IBM Insurance Solutions Gets a Boost from PDM
Strategic market concerns spur buyout
In a move designed to strengthen its insurance solutions practice, IBM Corp., Armonk, N.Y., announced that it intends to acquire Professional Data Management Associates Inc. of Indianapolis.
IBM expects to begin merging PDM into IBM's Worldwide Insurance Solutions group in January 1997. Neither company would disclose the financial figures behind the acquisition, which is expected to be completed this month.
PDM, founded in 1984, generated $12 million in revenue in 1995 by selling solutions to life insurance companies and now has 104 employees, according to Tim Wagner, PDM founder and chief executive.
At the heart of the acquisition is PDM's chief product, LifePRO, an application software package that supports the processing of life insurance. LifePRO is currently licensed to 38 insurance companies, according to Wagner. PDM also offers two PC laptop application software packages to the property and casualty insurance industry.
Brian Murphy, a senior analyst at the Yankee Group in Boston, said the acquisition underscores how IBM is "under tremendous pressure" to offer its traditional insurance company clients new technology. "Insurance companies represent a significant portion of IBM's total business, and they are now preparing to face an onslaught of competition from other related business segments, such as banks, so technology will [play a critical role]," said Murphy, who estimated the PDM acquisition to be in the range of $40 million to $50 million.
"It's a small acquisition, but it gives IBM a new tool," said Murphy, who described the insurance industry as moving away from mainframe systems to software platforms that can be used in PC-LAN environments.
"In a search for life insurance software suppliers, IBM concluded that PDM's systems [used new technology] that could offer the best fit with our strategic vision," said Fred Amoroso, general manager, IBM's Worldwide Insurance Solutions.
PDM's LifePRO software package is a real-time, online system that integrates the support for business functions, such as underwriting, claims, agency and commissions, billing and collections, reinsurance and policy-level accounting. Developed in COBOL, LifePRO operates in PC-LAN environments using either DOS or OS/2 operating systems. PDM currently supports LifePRO's application processing and database to the AIX operating system on the IBM RS/6000 server.
PDM is currently developing a graphical user interface for LifePRO that will operate in Windows 3.1, Windows NT, and Windows 95 environments. IBM also plans to expand LifePRO from its PC-LAN environment to multiple, large-scale servers, such as the AS/400 and S/390 systems.
Amoroso said IBM will operate PDM as a wholly owned subsidiary through Dec. 31. On Jan. 1, 1997, PDM employees will become employees of IBM Corp. in IBM's Worldwide Insurance Solutions. Amoroso said the PDM operations will remain in Indianapolis, and there are no plans to lay off any current employees of PDM. While making a heavy push into overseas markets, IBM is expected to leverage its Worldwide Insurance Solutions sales and service capabilities to deliver LifePRO to customers across Europe, Asia Pacific, the Middle East and Africa, according to Amoroso. Wagner said PDM developed LifePRO in the 1980s after he recognized an industry need for a flexible, packaged software solution for life insurance administration. Wagner and other co-owners designed and built LifePRO. The company won its first LifePRO customer in 1988.
Dewey Goodrich, senior vice president of information systems at Legal & General America Inc. in Rockville, Md., said LifePRO is "the best insurance system out there" among software available for the PC-LAN environment. "My company is moving to the PC-LAN environment because it's more cost-effective. It's not as restrictive."