Big Fish Eats Little Fish
But the real winner, the one that dominates a segment of insurance, will be a company that can tie an entire suite of products together—from the back end to the front-office system that faces the customer. ""A company that can come in and glue the whole thing together—they will be the winner,"" says Cioffoletti. ""Nobody has provided a total solution for the entire market. I think in 12 to 18 months, you will start to see some vendors create dominance."" In fact, he adds, ""no one vendor will dominate all verticals. A company could dominate the P&C world, or the life world, but not both.""
Another company looking to dominate financial serivces isSunGard Data Systems and its Atlanta-based subsidiary SunGard Insurance Systems. The technology providers are also looking to capitalize on the future consolidated financial market. ""Our acquisitions extend the reach of SunGard into the insurance and financial segments,"" says Greg Webber, president, SunGard Insurance Systems. ""When we acquire a company, we are really looking to provide additional value for our clients. We want to add functionality and integration"" so clients can come to SunGard for all of their technology needs, he adds.
In the past two years SunGard has acquired Sterling Wentworth, (Park City, UT, February 1999), currently known as SunGard Expert Systems—a rules-based sales advisory and analysis provider; and FDP Corp. (Miami, August 2000), a life systems and financial services technology provider.
And while the bigger fish eat the little fish, insurance companies are also grabbing technology providers. In September, New York-based AIG's American International Technology Enterprise subsidiary (AITE) acquired the software licenses to The Wheatley Group's WINS technology, a rating, underwriting and claims system. ""AITE provides full-service processing to the industry and Wheatley fits well into our services,"" says Rosalee Keech, director at AITE.
However, Tony Graffeo, a former executive at Reliance National Insurance (New York) and former president of Wheatley's user group, says many times insurers purchase vendors ""as a means of self preservation."" For instance, ""When Reliance National signed a contract with Wheatley a number of years ago, Wheatley was on the verge of not making payroll. It is a strong incentive to make sure the software company survives, especially if the insurance company is using the product. I can see other small providers being acquired by insurance companies so they don't lose the service. I see insurers trying to protect their backside.""
Graffeo also says that insurance companies acquiring vendors may create conflicts of interest. ""If I was one of Wheatley's clients, I would be concerned. I would demand some audit to make sure the data does not get to the AIG business people. AIG could have easily bought themselves a lot of information."" Graffeo explains that in the early 1990s, Reliance National was considering purchasing Wheatley as the vendor was running out of cash. ""We didn't do it because our concern was how the other clients would have reacted.""
AITE's Keech says, however, ""Data security was an initial thought from many customers. But after we speak with them they quickly understand the data is completely protected and there is no danger of sharing any data with AIG.""
Meanwhile, some big fish are getting eaten by even bigger fish. In the largest acquisition this year, Computer Sciences Corp. (El Segundo, CA) agreed to acquire Mynd Corp. (Columbia, SC, previously Policy Management Systems Corp.). However, industry experts' reactions are mixed. ""I think CSC is out of their mind, no pun intended,"" says Tony Graffeo, currently retired after several years of consulting. At press time, CSC and Mynd were awaiting FTC approval for their deal.
""I consulted for a small P&C vendor in Brooklyn NY for a year,"" continues Graffeo. ""They were converting to some of PMSC's products. When they started the project they were writing $400 million in premiums. At the end they were writing just $100 million. PMSC's system support was horrific,"" he claims.
BTAG's Cioffoletti says of the CSC/Mynd deal, ""I think it is good for both companies."" He cites CSC's consulting organization that could help service Mynd's products. ""CSC is a much better match than EDS for Mynd, anyway."" EDS (Plano, TX) withdrew its offer after completing due diligence on Mynd.
Steven McLemman, first vice president, computer services, at New York-based Merrill Lynch, covers CSC and says EDS backed out of the deal, partially, because of pressure on its stock. ""CSC is in good shape,"" he says. ""EDS is embarking on a turnaround. When EDS announced the deal for Mynd, it impacted their stock price."" He adds, when CSC announced its deal, CSC's stock price went up.
Bill Goff also thinks CSC and Mynd will work well together. ""CSC can make much more sense of PMSC Mynd than EDS could,"" he says, ""although PMSC has kluge""—complex systems that go way back to the 1970s.
Greg MacSweeney is editorial director of InformationWeek Financial Services, whose brands include Wall Street & Technology, Bank Systems & Technology, Advanced Trading, and Insurance & Technology. View Full Bio
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