Insurance Software Development: The Ultimate Guide to Insurtech
After a slow start, insurtech is finally catching up with regtech, proptech, and other parts of the larger fintech industry. Both global consortiums and local market players are starting to build software for insurance, invest in ready-made solutions, or partner with insurtech startups. What’s more, things look set to accelerate: the insurtech market was valued at $7.87 billion in 2022, with revenue forecast to be $152 billion by 2030, growing at a CAGR of 52% year-on-year.
The rise in insurance software development investment makes sense since industry players need to be agile and adapt to survive the economic downturn. A 2022 KPMG survey reveals that 77% of insurance CEOs have a digital transformation strategy in place to ensure they remain competitive.
“Driving transformation and increasing effciency by utilising technology across the front, middle and back offce will likley be crucial for insurers as they develop operational ambitions for the next three years.”
– Mark Longworth, Global Head of Insurance Advisory KPMG International
Therefore, for insurance companies of all sizes, the question is not so much whether to digitalize with insurtech but how to do it.
There are three viable approaches:
- Buy a white-label software solution
- Partner with an insurtech startup
- Make a custom insurance software platform, either internally or through a technology vendor like DjangoStars
Throughout our work in product design and development in insurance products, we’ve seen the benefits and disadvantages of each option. The first one — buying a white-label solution — is a no-brainer.
The second one, partnering with an insurtech startup, can help established companies reduce expenses by automating underwriting and time-consuming backend processes. Still, there are many things to consider:
- Whether the insurtech startup has a proven record of successful collaboration with insurance companies
- Whether the company can provide sufficient levels of cybersecurity for the product
- Whether the startup has good standing with investors and will be able to deliver on their product development promises
- Whether the cost of their services is prone to change when the product scales up in terms of infrastructure and API request numbers
The third approach — developing insurance software from scratch — brings its own considerations. We will showcase them in this article to help companies make informed choices.
Most Common Insurance Software Types
As inspiration, let’s start by listing the types of ready-made and custom insurance software solutions a company might need to offer. Naturally, some tools are more useful than others in different niches (P&C, health insurance, auto insurance, pet insurance, etc.).
- User claim processing software. These solutions automate insurance claim management, submissions, and collections. They usually include a customer relations management system (CRM) and an accounting module, among other features.
- Insurance document management software. This integrates different communication channels into a central dashboard to efficiently capture and process claims, case files, and other documents. The result is improved data processing, policy management, regulatory compliance, pre-qualification, and more.
- Insurance underwriting and rating software. Digitizing underwriting activities frees up company time and resources while delivering reliable results.
- CRM software for insurance agencies. This could be a standalone module or a part of a bigger solution. Such software helps centralize all interactions and customer correspondence to keep teams up to date with cases, claims, and other tasks.
Alongside the type of software they adopt, insurance companies need to plan for the future. Survivors in the market are the companies that can adapt fast to trends in insurtech.
Current Trends in Insurance Software Development
Whether the decision is to build an insurtech platform from scratch or simply add insurance management features to an existing solution, one thing is important: developing insurance software doesn’t just equal putting insurance forms online.
In fact, all good insurtech software development has to incorporate current market developments and trends, such as:
- A focus on digital consumers. Insurtech is geared towards customer satisfaction, not operational efficiency alone, and products need to be targeted at a new digital-savvy generation.
- Cybersecurity. Data leaks and breaches can spell doom for an insurance company, which makes security a key priority.
- Outsourcing and using existing solutions and tech stacks. As insurtech gains pace, time-saving strategies like these help minimize time-to-market when developing new software or updating legacy solutions.
Let’s delve deeper into each point.
A focus on digital consumers
McKinsey’s 2022 survey on the state of customer care highlights customer experience as key to surviving the recession.
This means that customers need to be placed squarely at the center of a product concept before fintech development even starts. What pain do they need to solve, what will the communication process be, and how will a solution ensure data security, streamline payments, and provide a transparent audit trail?
Just as important is looking at customer engagement: how a company will connect with a prospect to turn them into an interested lead and then a paying customer. Door-to-door marketing and cold phone calls are becoming less effective in the digital era. Millennials and GenZ may be constantly interacting with their phones, but it’s easy to block and blacklist a number. New times bring new customers who require new offerings.
Millennials are unlikely to go to an insurance office to insure something they purchased online or something that doesn’t fall into a standard insurance category. Instead, they might want to insure a device borrowed for a weekend or a VR set just delivered from Amazon. As a result, solutions need to support multiple communication channels and automated self-service features such as chatbots, automated quoting, and payout approximation tools.
