Build, Buy, or Boost: A Cost Breakdown for Insurance Infrastructure

New Product Development Insurance Infrastructure

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New Product Development Insurance Infrastructure

By Laura Knight on Feb 28, 2024

8 min read

A businessman types on a calculator while holding a pen. His desk is covered in financial charts.

A big reason that businesses choose Boost is that we can help them launch scalable, profitable insurance programs much more quickly and cost-effectively than the alternatives. In this blog, we’ll explore the time and cost requirements for using Boost to develop a new program vs traditional build or buy, and how Boost is able to offer a better option.

We’ll break it down by the three main components you need for a new program: the MGA infrastructure to support it, the new product itself, and the distribution technology to sell it online.

Building MGA Infrastructure

The first step to developing a new insurance program? Being legally permitted to do so. And if you want to create your own product versus just selling someone else’s, your company needs to be an MGA. In this section, we’ll look at the cost and requirements for building a new MGA.

What’s Involved with Building MGA Infrastructure

Getting an MGA license. In some states this is as simple as an extra form, in others it may require an additional exam.
Establish underwriting systems & processes. An automated underwriting workflow will significantly improve your efficiency.
Establish claims administration capabilities. By law, all claims must be processed by a licensed claims administrator, so you’ll need to either hire or contract to qualified professionals.
Establish reinsurance treaties. Any policies you sell will need to be backed by risk capital capacity, which requires negotiating relationships with reinsurers.
Receive full delegated authority and appointment by a fronting carrier. Legally, your policies must be written on licensed carrier paper, which means you’ll need to develop a partnership with a fronting carrier that will permit you to write and modify policies without their direct involvement.
Bordereau and regulatory data reporting. Both reinsurers and regulators will require regular reports on the health and status of your various programs.
Ongoing program underwriting and book management. Selling a policy is only the beginning; you’ll also need systems and resources in place for ongoing maintenance.

Build: Costs and Requirements

There are two big requirements for building your own MGA: hiring the right people, and securing the right partnerships.

On the hiring side, you’ll need to build an organization to run a full-stack insurance business. This includes everyone from underwriters to claims administrators to compliance managers to regulatory experts. As you might imagine, this is a significant, ongoing resource commitment, particularly for positions requiring experienced senior employees.

On the partnership side, you’ll need to build relationships with reinsurers and other risk capital providers, and with fronting carriers who will allow you to write on their paper. This can be difficult, especially without existing connections.

Total estimated cost: $5 million

Total estimated time: 2 years

Buy: Costs and Requirements

When creating an MGA, there’s actually not much difference between building and buying.

You can contract with qualified professionals instead of hiring directly (like using a licensed third-party agency for handling claims instead of building an internal claims team), and work with consultants that specialize in other MGA requirements, but you’ll still need to do a lot of the same things that we saw in the build section. The most important and challenging pieces, like the reinsurance and fronting carrier partnerships, can’t be bought.

Total estimated cost: $5 million

Total estimated time: 2 years

Boost: Costs and Requirements

Boost has already invested the time and money in building a robust MGA infrastructure to support our customers’ insurance programs, including:

Fully delegated authority from ‘A’ or ‘A-’rated fronting carrier partners
Dedicated reinsurance capacity from a diverse panel of reinsurers
Filing, regulatory, and compliance management resources
Full-service claims administration
End-to-end program management

When you work with us, you can leverage our already-existing infrastructure to get what you need to support your insurance programs right away, for an annual platform fee.

Total estimated cost: $150,000 annually

Total estimated time: Immediately available

Developing a New Insurance Product

The core of a new insurance program is the product itself: the coverages you’re going to offer, the risk capital to back them up, and the administration to support its operations. In this section, we’ll look at what it takes to create a brand new insurance product from scratch.

What’s Involved with Developing a New Insurance Product

Identifying a new opportunity. This first step encompasses researching the market, scoping the potential product, and building the business plan.
Developing rates, forms, underwriting guidelines. This includes how your product will be priced, which risks you’re willing to insure (or not), and how to determine who qualifies for a policy.
Determining program operations and claims flow. You’ll need to design the workflows for when your customers make claims, and decide how the ongoing administrative needs for your product will be managed.
Secure backing from reinsurance and fronting carriers. Your new product will need to be written on licensed carrier paper, with sufficient capacity behind it.
State filing and compliance. Your product will need to be filed with the Department of Insurance for each state you intend to sell it in, and reviewed against each state’s compliance requirements.

Build: Costs and Requirements

If you choose to build your product from scratch in-house, you’ll need to hire experienced people to do everything mentioned above, including:

Actuaries
Underwriters
Insurance regulatory attorneys
Compliance specialists
Product managers

Additionally, you’ll need to secure capacity for your product. This is often harder than it sounds, especially if you don’t already have relationships in place with risk capital providers. Particularly in the current economic environment, convincing reinsurers to commit financial resources to insuring a new, unproven risk can be a long, difficult journey.

