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Morningstar | Guidewire: Disrupting a Sleepy Niche

We believe Guidewire Software is reaping the benefits of years of groundwork in the form of convincing property and casualty insurers to upgrade their aging core legacy systems to its solutions. In our view, the company has used a modern software platform to disrupt a sleepy industry that has been underserved by legacy software vendors, and we still see a long runway for additional growth for Guidewire.We view Guidewire as executing a classic land-and-expand strategy. The company started with the most critical piece, ClaimCenter, which is customer facing and handles claims processing, and then organically layered in BillingCenter and PolicyCenter in the next several years. Today, the company has a broad software suite that covers all areas of an insurer’s needs and offers a wide variety of add-on solutions. Importantly, the company acquired ISCS to land a lower- and middle-tier software-as-a-service offering, as there are signs that even the slow-moving insurance industry is finally ready to move to the cloud.By any objective measure, Guidewire has become the leading provider of core software to the P&C insurance industry. The company already covers 25% of direct written premiums and wins more deals per year than its largest competitors combined. Just as Guidewire nudged the industry to modernize, we believe it will be at the forefront as it now leads a wide array of the largest insurers into the SaaS age with InsuranceSuite Cloud and other cloud-based solutions. We also believe it is likely that a Tier 1 multiline carrier will eventually serve as a proving ground with Guidewire solutions at the core of its life insurance operations, which will open up another large growth vector for the company.We expect Guidewire to win more than its share of new clients, especially at the larger end of the market. From there we expect the company to upsell additional lines of insurance business and add on features. We believe that momentum is on the company’s side after capturing many critical Tier 1 insurer mandates and that the industry can no longer wait or afford to maintain legacy systems built in the 1950s in some instances.