Data breaches and personal data leakage are on the rise. While the insurance industry is not the biggest target, it did see a 47% increase in the number of cyberattacks from 2021 to 2022. This places it above the average 38% increase in cyberattacks across all sectors.
Yet in an Ernst & Young survey, 75% of insurance business owners did not feel it was “very likely” that they would be able to detect a sophisticated cybersecurity attack. Clearly, the majority of insurtech players feel endangered by cybersecurity threats.
To address this challenge during product design and development in insurance, it’s best to be strategic and proactive rather than defensive and reactive. With the majority of cybersecurity breaches originating from outside organizations, the strongest cybersecurity strategies combine big data analysis with blockchain-based and AI tools to detect and head off attacks.
Outsourcing and using existing solutions and tech stacks
While both security and customer experience count, ensuring minimal time-to-market is also important. Companies need to choose the most viable and time-efficient approach and minimize risks. This could mean buying an off-the-shelf solution, developing from scratch in-house, or outsourcing to an insurtech development agency.
The main questions when choosing between a ready-made solution or developing a new product/feature are: what is the core value this software should deliver, and what customer needs should it satisfy?
With the answers in mind, it may be possible to find an acceptable off-the-shelf product at a reasonable price.
If no solution is available, these two answers will drive the development approach. They will also dictate the resources needed for development and ongoing support.
In Django Stars’ experience, the win-win situation for companies who need more than a ready-made solution is to build custom insurance software with an outsourced team. This has several benefits:
- An insurance company can overcome internal capacity and legacy code constraints.
- An experienced outsourcing partner can provide ready solutions for some development challenges, thus shortening the product delivery cycle.
- An outsourced team will know the best APIs, libraries, and modules for different use cases. This makes development more efficient without compromising the quality of deliverables.
We’ve briefly mentioned popular technologies such as blockchain, AI, big data analytics, and APIs that can be used when developing digital insurance software. Let’s take a closer look at the value they can provide.
Which Technologies Are Used in Insurtech?
Like most innovative industries, insurtech is built on new technologies. We expect the next phase of insurtech development to be tightly connected to artificial intelligence, big data analysis, and blockchain. Indeed, the emphasis in the insurance industry is shifting from core services to AI-powered analytics and a more personalized customer experience. Thus, having AI and big data features is no longer an option but a necessity.
1. Artificial intelligence and machine learning
Insurtech solutions use AI and ML for internal process optimization and automation, which cuts the cost of routine work and streamlines mundane tasks. Machine learning is particularly useful for automating claims settlement: by eliminating the human factor, AI makes claim processing faster, cheaper, and more accurate.
Real-world use case
Lemonade is a relatively well-established insurtech startup that focuses on protecting property and homes. They are famous for their significantly low prices, which they manage to achieve by automating a huge part of their internal workflow. For example, most claims are handled by a chatbot that can render decisions in seconds if the case is easy or otherwise pass the case to a claims team.
Lemonade’s workflows have reduced the time needed for claim settlement to one day on average, compared to an average of 11 days for manual settlement before automation.
2. Big data analysis
Data is key to improving relations between companies and users. Today, companies need to know not just who uses the product but how they do it and where. This is where big data steps in.
Big data brings a wealth of insight to insurance companies wanting to get ahead of the competition. Data supports better risk assessment and underwriting and highlights market macro trends. It also drives AI and RPA-based management. In return, customers get better pricing, improved responsiveness, and a more customer-oriented experience through sensor and IoT inputs.
Real-world use case
TrackActive offers patients and their doctors a better and more efficient path to rehabilitation after injury. Using the app, a doctor can prescribe exercises, monitor patient activity, and help patients recover faster.
TrackActive’s behavioral app receives data from a patient’s smartphone or smartwatch, which tracks their physical activity, heart rate, and blood pressure. Analysis of this data gives the doctor insights into recovery progress, along with possible risks and what can be done to prevent them.
3. APIs and microservices
Integrating third-party solutions helps insurance companies offer innovative services faster. As we’ve already said, those who miss the moment to digitize will eventually fall behind.
APIs, pre-built libraries, and microservices all help integrate existing solutions into a product. This saves time and money compared to developing app features from scratch. For instance, a third party might provide a feature that checks customer data to prevent fraud and abuse.
Real-world use case
MoneyPark, a platform we’ve been working on since 2012, provides personalized advice on insurance and mortgage products in Switzerland. Its main feature is a convenient and fast search for the best mortgage offers on the market. However, when the customer gets a mortgage, the platform offers insurance for the mortgage as an option.
