Smaller companies appear to be getting the message most of all. During the time period examined in the report, 34 percent of deals were done by what Celent calls Tier 5 companies–those with direct written premiums of less than $100 million.

“You can't fall behind because it is really difficult to catch up–especially for the midsize insurers,” Mr. Fitzgerald said.

Although smaller insurers may pride themselves on a more personal, hometown-friendly approach, they must be wary of losing business to larger carriers that could be considered more convenient.

“If you want to have that local touch, that's fine,” he said, but “when you have a customer who is paying everything online except his insurance premium, maybe it is time to adapt.”

Tier 3-to-5 companies, which account for insurers with direct premiums written of between $999 million and less than $100 million, comprised nearly two-thirds of all deals, according to the report.

This statistic means vendors can either “elephant hunt” the larger insurance companies or give their attention to the “smaller game,” Mr. Fitzgerald said.

The economy may be behind another conclusion made from the report.

Insurers, being more risk-averse during the economic downturn, tended to buy from vendors they knew, the Celent report noted.

New customers made up 32 percent of all deals in comparison to 45 percent in the previous report. Celent speculates the economic crisis is contributing to this trend, as incumbent vendors are preferred by insurers in a risk-averse mood.

“Given this driver in the current market, effective account management and cross-selling efforts are more important than ever for vendors,” according to the report.

Most deals were in the document/content management category, which manage policies and agent and customer correspondence, as well as creating and managing electronic forms used to sell insurance. Nearly 40 percent of deals fell in this category, a slight decrease from 42 percent in last year's report.

Core processing, which includes underwriting, policy administration, billing and reinsurance management, comprised 28 percent of deals. Infrastructure (23 percent) and financial (12 percent) made up the rest of the deals.

Similar to past results, the report indicates a large majority–62 percent–of deals were made by property and casualty insurers compared to 23 percent for life and annuity carriers and 15 percent for heath insurers.

Mr. Fitzgerald explained that p&c insurers are normally involved in the most software deals because these companies renew and refresh platforms more often than do life and health insurers, whose policies do not require as much servicing.

The fourth quarter was the most active for software deals in 2008 and 2009, but especially in 2009, with nearly 350 deals completed–an indication of how companies' spending budgets are managed.

Also, it appears the decision cycle is lengthening, again maybe due to economic uncertainly, Celent found.

“The procurement process is becoming more sophisticated; it's taking people longer to get expenditures approved,” Mr. Fitzgerald said.

The data in the report is based on more than 2,000 deals from January 2008 to the end of 2009. In comparison to last year's report, which looked at transactions in 2007 and 2008, there was an overall 14 percent increase in deals.

More than 350 vendors were asked to participate in a survey to put together the report. About 40 vendors participated.