Early Indicators 2024 Q1 — Public Coretech Deals Set New Quarterly Low
How strong is buyer appetite for P&C core platforms in 2024?
This is an update to Coretech Insight’s ongoing review of public coretech deals, which now incorporates 305 public announcements from 2015 through the first quarter of 2024.
After a robust recovery in 2021, the number of public coretech deals declined in 2022 and set a new annual low in 2023. The number of public deals in the first quarter of 2024 was the lowest for any first quarter over the past decade.
Overview
There are a few key questions ever-present in the minds of coretech buyers and vendors.
What is the demand for coretech platforms?
Are any significant new trends or patterns emerging?
How are buyer priorities changing?
After a robust first quarter, coretech deals fell to new lows in 2023. This downward trend continued in 2024, with only half the average number of new deals reported in the first quarter.
Analysis
Figure 1 below shows core platform selection announcements from 2015 through the first quarter of 2024. Annual totals over the prior nine years ranged from a high of 41 to a low of 26. There was a drop during the pandemic in 2020, a resurgence in 2021, and a decline in 2022 that continued in 2023.
With only three vendors reporting new deals in the first quarter, publicly announced deals remain far below normal in 2024.
Figure 1. Public P&C Core Platform Selections, 2015 - 2024 Q1
Source: Coretech Insight, May 2024
Note: These totals do not reflect all new system selections. We estimate these public announcements cover 30 to 40% of all selections from P&C insurance carriers or MGAs/MGUs during these years. Although not a complete accounting of all deals, these announcements are valuable as public, verifiable records. See “A Note on Methodology” below for more details.
Figure 2 below plots deals for 2022, 2023, and 2024 Q1 against a benchmark of monthly highs, lows, and averages for public coretech deals from the five “normal” years of 2015 through 2019, prior to 2020. Monthly deals for 2022 are plotted with a black dotted line, and deals for 2023 are plotted with a solid red line. New deals for 2024 are plotted with a solid green line. This chart shows how, with the exception of a spike in August and another smaller increase in November, public deal volumes dropped below average in May 2023 and remained below average in 2024.
Figure 2. Monthly P&C Core Platform Selections, 2015 - 2024 Q1
Source: Coretech Insight, May 2024
Within the composition of these deals, we see a continuation and some changes to prior trends, as shown in Figures 3 through 6 below.
Most new deal activity – 80% in 2023 – has shifted to established insurers under $1B DWP. (See Figure 3.) There have been fewer public deals with both start-ups and large, $1B DWP+ carriers.
MGAs/MGUs have grown to represent a sizable portion of new deals over the past few years. They made up over 40% of all deals in 2023. (See Figure 4.)
Most new deals – nearly 85% – were focused on legacy modernization. (See Figure 5.) Deals to launch new products or start-ups dropped significantly, with only five public deals focused on start-ups in 2023 and 2024 Q1.
The percentage of deals with cloud agile platforms is lower than in 2022, but they continue to see adoption, representing 20% of new deals in 2023 and 2024 Q1. (See Figure 6.)
Figure 3. P&C Core Platform Selections by Premium Tier
Source: Coretech Insight, May 2024
Figure 4. P&C Core Platform Selections by Insurer Type
Source: Coretech Insight, May 2024
Figure 5. P&C Core Platform Selections by Deployment Objective
Source: Coretech Insight, May 2024
Figure 6. P&C Core Platform Selections by Solution Type
Source: Coretech Insight, May 2024
The vendors announcing public deals reflect buyer emphasis on legacy modernization. Table 1 below tracks public deals from 2015 through the first quarter of 2024.
Table 1. P&C Core Platform Selections by Vendor and Premium Tier, 2015 - 2024 Q1
Source: Coretech Insight, May 2024
Table 1 illustrates the shift toward “safe bets” in 2023 that continued in early 2024. Core platform buyers are nearly all established mid-sized and small carriers and MGAs seeking to modernize legacy systems. Most vendors selected are well-established players offering mature core platforms with comprehensive functional capabilities.
Table 1 also shows the notable rise of Origami Risk within the P&C core platform market. Origami Risk emerged first in 2021 in “the middle of the pack” and moved to the top spot with the largest number of new public deals in 2023. Guidewire and Origami Risk were the only core platform vendors to publish new legacy modernization deals with insurers in the first quarter of 2024.
Implications
In our last update, published in October, we anticipated an anemic number of new public deals in 2023 (compared to norms from prior years) and commented on the buyer’s market that had emerged in coretech. Fewer vendors were reporting new deals and coretech buyers were also showing signs of weakness. These challenges continue in 2024.
RIFs and Reduced Investment Increase Pressure on Coretech Providers
During 2023, we saw a wave of layoffs among insurers of all types and sizes – from new, trendy insurtechs to established industry titans. Some insurers reported losses and layoffs for the first time in more than a century. Although the frequency and size of layoffs have decreased, they are continuing. Coretech Insight has tracked layoffs that have impacted over 2,000 employees of insurers and insurtechs in the first four months of 2024. When insurers shift into severe cost-cutting mode, legacy modernization and digital transformation initiatives are quick to be moved to the chopping block.
