This isn't a fast-emerging field like mobile technology or social media. The Shop Talk domain deals with large, complex software decisions and lengthy, very complex implementation projects. The vendor market changes slowly, the software takes tens if not hundreds of person-years to build and the implementations take multiple calendar years to deploy.

The subject area also deals with irreducibly difficult projects which are hard to do well: software selection and legacy replacement. By their very nature, these are projects that insurance carriers do once every 15 to 20 years, so it's not like they get better with practice.

Five years ago there were too many software vendors in the insurance vertical. Core systems projects failed with alarming regularity. Carriers didn't know how to select vendors. Five years later…could you say the same?

The Vendor Market

Five years ago there were too many vendors in the market. There are more now than there were then. Total vendor count in the p&c policy administration category remains above 50. There has been merger and acquisition activity, but it hasn't reduced the number of vendors overall.

Changes that happened include: Duck Creek was acquired by Accenture; Guidewire entered the policy space and then went public. Changes that didn't happen include Insurity became ChoicePoint, became LexisNexis and then became…Insurity. Claims vendor BlueWave became part of Coverall Systems. New vendors emerge like CodeObjects and Maple Technologies.

The new breed of highly configurable vendors gained dominance in the market while the large multi-market players continued to struggle for relevance. One fact that was true five years ago and remains true today is that the multi-billion dollar, multi-market software behemoths remain either incapable or uninterested in penetrating anything other than the top tier of insurance carriers. From the inside out, insurance is complex, fractured and idiosyncratic. From the outside in, it's just another part of financial services. Vendors that hold this view will never make it in insurance. Large vendors are faced with three choices: quit the market, status quo, or acquire expertise and market share. Accenture followed the third option.

More important than market gyrations and branding changes, vendors write better software than they did five years ago. The bar has been raised permanently as to what is an acceptable level of functionality, configurability and architectural quality.

This positive trend certainly started more than five years ago with the arrival in the insurance vertical of professional software developers who learned how to build insurance applications, as opposed to the legacy vendors who were largely insurance people who learned how to build software. However, the trend has gained momentum and gone mainstream in recent years.

The days when vendors could sell stinky software on legacy platforms is gone. Carriers may not be as good at selecting software as we might hope, but they are good enough that vendors have had to improve or face irrelevance. I am pleased these days to be able to introduce client carrier companies, almost regardless of size, to a short list of very high-quality vendor solutions. This was not always possible in the past.

Another positive trend is that carriers now have more choices as to how to contract and pay for software. Many vendors now offer both purchase and rental options for their solutions, as well as usage-based pricing. A new generation of vendors is pushing (or pulling) the market into a cloud-based software environment where implementations are quicker and the total cost of ownership is lower.

These vendors are, I believe, the next generation, and are striving to wrest market dominance from the highly configurable vendors that have owned the market for the past five years. These new vendors, it should be noted, also have highly configurable solutions, on which they are building new delivery models.

The Carriers

So, the vendors have generally gotten better at building and selling software solutions, but have the carriers gotten any better at acquiring solutions? The answer is yes, but a qualified yes. Carriers are better informed today than they were and are more aware of their own limitations than they used to be.

What I used to tell carriers with reference to software selection: “This is complicated, you don't know how to do it, you haven't done it for 20 years,” they now tell me. This is major progress.

Many carriers now use third party consulting services to lead them in software searches; however it has been a personal experience of late that this has become a reductionist situation. Now, instead of carriers not knowing how to select software vendors, they don't know how to select consultants to help them select software vendors.

I am intimately and painfully aware of situations where carriers have taken six months to choose a consultant. This “reductionist problem” aside, carriers generally make more informed decisions about software acquisitions than they did five years ago. Anecdotal as it may be, those occasions on which I hear of selection decisions that make me think “they chose who?” seem less and less frequent. Others in the industry concur.

Not only are carriers choosing appropriate solutions they are also getting better at structuring appropriate business deals and contracts for software and services. This is partly a reflection of the willingness of vendors to share risk and get paid for performance, but this happy circumstance didn't arise solely from the goodness of the vendor community's heart. Carriers' began to pay more attention to risk and cost, and vendors responded in kind.

Legacy Modernization Projects

Five years ago it was “legacy replacement,” now its “legacy modernization.” The name change didn't do a lot of good. As we noted above, vendors now build better software and carriers are better at selecting vendor solutions, but this has not translated into an obviously improved implementation track record.

It would seem that core system replacements still fail as often as they succeed, and for those that succeed, “success” comes on a sliding scale. One thing that surely has not changed over the past five years is that there are no industry statistics on this subject. This is all insider guesswork and anecdotal evidence…but that doesn't mean it's not correct.

So why the lack of improvement in this third key area given the stated improvement in the first two? My guess is as follows: Core system legacy modernization (replacement) is complicated and hard to do. By definition, carriers do this once every 15 to 20 years so they are not prepared for this once (or maybe twice) in a career event.

Many carriers, especially smaller ones, lack the IT infrastructure—strong project management, formal requirements gathering, and rigorous QA—needed for such an extensive undertaking. Further many carriers lack the funding to employ third party expertise to shore up these weaknesses, assuming they even recognize their existence.

The response from many carriers is to look to the software vendor for the expertise they lack internally. However, while the vendors have improved at software development, they have not necessarily gotten any better at software implementation. Further, it's not the vendor's job to run client implementations.

Vendors do the parts of the project that relate to implementation, configuration, and integration of the software. Carriers, not vendors, are responsible for requirements definition, software testing and acceptance, legacy integration, rollout and training, conversion and legacy retirement.

These are areas about which the carrier is expert, not the vendor. If the carrier fails significantly in one or more of these project domains, the project will probably fail. Not that it is always the carrier's fault.

So there is still major room for improvement. Legacy modernization will continue apace. Many carriers have yet to make the journey, and there are signs that the journey is less hazardous than it was five years ago. It will be interesting to see what the report card looks like in another five years.