A number of innovative technologies including the Internet of Things, advanced analytics, telematics, blockchain and others are set to spur a fundamental transformation of the insurance industry. These technologies do not only provide alternative ways to measure and control risk, reduce costs and improve efficiency but also enable the creation of new insurance services and products. Developers specializing in these technologies can create solutions for facilitating and optimizing many insurance processes. This forces insurtech companies to respond to new sources of competition and create innovative and efficient technological solutions across the insurance value chain.
To benefit from the above-mentioned opportunities, insurtech companies consider extending their teams with qualified software developers. We discuss how dedicated development team cooperation can work for banks here. Insurance is fairly similar. The main question is: ‘Should they outsource insurance software development or extend their in-house team?’ Let’s weigh up all the pros and cons to define the best way for insurance companies to save operational costs and increase their overall productivity and performance.
Domain knowledge in the insurance industry
IT outsourcing providers often have extensive experience in working with other businesses in a related field. Thus they can give valuable insights about how to improve the insurance processes using technological innovations. Then they can build applications based on these redesigned processes. Conversely, the experience of in-house development teams is often limited to one field and lacks knowledge depth and flexibility.
Moreover, many outsourcing vendors have expertise in blockchain, IOT, AI and other technologies which are trendy in insurtech. They offer a wide range of services which adapt to the changing technology landscape and business requirements of a specific client. Therefore, this expertise may help you significantly increase the level of transaction security and optimize many business processes.
Source: Innovation in Insurance Report by Institute of International Finance
Availability of talent pool
When companies experience a lack of expertise in specific software engineering processes, they consider software development outsourcing as the best option. It allows insurtech companies to get access to the biggest range of services from a huge talent pool of qualified professionals. In addition, they can focus on their core competency and business objectives. This also helps insurance businesses find skilled IT specialists who can create robust insurtech applications faster and more efficiently. Moreover, outsourcers are more flexible since they have more expertise in different projects and rare technologies. They can allocate the developers who are well-versed in the usage of the most recent tools and coding practices. As a result, you won’t need to perform staff training or spend extra money on the acquisition of equipment.
Faster business expansion
In this era of tough competition, it’s important to maintain the competitive edge by penetrating into different geographical markets and regions. Many insurtech companies are motivated to outsource their software development to offshore software companies in order to access new markets faster thus scaling their business. Cooperation with offshore IT vendors enables them to fulfill this in a very short time. In contrast, in-house companies usually do not have enough capacities to realize this.
Cost and pricing
Outsourcing is often the best way to minimize the cost of production, especially if you find the right partner. If you worry about the risks, consider vendors in Eastern Europe. This outsourcing destination offers high quality of services and ample engineering resources for a reasonable price.
Very often, it’s not feasible to perform software development tasks in-house due to the lack of infrastructure, required expertise or other technical aspects necessary for insurance software development. Furthermore, if we take into account the price rates of local developers, they are often much higher compared to their outsourcing competitors. So this may lead to bigger operational spendings while outsourcing is a really cost-effective option.
The ability to take absolute control over the development process is one of the major benefits of in-house insurance software development. In this case, companies have control on the scale of customization needed for an application. On the contrary, the control of the project handed over to an outsourcing organization depends on the cooperation model you agree on. Outstaffing, or Dedicated Development Team model allows you to customize a team according to your specific requirements and get control over the development process. Moreover, outsourcing vendors put a lot of emphasis on process discipline and incorporate industry standard frameworks into their software development lifecycle. These standards are robust and fail-proof for software development and are aimed at meeting specific customer expectations.
The time factor
Every insurance company has its own unique processes which are dynamic in nature. In order to support these dynamics, technological changes are needed at all times, which is often less time-consuming if handled in-house. However, outsourcing may be extremely beneficial when projects are to be completed within a very short time frame. When insurtech companies are willing to switch from slow and gradual to the fast and progressive mode in software development, they mostly outsource it to an external software organization. What’s more, an outsourcing vendor may automate several aspects of software development. This helps to reduce time-to-market for new or upgraded applications as well as save operational time.
All in all, both outsourced or in-house insurance software development have their own advantages and drawbacks. However, companies can benefit a lot more from outsourcing services and deal with a number of challenges including optimization of policy administration, claims management and reinsurance. This option can help them position themselves for higher and more sustainable growth and at the same time reduce operational costs and upgrade many insurance processes. Moreover, companies can effectively use outsourcing to address urgent priorities such as cost management, cash flow, liquidity, and growth. This will help them stay in sync with new market dynamics, fast-changing customer behavior, and increasing competitiveness. Introducing innovations and making digital transformation of their businesses can help them gain the competitive edge.