Morningstar | Guidewire's Disrupting the Underserved and Sleepy P&C Insurance Software Market
We assign Guidewire Software a wide moat and positive trend rating and raise our fair value estimate to $117 per share. As much as we like its competitive position and growth story, we think the shares offer limited upside.Guidewire has used a modern software platform to disrupt a sleepy industry and underserved client base. After spending its early years laying the groundwork regarding the need to modernize core systems, Guidewire slowly gained traction one customer at a time. It started with the most critical piece, ClaimCenter, for claims processing and quickly included BillingCenter and PolicyCenter to complete a core platform. Since then the company has built out a broad software suite covering a wide swath of an insurer’s needs. Guidewire acquired ISCS to have a lower- to 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 property and casualty industry. It already covers 25% of direct written premiums and wins more deals annually than its largest competitors combined. Just as Guidewire nudged the industry to modernize, we believe it will be at the forefront of SaaS adoption as it leads an array of the largest insurers to the cloud with InsuranceSuite Cloud and other cloud-based solutions. We also believe it is likely that a multiline carrier will eventually serve as a proving ground with Guidewire solutions at the core of its life insurance operations, which would initiate another large growth vector for the firm.
We expect Guidewire to win more than its share of new clients, especially in larger insurers, and 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 insurers and that the industry can no longer wait or afford to maintain legacy systems built decades ago.
Guidewire Software provides a technology platform, composed of software, services, and a partner ecosystem, for the property and casualty insurance industry. Guidewire InsurancePlatform? consists of cloud and on-premise applications to support core operations, data management and analytics, and digital engagement and is connected to various data sources and third party applications. The company's operational platforms include: Guidewire InsuranceSuite, which comprises of PolicyCenter, BillingCenter, and ClaimCenter applications; and Guidewire InsuranceNow, which provides policy, billing and claims management functionality to insurers that prefer to subscribe to a cloud-based, all-in-one solution.
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