Over the next few years, several factors are poised to significantly influence the volume and nature of core system deals – AI, evolving buyer demographics, alternative approaches, and other trends are fundamentally reshaping how core vendors go to market and serve customers. Let’s explore these trends and the impact they are having on the core buying landscape.
AI implications
The rapid advancement of GenAI and Agentic AI capabilities has broad implications for every industry, including insurance. The pace and success of AI adoption, however, hinges largely on how rapidly and effectively core system vendors incorporate AI into their solutions to provide new capabilities and competitive differentiation to the market. This has already begun, but at this stage, there is a lot more development on product roadmaps than activity in live implementations. Co-pilot-type applications are the first wave, and virtually every vendor has incorporated or is working to incorporate this functionality. While these tools certainly add value, real differentiation will come from true agentic capabilities that drive workflows and activate decisioning. This will become a major battleground in the next few years among core system vendors.
A second implication of AI for core systems rests with implementations. AI is already transforming the implementation lifecycle, with significant potential to decrease cost and time. From planning and design to configuration all the way through to testing and quality assurance, AI will play a major role in automating and enhancing these stages. Core providers that conduct system integration work will see their revenue decline unless they lead in AI adoption. At the same time, core vendors that rely on system integrators will see those relationships and partnerships reshaped as they also adapt their own business models.
Evolving buyer landscape
Over the last decade, the dominant core system buyers have shifted from large Tier 1 insurance companies to smaller carriers and MGAs. The MGA market is expected to continue growing and strengthening as a major target for core systems vendors of both carrier-designed systems and MGA-designed solutions. While there are many Tier 4 carriers (over 80% of the P&C companies in the North American market), there will come a point of diminishing returns. Yet, it will remain a viable market for the next few years, especially for those core vendors that focus on the smaller end of the tier 4 market. What may be more interesting is the evolution of other types of buyers.
Beyond the traditional carrier and MGA segments, organizations such as municipalities, risk retention groups, captives, and others also often purchase core insurance systems. However, the variety and volume in the segment may increase as these types of groups become more sophisticated and continue to grow. In addition, even traditional carriers, wholesalers, MGAs, and others are forming new types of ventures to manage risk and may need some level of policy, billing, or claim systems in the future.
Alternative approaches to core
There are several legacy P&C core system vendors that have dominated the market for many years. However, M&A and other trends are shaking up the traditional core vendor market. Perhaps the most interesting development is the gradual blurring of lines between underwriting platforms and policy administration systems. Some underwriting platforms are expanding to include functionality typically provided by the PAS. These modern underwriting platforms may even serve as the system of record as well as the policy servicing platform, replacing the PAS in some cases. Likewise, some core systems providers have aspirations to expand into underwriting and are extending their systems into this space. The ensuing battle over the next few years will have an impact on the core “deals” and even how deals are defined.
A second alternative approach is a potential swing back to the build side of the buy vs. build pendulum. While bespoke/custom-built core solutions have always been an option (especially for the large carriers), the industry has overwhelmingly favored the buy approach in recent years. Now, with the advent of the AI coding revolution, some carriers are rethinking their approach to core systems, believing they can create differentiation by building their own capabilities, especially if they are in specialty/non-standard lines. Time will tell whether this approach will meaningfully impact core system purchasing trends in the future.
Move to cloud
Finally, it is worth noting that some of the “new” deals in the past couple of years are actually cloud conversions. We classify these projects as new deals because the effort, the contracts, and the business model are substantial and bear many characteristics of a net-new system purchase. These conversions from on-prem to cloud will continue to contribute to the number of new deals over the next 2-3 years, but at some point, they will tail off. This trend will affect some vendors more than others – systems that were built as cloud-native will not be as heavily impacted, while some of the incumbent providers with a substantial percentage of their customers still operating on-premises solutions may face some headwinds.
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