As insurer buyers tightened their belts in 2023, investors also showed less interest in insurtech/coretech. The “Global InsurTech Report for Q1 2024,” published in May 2024 by Gallagher RE, tracked how global investment in insurtech in 2023 fell to levels not seen since 2019. In the first quarter of 2024, average deal sizes for P&C insurtech shrank to the lowest level since 2018.
This combination of reduced buyer demand and reduced access to capital has hit coretech vendors hard. The insurtech and coretech space is volatile. There is a regular churn of employees, and layoffs are common – especially among startups and younger companies. However, the frequency and size of coretech vendor layoffs in 2023 were notable. Several coretech vendors, including market leaders, had (mostly unpublicized) layoffs in 2023. Some had more than one round of staff reductions.
Challenging Conditions Favor Established Vendors
Conditions like these favor established coretech vendors who have a sufficient number of customers to remain viable from license and/or SaaS subscription fees. Each customer is essentially an annuity that provides ongoing revenue. Some of these vendors are also benefiting from cloud migration projects with long-time, on-premises customers. Each cloud migration is another source of additional services and subscription revenue, and can help to cement the relationship between vendor and customer.
These conditions are challenging for startups and vendors who have set aggressive growth targets that rely on ideal market conditions and optimal execution of sales, services, and product development plans. As funding has dried up, buyer demand has waned, and they have experienced turnover or staff reductions, these vendors may fail to reach their targets and exhaust their options.
Coretech Vendor M&A Activity Will Increase
2023 and 2024 Q1 were also notable for coretech vendor mergers and acquisitions.
XDimensional Technologies announced its acquisition of I-Engineering (and subsequent rebranding as Dyad)
Majesco announced its acquisition of Decision Research Corporation
Mergers and acquisitions are common in the P&C coretech market, but these will likely increase over the next two years as weaker vendors succumb to challenges and stronger competitors seize opportunities to acquire new tech or new customers.
Recommendations for Insurers Seeking a New Core Platform
Due diligence and contingency planning should be a part of any core system selection, but they are even more critical under current market conditions.
Proceed deliberately and emphasize vendor viability in your selection and evaluation criteria – for all vendors, whether large or small, new or old.
Insist on full transparency about financials from vendor candidates.
Develop contingency plans and establish safeguards, such as securing access to your data and platform source code, in the event of a sudden change in vendor fortunes.
If you must engage with a vendor that is less financially secure, consider non-traditional agreements that include both licensing and investment to help ensure its viability.
Establish and agree to an exit plan with vendor candidates before moving forward with any long-term agreements.
With the drop in both buyer demand and investment capital, Coretech continues to be a buyer's market. Many will choose to wait on the sidelines, but buyers with resources, diligence, and a willingness to brave the current economic uncertainties have an opportunity to secure very favorable terms.
A Note on Methodology
This research is part of Coretech Insight’s ongoing review of press releases (PRs) and news articles announcing selections or go-lives of core platforms or at least one core module (policy, billing, or claims) by US or Canadian customers. The PRs and articles reviewed for this research covered coretech selections made from 1/1/2015 through 3/31/2024 and were featured on vendor websites and/or reported on by various wire services and news sites such as Business Wire, GlobeNewswire, PR Newswire, Insurance Innovation Reporter, and PropertyCasualty360.
Our objective was to track buying activity and trends among insurance carriers and MGAs/MGUs. From the initial set of PRs we excluded:
PRs with no information on the timing of vendor selection
PRs on customers that are not P&C insurance carriers or MGAs/MGUs (such as life insurers, TPAs, self-insureds, and government entities)
For this 2024 Q1 update, we reviewed a total of 305 PRs with sufficient information to determine the timing of platform selection and track customer characteristics such as size, type, and deployment objective.
Sharp-eyed readers may note minor differences in prior-year data in these findings vs. earlier updates. We periodically identify additional PRs from prior years during our reviews and incorporate these into our analysis. These additions have not impacted overall trends or conclusions.
This review did not evaluate implementation timeframes or success rates — its focus was on the number and characteristics of selection decisions announced via press releases to gauge market activity and buying trends.
These public announcements do not reflect all new system selections during this time period. For various reasons, such as client confidentiality, a conservative approach to promotion, or even a lack of marketing resources, vendors often do not publicize new wins. Some vendors wait until after successful go-lives (which may be years after selection) before they promote new clients. We estimate these press releases cover 30 to 40% of all new P&C core platform selections from P&C insurance carriers or MGAs/MGUs during these years.
Although not a complete record of all deals, these announcements are valuable because they provide a public, verifiable record with details jointly approved by buyers and sellers. They represent a high-quality and consistent sample of activity in the P&C core platform market.
Jeff Haner co-founded Coretech Insight, an independent advisory firm, in 2022.
Coretech Insight provides research, frameworks, and insights focused on matching P&C insurers with ideal coretech providers so that, together, they can be wildly successful.
Jeff has served in senior IT, advisory, and marketing roles with Deloitte, Oliver Wyman, NJM Insurance Group, Gartner, and BriteCore. While with Gartner he authored the Magic Quadrant for P&C Core Platforms. Jeff’s experience as a coretech customer, analyst, and vendor provides a unique perspective that cuts through the noise and finds ideal matches between insurers and coretech solution providers.
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Contact Jeff at jeff.haner@coretechinsight.com