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When insurers face unique business challenges, proprietary software may be the best, or only, solution. Insurance companies with limited options for complex business models, niche processes, or unique business opportunities seek solutions to build proprietary software.

This fifth in our series of articles about digital transformation in the insurance industry looks at custom insurance software. Other articles in the series include:

        1. Recognizing the Need and Opportunity
        2. Exploring Off-The-Shelf Software Solutions
        3. Adapting Legacy Systems
        4. The Cost of Doing Nothing

Companies face the challenges of complex workarounds or manually intensive, error-prone processes without a proprietary software alternative.


Proprietary Software and the Insurance Industry

Custom insurance software is prevalent across the industry. Solutions range from small one-off business process programs to complete systems for core insurance operations. Even vendor-based legacy systems ultimately become proprietary through years of customization.

In most cases, proprietary software is developed out of necessity.Binary code

The insurance and financial services industry quickly adopted information systems when they initially became available. While providing a needed boost to productivity at the time, for years these fundamental solutions have had limited capabilities, forcing in-house development teams to often supplement these solutions with custom insurance software.

Today, vendor solutions offer robust capabilities beyond the basics. Still, there remains a place for proprietary software within the insurance industry for numerous reasons, including:

  • Business models vary across the industry, leaving gaps in off-the-shelf solutions.
  • Insurance companies must bring innovation to the table to remain competitive and financially strong.
  • Even industry rating agencies evaluate insurers based on their ability to innovate.

Insurers must address these challenges while building and sustaining a competitive advantage in the industry. To achieve evolving business goals, proprietary software may be the only option.

Primary Benefits of Proprietary Software

Woman working in server room

Insurers can expect numerous benefits from developing and utilizing proprietary software. Most of these benefits revolve around a common theme of control. Sitting in the driver’s seat offers numerous advantages.

  • Control – You set the direction for all aspects of the solution to fit your organization’s needs. This ranges from determining the solution’s purpose (broad, narrow, or niche) to identifying the impact on customers, claimants, employees, agencies, and others.
  • Agility – A homegrown system provides complete flexibility to design a solution without the constraints of off-the-shelf vendor software. With a highly complex system, this near-term agility can come at the cost of long-term flexibility. Careful consideration of the immediate needs while keeping an eye on future flexibility will lead to the best design.
  • Competitive advantage – Proprietary systems may offer an edge over competitors as Insurers introduce new products or services, perform standard services faster or better, or reduce processing costs.
  • Confidentiality – A proprietary software solution allows for solving business challenges within the walls of your organization with limited visibility to competitors.
  • Ownership – It’s yours. Again, you have complete control over how to build and use it, how much you will invest in it, and how long you will utilize it.

Other Benefits of a Proprietary Software Solution

Digital cloud illustration

With proprietary software, your team participates from start to finish. From the early stages of setting the solution’s strategy or completing the architecture and design to building the solution and conducting the testing, your team gains knowledge and understanding of all aspects of the solution. Several additional benefits come from this internal effort:

  • Improved Quality – Pride of ownership can have a dramatic positive impact on quality. The level of engagement across your team and a sense of ownership boosts the solution’s overall quality.
  • Improved Support – With proprietary software, there is less confusion over the intent and functionality of the solution or the expected behavior. Team members understand the complete system and can identify problems and address them quickly.
  • Reduced Maintenance cost – A proprietary software solution avoids ongoing third-party maintenance and support costs.
  • Reduced Licensing cost – A proprietary software solution built in-house sidesteps the ongoing third-party licensing costs. However, some licensing fees support the infrastructure requirements for application or database server platforms.

Considerations Before Choosing Your Path

There are numerous decisions required as you begin planning your path forward. Without proper evaluation upfront, the benefit and value of work may be lost.

1. Define Your Need

One of the first steps to any successful solution involves clearly identifying the need. This may not always be straightforward, mainly if multiple stakeholders are involved. Soliciting information across all stakeholders about the needs helps develop a shared understanding. This crucial early step creates a unified perspective serving as the foundation for all subsequent work.

2. Understand Your Constraints and Opportunities

Complete flexibility is a luxury seldom achieved because most projects require managing through constraints to achieve the desired results. Outlining these constraints upfront builds and supports a shared understanding. This is also the time to expose and challenge assumptions.

Constraints come in many forms. Regulations may dictate aspects of the solution direction to maintain industry compliance, and mandatory implementation dates of new regulations may restrict timelines. Similarly, current financial conditions, such as heavy claim volume due to catastrophes, may impose budgetary constraints, and concurrent projects may limit resource availability. All constraints require attention to properly plan and execute any complex project.

Additionally, understanding where you have flexibility helps to identify opportunities. For example, a financially solid organization may have the flexibility to invest in a robust solution, and projects without deadline constraints may be able to boost quality through additional testing.

3. Evaluate Your Options

You can start evaluating options with a solid vision and understanding of your constraints and opportunities.

Exploring third-party solutions is a logical early step to determine whether a vendor solution can meet your needs. Substantial digital transformation is taking place in the industry, and vendors continue to find new ways to add value.

