The insurance industry is undergoing a significant digitization wave, making insurance technology (insurtech) a highly attractive growth area within the broader fintech sector.

Senior bankers from the Harris Williams Technology Group closely follow insurtech investment activity in both the U.S. and European markets. The group recently advised Prima Solutions, a portfolio company of Carlyle, on the sale of Prima XL, France-based Prima Solutions’ flagship commercial reinsurance technology solution, and Prima Compliance to Duck Creek Technologies.

Here we offer insights on why insurtech is an attractive sector for investment, why Prima was appealing to buyers, and what investors should consider when looking at assets in the sector.

Featured Professionals:

• , Managing Director

• Sylvain Noblet, Director

Accelerated Digitization

The market for insurtech is large and growing, composed of property and casualty insurance (P&C), life and health (L&H), and reinsurance carriers. The insurance industry has historically been slow to invest in technology. However, industry trends are now driving carriers to accelerate their digitization. Better-informed customers, new entrants, value chain modernization, tech advancements, and increased regulatory complexity are all pushing insurers toward modern digital technologies and cloud-based applications. As such, there is accelerated IT investment across insurance carriers.

While insurers have been investing to maintain and update their legacy core system using early versions of Java and DB2, many have struggled to keep up with disruptive themes such as AI and bigdata. Similar trends are at play on the front-office side of the value chain, with agency brokers facing rising customer expectations.

“Digital disruption is here, and it is altering the face of insurance as we know it,” said Jason Liu, CEO of leading insurtech provider Zywave. “Consumers expect easy, frictionless experiences from all the companies they interact with. Brokers must manage these heightened customer demands, shifting definitions of risks, and the potential of big data, artificial intelligence, and machine learning to successfully adapt to the new playbook.”

While IT investment among insurers is on the rise globally, local market and regulatory requirements create distinct regional competitive and market dynamics for insurance software providers. In particular, the European insurance software market remains local in nature, with no dominant player across Europe.

“Because every European country market is different, systems must address specific local needs,” says Oussadon. “However, if an insurtech company wants to scale, it needs to expand across geographic markets. We see investors looking at placing their bets on one geography as an initial step toward a larger platform play across the European market.” Noblet adds that M&A consolidation is essential to private equity firms with growth objectives that organic growth within a particular European country can’t achieve.

Prima XL: Exemplifying the Opportunity

Prima XL is a leading provider of reinsurance solutions in France with a large, high-quality installed customer base. In addition, the company also has a growing presence in the U.S., the U.K., and the Asia-Pacific region. Prima was recently acquired by Duck Creek, an innovative insurtech company focused on property and casualty insurance.

“Prima XL’s modern, well invested technology platform has been fully converted to cloud,” says Oussadon. “The company has no technological debt and multiple opportunities for product-led growth. It is well positioned to benefit from the technology modernization movement and shift to cloud-based solutions that is gaining momentum across the insurance industry.”

“Both Prima and Duck Creek were visionaries in that they anticipated the digitization wave that is beginning to happen in the sector and started investing in modernizing their cloud-based technology platforms,” says Kevin Rhodes, CFO of Duck Creek. “In parallel, both Prima and Duck Creek changed their economic models, moving from selling on-premises multi-year software licensing to a cloud- and subscription-based software-as-a-service (SaaS) model. There was significant strategic rationale to join forces.”

Oussadon notes that Duck Creek’s acquisition of parts of Prima was a strategic transaction that occurred amidst market volatility. “In the end, it provided tremendous value for all parties involved – Carlyle, Prima, and Duck Creek. The acquisition enabled Duck Creek to cross-sell a best-of-breed technology product into its customer base, while allowing Duck Creek to accelerate its organic growth, international expansion, and scalability.”

He adds that there is also significant white space and cross-sell opportunity for Prima Compliance, and that the transaction helped Duck Creek establish a continued foothold in Europe beyond its core presence in the U.S.

M&A Supporting Differentiation 

The insurance sector, particularly in Europe, will undergo significant technological transformation over the next five years. Large insurtech players seeking to tap into this opportunity will continue to prioritize acquisitions that are well poised to meet accelerated demand for digitization and cloud solutions.

“M&A will play an important role in enabling insurtech providers to pull ahead,” says Noblet. “Carriers will be looking for high-quality, scalable technology systems that meet key performance criteria, and M&A is one of the quickest ways for insurtech providers to bolster their offerings.”

Oussadon says that while reliability is the single most important requirement, local knowledge and presence are essential too, as are the solution’s configuration and integration capabilities. “Also, price and cost of ownership are factors, especially for smaller carriers. The best insurtech companies will be able to demonstrate their solutions meet these criteria.”

There are many European insurtech companies that could help acquirers add scale and meet carriers’ evolving needs. “For companies considering a sale,” says Oussadon, “close relationships with industry consolidators and deep insights into their potential acquisition interests will be essential to an optimal outcome. Insurtech providers with that knowledge and differentiated regional or vertical capabilities will make the most of this opportunity.”