Though the major part of the product was developed from scratch, calculation operations for insurance are driven by a third-party library from a Swiss firm Logismata. In MoneyPark, insurance is both a separate service and an additional feature that helps increase customer satisfaction. It’s an example of how smoothly some features of an insurtech product can be developed or integrated by using an existing open-source or third-party library.
Blockchain is a revolution for insurtech. Its role in strengthening security, preventing fraud, and building effective reinsurance systems has made it one of the major technologies used in insurtech solutions today.
The very nature of smart contracts makes the blockchain system almost impossible to break or defraud. For example, the blockchain’s shared immutable ledger and the ability to analyze large numbers of data points make it easier to detect fraudulent claims.
Real-world use case
Arbol is a US-based fintech company and software platform which offers insurance against climate-based risk. Arbol uses Ethereum-based smart contracts to automate its backend execution and improve coverage efficiency. The company’s data- and blockchain-based workflows eliminate the need for manual settlement processes and dramatically accelerate claims processing and payments.
Building a successful product means choosing the right technologies, following insurance software development best practices, and building must-have features.
Must-Have Features for Insurance Software
Different insurance companies need different software tools to handle tasks efficiently. However, all custom insurance software solutions share several core features. These include:
- Claims activity monitoring
- Mapping and mitigating risk parameters
- Tracking of processes
- Risk analysis and calculation
- Payments processing
Claims activity monitoring
Regardless of whether it offers time-tested reactive claim management or more technology-savvy preventive claims monitoring, an insurance platform must support claims activity monitoring. This allows companies to pinpoint the root cause of the issues to minimize losses, prevent fraud, and ensure an optimal customer experience.
Mapping and mitigating risk parameters
Insurable risks also vary from customer to customer. Mapping and mitigating these risks can improve both insurer profits and customer well-being.
As an example, data from the insurance company The Hartford shows that 75% of all water damage claims originate from accidental discharge of HVAC systems, appliances, and plumbing. Advising customers to install water leakage sensors is a simple step that can help save property and reduce the number of insurance claims.
Risk analysis and calculation
Risk analysis of natural or manmade disasters plays a key role in determining insurance policy rates. The accuracy of risk analysis increases as more regional and historical claims data is taken into account. For example, flood damage claims are common in the southeastern part of the USA, while fire damage claims are more prevalent in Western regions, where droughts are regular.
This is why having a risk calculator powered by AI algorithms and big data analytics is crucial for calculating risk possibilities and offering competitive policy rates.
Customer-centric insurance companies need to stay on top of every task in progress, from underwriting to policy adjustment and handling ongoing cases. The decision to build your own custom insurance software can ensure transparency and visibility with a dashboard that showcases all the processes and their stages.
An integrated payments processing module is essential for centralizing financial operations and cash flow. Incoming and outgoing payments can pass through a wide range of gateways and payment service providers. This means insurance automation software must be capable of interacting with them via secure API integrations.
Any competitive insurtech solution will have these five core features. Depending on the project, a platform may also include other features such as reporting and analytics or a separate mobile app.
Best Practices in Insurtech Development
Django Stars follows best practices for insurance software development. We recommend businesses to pay attention to the following when they decide to build an insurtech management software platform.
A sandbox testing environment lets developers deploy new software modules and run tests against anonymized data sets to check system performance under different conditions. With a separate testing environment, companies can ideate, iterate, and rapidly test new ideas without endangering mission-critical data and processes. This way, customers and operational data stay secure.
Scalability from the start
Nobody wants to discover that the insurance platform they built can’t scale. Successful projects begin with a clear framework that outlines the initial features, the individual stakeholder responsibilities, the metrics that determine success, and the decision-making criteria. With this framework in place, an insurance automation system scales alongside the business and continues to drive value instead of becoming a bottleneck.
Django Stars always considers scaling at the start of a project and plans the product architecture accordingly. This way, scaling a product up or down is easy, as there’s no need to refactor code or significantly modify the product when it needs change.
APIs and integration play a crucial role in scalability, so let’s talk about this aspect.
Third-party service integration
Just as the banking sector uses open banking, modern insurance processing has its own open insurance model. Instead of siloing data and paying for storage, insurance providers can get data from third-party service providers via APIs.