A fresh look at off-the-shelf solutions could save you time. Consider conducting either a Request for Information (RFI) or a Request for proposal (RFP) to understand the current capabilities of third-party solutions. Even if a third-party solution cannot fully meet your needs, it may provide a good jump-start and reduce your need for proprietary software.

Also, consider the level of confidentiality needed when interacting with vendors. You may need to limit what you expose to third parties during the RFI or RFP process if you intend to use proprietary software to build something confidentially.

4. Solidify Your Direction

At this point, you have defined your needs, outlined the constraints, identified the levers you can pull to position for success, and explored alternatives.

It may be clear at this point your only option is to build a proprietary software solution. In other cases, the best option is a hybrid approach incorporating some off-the-shelf solutions that integrate with your buildout of proprietary software.

The direction becomes less clear when third-party offerings come close to your solution needs. In these cases, you will need to determine your best path forward.

  1. Bridge the gaps with a completely proprietary software solution – This option may be best if you know you can build it better than a third party and the value of meeting your complete needs exceeds the investment.
  2. Use the off-the-shelf solution – This option may not meet all your needs initially but may be best if the gaps are minimal. In this case, the marginal value from meeting your full needs does not merit the size of the additional investment. This could also be a first step toward the third option below.
  3. Build a hybrid solution – By leveraging off-the-shelf software for part of the solution along with the buildout of proprietary software, you bridge the gaps. The combination creates a solution that meets your full needs.
  4. Do nothing now – This option may be best if third-party vendors understand your needs and can deliver within an acceptable timeframe. Vendors experience delays, their strategies change, and initiatives get canceled. Understand the risks of this option.


Additional Decisions to Consider

When moving forward with proprietary software, other decisions must be considered to maximize chances of success.

How to Protect Your Investment

Patents, Trademarks, and Copyrights are a consideration. Assess whether the proprietary solution or even just certain aspects merit additional legal protection. Filing for a patent may be appropriate for some technical elements or processes. Trademarks may be relevant for branding purposes, and copyright may be applicable to protect the work.

This may depend on the applications across the industry and offer opportunities to license your solution to others.

Whether to Develop Internally or Externally

The buildout of the solution will require a large, diverse set of skills, including business strategists, project managers, technical architects, business team members, solution designers, developers, and testers, to name a few.

You may also need specialized skills such as Search Engine Optimization (SEO), data analytics, business intelligence, geographic information system (GIS) engineering, web or mobile development, user interface design, or usability engineering.

You will need to identify gaps and outline strategies to bridge them.

In some cases, supplementing minor gaps in team resources may be resolved with limited one-off consulting or contracting resources. More significant gaps merit consideration of partnering with a third party that can bridge multiple gaps.

Recognize the solution’s long-term knowledge and skill requirements when leveraging outside resources. Incorporate extra time for knowledge transfer between the third-party developers or consultants and internal staff for all aspects of the solution that require ongoing attention beyond the initial build.

Also, consider the legal aspects of contracts with third parties when building proprietary software. The competitive advantages of a proprietary system quickly disappear without contract terms in place to protect your investment.

Whether to Host In the Cloud or On-Premise

You must determine whether to host the solution in the cloud or within your existing data center. Your team’s current skill sets, experience, and anticipated cost will be factors to consider.

Anticipating the cost of hosting the solution in the cloud can be very challenging, especially if your current cloud experience is limited. Cloud service providers offer calculators for estimating costs. Be aware that unknown factors often hinder accurate estimates.

Leverage your team’s skill sets and application experience to frame assumptions for cost projections. The answers and analysis will help establish a direction.


Managing Through It All

You have a vision, and as with any major endeavor, you need proper leadership to position it for success. From the initial work to identify and define the need to the build-out and delivery on all aspects of the system, the solution requires strong leadership and solid management.

Leadership Must Lay a Solid Foundation to Build a Cohesive Team

Put the objectives and guiding principles in print to solidify the vision amongst stakeholders. This detail and clarity help maintain alignment throughout the project.

Watch for signs of misalignment and resolve these challenges early to avoid compounding issues that lead to 70% of complex projects failing.

A strong leadership team proactively guides the project by keeping the objectives and guiding principles at the forefront.

To position for a successful effort, you will need to decide the makeup of this leadership team based on the size, complexity, risk, and timeline. This team will manage all aspects of the project, drive results, and keep everyone informed.

Do you need one or more 100% allocated project managers? Does the effort require significant executive sponsor involvement?


Guiding You Through Complex Project Challenges

Regardless of the size or scale of the effort, you want to ensure you have the proper oversight in place to succeed. A complex project may benefit from a dedicated third-party consultant to manage the project and core team.

Contact TAC4 to discuss managing a complex insurance transformation project. We deliver a 100% success rate and rescue failing projects using a unique process known as Projenomics®.


Dee Riley

Dee Riley is an accomplished Information Technology executive with extensive experience leading business and information technology strategy, driving financial and operational efficiencies, and implementing growth initiatives within the insurance and financial services industry. As a Principal Consultant at TAC4 Solutions, Dee leads and significantly contributes to transformational projects helping organizations complete strategic initiatives such as modernization, process improvement, and system replacement efforts.

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