 billion. Technology companies supporting both life and non-life are looking at a potential jackpot of over $70 billion.
Thus, investing four, six or even 10 billion dollars on a one-time basis pales in comparison to the size of the opportunity. However, Ovum does not believe that the technology companies driving this current round of investments will reshape themselves and generate a reasonable return on their investments from their sparkling new solutions and services anytime soon. Ovum also finds it difficult to believe that the acquisitions, partnerships, or reorganizations will actually succeed in producing a reasonable timeframe for the resulting solutions and services to be brought to market with the level of support that insurers will demand.
Insurance company executives can expect to receive a barrage of emails and phone calls about the promises and virtues of the new value propositions resulting from all of this financial and reorganizational activity. While the firm knocking on the door might be different in shape and reach, insurers will hear the same promises as before: streamlining business operations, reducing costs through outsourcing, complying with the never-ending stream of regulations, and, of course, becoming more agile.
However, the siren song of yesterday will not be enough to drive insurers to swap their current technology providers for new ones, regardless of the billions of dollars invested, the time spent trying to make a partnership a fluid and coherent force, or the time spent creating a global services organization. Insurers will insist on pilot programs, experiments, or modular initiatives to determine whether the promises are actually different. More importantly, Ovum believes that insurers will realize they must determine whether the solutions and services provide true value that will enable them to meet their own competitive objectives.