Open insurance gives insurers valuable agility in a volatile market. For example, while property and casualty insurance has long been a sector staple, the 2022 World of Insurance report from Capgemini highlights a shift to consumer concerns about climate change and resilience. Many insurers have had to integrate additional data sources to meet the new demand (53% of surveyed added up to 6 new data sources to their decision-making process). Open APIs make such adjustments possible and therefore keep companies more competitive.
How to Ensure Insurtech Software Security
Integrations and the open insurance model help insurance companies roll with the market and react faster, but they also raise security concerns. When working with third-party data sources and service providers, securing access to data is crucial. Software microservices offer one of the best ways to meet this challenge.
When an application is made up of a group of modules, each running as a separate microservice within a Docker container maintained by a Kubernetes/Terraform cluster, this offers multiple layers of protection. Each container is secure by design and has built-in alerting and monitoring mechanisms, so if a fraudulent request is detected, the affected microservice can be shut down and rebooted on the fly without affecting overall platform performance.
In addition, the structures in a microservice environment provide granular access and security policies enabling in-depth monitoring of all activities. When configured correctly and backed up by other cybersecurity measures, these features can boost insurtech security.
How Much Does It Cost to Develop Insurance Software?
Many factors influence the cost of custom insurance software. The cost of building a new insurtech product depends on the feature set, the number of integrations planned, and expected scalability. When a product already exists, it takes time to analyze it and integrate new features or rebuild it from scratch.
Developing a barebone MVP with minimal features usually takes around 200 working days, so about 1,600 hours. Multiplying this by the hourly rates of the team involved ($30-50 per person per hour on average in Eastern Europe) gives a rough cost estimate. Yet this figure can still vary — an experienced team with an existing library of modules and processes will take less time to build a product.
Final Word: Insurtech Is the Future of the Insurance Industry
A few years ago, insurtech seemed to be more hype than something that offered real value. But with the rise of tech, AI, and blockchain, it’s become clear that the industry is taking off, and insurance companies need to join the wave or risk being left behind.
In summary, here are our four key pieces of advice to new insurtech developers:
- Develop for digital-savvy consumers. Operational effectiveness is no longer an effective KPI: everything now revolves around customer satisfaction. It’s imperative to gather customer data, analyze it, use the insights to build and improve the product, and then measure customer satisfaction.
- Don’t skimp on security. Personal data leakages are a major reputational problem and can kill a product in a moment.
- Stay focused. When creating a product that will hopefully win the market, it’s tempting to implement a long list of features. But in the words of MoneyPark CTO Benjamin Tacquet, “Sometimes you want to do too much. My best advice is to do less, but better.”
- Don’t delay. Digitization is rapidly transforming the insurance industry, and the longer a company postpones its digital transformation, the fewer chances it will have to regain a competitive advantage.
Of course, a strong and reliable development partner is also critical to success.
At Django Stars, we have over nine years of expertise in building fintech and insurtech products. Our average partnership period is 2.5 years, and our core clients — national leaders in fintech and insurtech — stay with us for 6+ years. It’s a wealth of experience ready to be shared in our next insurtech project. Contact us, and let’s help modernize your insurance services with custom insurance software solutions!
- What makes insurtech revolutionary?
- First, insurtech automation helps reduce the time and costs associated with all processes in insurance, which results in much more affordable insurance policy rates. Second, insurtech makes insurance much more attractive, accessible, and understandable for modern consumers. Third, it opens up opportunities to serve niches outside of traditional insurance categories, such as small businesses (Next Insurance), disabled persons or people with long-term health conditions, pet owners who want to travel (Many Pets), or those who want to drive a borrowed car (Cuvva).
- What are the benefits of insurance software solutions?
- The core benefit is the ability to offer insurance both as a standalone product and as an embedded experience with other financial services (like covering a mortgage). This creates a value-added network of companies, insurtech startups, and SaaS players who are all focused on delivering next-level customer experience to modern digital customers.
- How long does it take to create insurance software?
- The time required depends on the scope of the task, whether there is any existing code that has to be incorporated, and the number of features to be included. As a rough figure, it takes around 200 working days to develop an insurtech MVP with standard core features.
- What are the challenges in insurance software development?
- The main challenges include correct product design and development in insurance to allow for future scaling; secure access for third-party APIs to enable data exchange; and implementing big data analytics and AI/ML features. These are non-trivial tasks that require in-depth insurtech development expertise.
- Is it worth creating a custom insurance solution, or is it better to use a ready-made one?
- As always, it comes down to business goals and budget. Many ready-made and economical solutions solve basic insurance automation challenges. However, they can lack important features and integrations or, conversely, charge for functionality that isn’t needed. In this case, custom insurance software development is a better option.