Underwriting Technology: Should You Build or Buy?

Insurance carriers differentiate themselves through their relationships, their coverage, their service, and ultimately their price. But underlying all of this, a carrier’s workflows and the way they handle data often determine their ability to position for competitive success. 

To be effective, these differentiators need to be supported by the carriers’ underwriting systems. With a wider breadth of options than ever before, insurers are asking themselves: should they build a custom underwriting system in-house or buy an underwriting platform from a software-as-a-service (SaaS) partner?

In this blog, we’ll look at the pros and cons of each approach, and how to decide what’s right for your organization.

Option 1: Build A Custom Underwriting System

For many insurance carriers, the traditional path to IT upgrades has been to build a bespoke system designed specifically around their team’s workflows. This is a big undertaking, and usually involves working with a consulting firm to manage the project. 

If the carrier has significant development resources, the system might be built completely in-house. If not, the actual development work will be contracted out to a third party, usually sourced by the consultant partner. Regardless of how the system is initially built, ongoing maintenance will generally be done by the carrier’s IT organization.

Pros of Building A Custom Underwriting System

Maximum control. This option gives carriers the most control over the system’s design and function. Since the carrier will be creating it to their specification, they can customize the system for the exact workflows, requirements, and system integrations that their team is looking for. 

If a carrier relies on specific legacy workflows and wants to continue using those same processes, this can be a good option for getting exactly what they want. 

Cons of Building A Custom Underwriting System

High cost, long timeline. Building new technology systems from scratch is a long, expensive process, and underwriting technology is no exception.  It’s not unusual for carrier system upgrades to take years to scope, design, resource, build, implement, and test. This is obviously not ideal - if you’re upgrading the system to address problems your underwriters are facing today, some of them may well be retired by the time it comes online. 

Additionally, the long timeline comes with a steep price tag. The cost of multi-year consulting engagements to build new underwriting systems routinely run into the multi-millions.

Slow upgrades. Once the system is built and live for the underwriting team, it presents a different challenge: staying current. Upgrading the system will require additional development (and probably additional consultant service fees), which can make it difficult to keep up with changes in the market. This is on top of the regular expense of simply maintaining the system, which can eat into the IT department’s resources.

Difficulty responding to change. Besides the cost, custom underwriting systems often lack flexibility. Most are designed for a very specific workflow, which can easily become a problem if something about that workflow should change. Any alterations to how the system works will require another dev project. This problem is particularly acute if the custom underwriting system provides decisioning support to underwriters: the organization’s goals and appetites will almost certainly change faster than the system can keep up.

Option 2: Buy from an Underwriting Technology SaaS Partner

Rather than building a custom underwriting technology system from scratch, an increasingly popular option among carriers is to buy an underwriting tech solution from a software-as-a-service partner.

In this route, the partner has already built out a sophisticated underwriting technology platform, which they also maintain. Once a carrier has signed up, they’ll work with the partner to integrate any necessary existing systems with the partner’s solution. Depending on the partner’s platform capabilities, this may take as little as a few weeks.

Pros of Buying Underwriting Systems from a SaaS Partner

Lower cost. Working with a SaaS partner is dramatically less expensive than building an entire new system. Any development work will be limited to integrating with the existing platform, and some partners will handle this work as part of their implementation fees. The comparatively straightforward deployment process rarely requires additional service partners like consultants, another considerable cost savings over a new build.

Faster time to value. With rollout taking weeks or months instead of years, underwriters can be live and writing business in a SaaS platform faster than a custom-build system can get off the ground. Carriers can start addressing problems for their underwriters and realizing the system’s benefits in a much shorter timeframe.

Easier to stay up-to-date. One of the major value propositions for insurance SaaS partners is that their entire business is centered on providing the best solution in their category. This singular focus allows them to continuously improve their offering and stay on top of the latest market needs, in a way that can be challenging for carriers with numerous competing priorities.

Flexibility to adapt. Good SaaS platforms are designed to be configurable, so that the system can adapt to fit a shifting situation without requiring a new IT initiative. If the carrier’s strategy or appetite changes, implementing those changes in a SaaS-based underwriting system will be easier and faster than for a custom-built system. This allows carriers to focus on the strategies that will help them write the best business, without the distraction of needing to continually amend the system to keep up. 

Cons of Buying Underwriting Systems from a SaaS Partner

May not be compatible with legacy workflows. Carriers whose underwriting processes are built around older or uncommon workflows may find it difficult to incorporate a more modern platform into their stack without also reconsidering how they work. For carriers that are heavily invested in legacy workflows and don’t want to consider a change, building an in-house system to their unique specifications may be a better choice. 

Build or buy is a major decision for carriers considering new underwriting systems. While building a custom system offers full control, buying a SaaS-based solution offers significant advantages for cost, deployment timeline, and ongoing management. For many carriers, leveraging an underwriting SaaS platform will allow them to focus more time and resources on what truly differentiates them in the market: their underwriting workflows, their use of data, and the relationships they’ve built with their customers and partners.

Federato’s RiskOps platform delivers a sleek, modern underwriting experience combining a unified workflow with real-time risk data and bleeding-edge AI to proactively balance a portfolio. To learn more, get a demo today.