During this time frame, deals peaked in late 2001 and early 2002 but declined rapidly through early 2003, reports Josefowicz. The good news for vendors, though, is business is picking up. We think the budgets [for insurance carriers] have freed up a little bit, he says. There is more focus on improving internal operations, and in a lot of cases, a vendor-supplied system is key to that.

The deals completed over the three-year period of this study reflect the structure of the insurance business. Mid-tier and small property/casualty companies were very active investors in software during that period, says Josefowicz. A lot more of the life/health deals had to do with larger companies. Smaller life/health companies werent spending nearly as much as their larger counterparts, whereas in P&C, the mid-tier companies were more active in deal flow.

One point from the study that caught Josefowiczs attention was 33 percent of the deals conducted by P&C carriers and vendors were made by what Celent describes as small companies, those with less than $100 million in written premium. I think it raised a flag with a lot of vendors that tend to discount that piece of the marketplace, he says. There are a lot of companies that sell $50 million to $100 million, and those companies need the same solutions. They actively are buying because they have the same challenges [a larger insurer] does.

For larger P&C carriers, the trend was to purchase claims and litigation management solutions. Josefowicz points out carriers are involved in a great deal of litigation, so there is a real potential to reduce loss adjustment and pure loss. We were a little surprised to see it accounted for so much of the volume, but were not surprised to see there is an increased emphasis on that space, he says. One reason for this is the maturity level of litigation management products in the last few years. It is a way to gain control over spending that has a tendency to get out of control, he adds.

There has been an increasing amount of activity in core system replacement and enhancement on the life/health side, Josefowicz believes, but the emphasis continues to be on distribution technology. Its something the industry has realized is important and can create a competitive advantage, he asserts. Its becoming more competitive to get mind-share and wallet-share with the good agents, so thats another reason companies are investing in distribution.

With more and more carriers doing business through independent agencies, brokers, and financial advisers, carriers have found there is a different level of service expectation among independents than there is among a captive agency force. Says Josefowicz: If an independent channel doesnt get what it wants [from a carrier], itll go somewhere else. ROBERT REGIS HYLE