Total estimated cost: $8 million to set up, with $2 million annually to maintain

Total estimated time: 5-6 years

Buy: Costs and Requirements

If you go the “buy” route for developing your new product, you’ll need to contract out to a number of partners to get what you need, including:

Experienced law firms that specialize in insurance
Reinsurance brokers, who can help secure risk capital for the product
A project management firm to keep everything on track

Each partner will deliver their piece of the puzzle, but it will be up to you to assemble the pieces and ensure everything happens as it’s supposed to. You’ll need to invest resources in project-managing a complex multi-year, multi-partner project. Additionally, some partners’ contracts may include ongoing fees, or a certain percentage of the product’s GWP.

Total estimated cost: $5.8 million + 1% of GWP

Total estimated time: 3-4 years

Boost: Costs and Requirements

If you choose to partner with Boost to create your product, you’ve already streamlined the process considerably. Boost can provide everything you need to build and launch your new insurance program under one roof (in fact, we’re currently the only partner that can).

Boost’s in-house team of insurance experts will work with you on market research and scoping for your opportunity, then develop a product sketch for how to address it. Once you and Boost have agreed on what the new product should look like, our team will get to work developing the forms, guidelines, and other program documentation. They’ll also help you design the program’s operations and claims workflows. When the product is ready, Boost will submit it to our panel of reinsurance and fronting carrier partners.

Once we’ve secured paper and capacity for your product, our compliance specialists will start the filing process with the states that you intend to sell in.

Total estimated cost: $400K

Total estimated time: 4-7 months

Insurance Distribution Technology

Modern buyers expect convenient, all-digital purchase experiences, and delivering those experiences requires a policy administration system (PAS) with the right capabilities. In this section, we’ll look at options for acquiring a PAS that can support end-to-end digital workflows.

What’s involved with building the technology for insurance distribution

An API-driven policy admin system. A modern API-based system will make your PAS far more straightforward for developers to work with than notoriously complex traditional insurance software.
Automated, end-to-end policy admin workflows. Your PAS will need to be able to digitally support the entire policy lifecycle, including rating, quoting, binding, policy issuance, modifications, claims management, payments, and more.
Programmatic underwriting. You can’t offer a fast, all-online purchase experience if your workflow requires manual underwriting review. You’ll need a programmatic underwriting system that can make automated decisions in line with your risk preferences.
Automated policyholder notices & state-by-state compliance. Each state has its own regulations around why, how, and when you need to contact policyholders. Automating state-by-state compliance into your PAS removes a cumbersome manual process from your workflows.
Claims intake via API for full policyholder lifecycle control. Even if actual claims are handled by a TPA, routing claims through your system allows you to retain control of your customers’ experience.
Integration with your front-end for full UX control. For a truly seamless customer experience, you’ll need to integrate your insurance product with your digital front-end, so that buyers need never leave your site.

Build: Costs and Requirements

A PAS is a very complex piece of software, in no small part because of varying insurance regulations between each state. To function smoothly, your PAS will need to automatically identify and follow all applicable laws for the state a policy is sold in. This includes areas such as:

Document generation and delivery, which can have state-specific requirements for timeline, contents, contact method, and even things like font size.
Cancellation notices, which can have varying mandated notification timeframes.
Regulatory changes, which require ongoing monitoring of contract and insurance laws in all fifty states.

The time and difficulty of building a PAS also increases with each additional insurance line that it must support. If you build in-house, you’ll also need to plan for regular updates and maintenance to the software, and ensure your organization has the necessary resourcing in place.

Total estimated cost: $2 million annually

Total estimated time: 1-2 years

Buy: Costs and Requirements

If you opt to buy the technology you need, the cost will vary by PAS vendor pricing, and also by the amount of development work necessary to customize an off-the-shelf PAS to support your product and workflow needs.

Traditional vendors often charge per-year service costs for your PAS buildout and subsequent maintenance. Newer vendors tend to forgo the large fixed annual rates, and instead collect a relatively low baseline platform fee along with a percentage of your gross written premium. In many cases, however, you’ll also need to separately arrange and pay for the custom dev work to configure your PAS for your products.

Total estimated cost: $250k + 1% of GWP

Total estimated time: 6 months to customize/implement

Boost: Costs and Requirements

Boost’s state-of-the-art PAS is at the heart of our platform, and is pre-configured to support all Boost products. The annual $150,000 Boost platform fee includes access to the PAS - just integrate with your front-end via API, and you’re ready to get started selling your Boost-powered insurance product.

The Boost API was built from the ground up to be easy for developers to build to and implement, reducing deployment times vs. complex legacy software. This includes a design that leverages RESTful patterns, comprehensive API documentation, and permanent access to a dedicated testing environment, at no additional fee.

Total estimated cost: Included in the platform fee

Total estimated time: 4 weeks deployment

Considering if a new insurance program is the right move for your business? Learn everything you need to know with our free ebook How To Succeed with a New Insurance Program. And if you’re ready to get started with Boost, get in touch today.

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