How to Build a New Insurance Program
As the insurance landscape evolves, there are several approaches to consider for taking a new, innovative insurance program from idea to reality.
In this guide, we'll explore the three major avenues to creating a new insurance program: building it from scratch in-house, outsourcing to traditional partners, or partnering with an Insurance Infrastructure as a Service company like Boost.
Option 1: Build It Yourself
Building an insurance program from the ground up is a long, multifaceted undertaking that requires careful planning, meticulous attention to detail, and a robust set of resources.
The main benefit of this route is the control. When you build your own insurance product, you have complete control over the concept, design, operations, compliance, and tech, so you can approach each area in a way that centers your business needs.
Complexities of Building an Insurance Program
The downside of building an insurance program, however, is that you have complete control. In other words: you have complete responsibility for every aspect of this undertaking, several parts of which may be outside your core business and expertise.
Building an insurance program is a long and capital-intensive process, with heavy regulation adding considerable complexity. Here’s a brief, 10,000-ft view of the steps to getting your new insurance program off the ground:
1. Obtaining the Necessary Licenses
Your business is probably already licensed to sell insurance, but creating a new program in-house requires your company to also be licensed as a Managing General Agency (MGA). The requirements for this license vary by state, so you’ll need to research the process in each state you intend to sell in. Depending on whether you plan to build an admitted or non-admitted insurance product, you may also need to obtain a surplus lines license.
2. Developing Forms, Rates, and Guidelines
Creating the actual insurance product that your program will support involves crafting forms, establishing rates, and setting underwriting guidelines. Unless you already have people capable of those tasks within your business, you will need to hire experienced actuaries, underwriters, and insurance lawyers, which can be quite expensive.
3. Navigating State Regulations
A closely related factor to consider is that each state has its own unique insurance regulations. Forms, rates, underwriting guidelines, licensure, billing procedures, and more vary from state to state. Additionally, state regulations can frequently change, so you will need to stay up-to-date to ensure compliance. This process can be time-consuming and demands ongoing attention.
4. Garnering Carrier Buy-In and Capacity
Insurance capacity is vital for any insurance program. If you don’t have the capital to pay out policyholder claims, then you don’t have an insurance program. That being said, capital is not enough: by law, you will need to secure backing from one or more licensed insurance or reinsurance carriers. This step can take a long time to complete, especially if your business does not have existing carrier relationships.
5. Developing Distribution Technology
Creating or acquiring a Policy Administration System (PAS) can be one of the most expensive, and time consuming aspects of the process. The PAS is the technological backbone of the insurance program, and one of the most essential (and complex) pieces of the insurance tech stack. In order to deliver a modern, all-online insurance experience, you need a PAS that can support all operations related to an insurance policy.
Getting it right is complicated and very expensive, which is why few companies choose to build a bespoke PAS in-house. Most choose to work with an outside partner and purchase an existing PAS, though this comes with its own challenges (more on that in the next section). Either way, you have to do your research on which path would be best for your budget and your business.
6. Establishing Claims Administration
Legally, insurance claims must be administered by a licensed claims adjuster. This means that handling claims requires either hiring licensed adjusters in-house, or partnering with a Third Party Administrator (TPA) to administer them for you. You’ll also need to establish processes for how your customers file their claims, and how that information gets to the right person.
While building an insurance product in-house offers control and customization, it is an expensive, multi-year investment. In addition to the functional costs of building the product itself, you’ll need to recruit and hire internal experts to do the work on the program and manage it on an ongoing basis.
Option 2: Outsource to Traditional Partners
Most businesses that want to create a new insurance product don’t end up DIY’ing it, because, as we just explained, it is complicated, time-consuming, and very costly. Instead, many companies opt for a more cost-effective, less labor-intensive route, which is to outsource.
While we here at Boost are big supporters of outsourcing, the experience you have will really depend on who you outsource to and what they are capable of. There are a variety of traditional outsourcing partners that specialize in different parts of the insurance process - emphasis on parts of the process. You’ll need to work with different partners for different aspects of building a new program.
Actuarial consulting firms can help you with the creation of the product itself. This includes developing the forms, helping determine appropriate rates, and creating the underwriting guidelines. Some actuarial firms may also assist you with filing your product once it’s complete.
As mentioned in the previous section, you can outsource or purchase a Policy Administration System (PAS) through a PAS vendor. These third-party companies provide generic “off-the shelf” software designed so that any insurance company can buy it.
However, these systems usually aren’t usable straight off the shelf. In order for it to be able to support your insurance program, you will need to customize and configure it to support your business’s specific needs and workflows. Most vendors will do this work for you, for a substantial fee. There may also be ongoing licensing or platform costs required to use the software.
Additionally, system capabilities will vary from vendor to vendor, and not all PAS may be able to support every insurance operation. Depending on the level of sophistication your program requires, you will need to do some research on what off-the-shelf product would be the right fit.
A reinsurance broker acts as an intermediary between you and reinsurance carriers. The broker’s primary role is to connect you with reinsurers who might be able to give you the capacity you need for your program. While these partners can be expensive to work with, they can be a big help in getting your program the necessary risk capital backing.
Third Party Administrators (TPA)
Third Party Administrators (TPA) are agencies that employ licensed claims adjusters, and manage various aspects of insurance policies, claims processing, and benefits administration. Generally speaking, working with a TPA is a cost-effective way to get licensed claims adjusters to handle your customers’ claims for you. They also operate as intermediaries between you and your policyholding customers. The downside of that however, is that the only touchpoint that your customers will have with their insurance company will be with the TPA and not with you. That means that you won’t have visibility into customer experience with this portion of your brand.
Disadvantage of Outsourcing to Traditional Partners
Outsourcing can be a quicker and more cost-effective solution than building from scratch, but that’s not to say that it is quick or inexpensive. The biggest disadvantage of this route is that since most traditional partners only cover a part of the insurance program development process, you will likely need multiple partners to create your program.
Each of these partners will provide their piece of the puzzle, but managing the process and making the pieces work together will be your problem. Not to mention, working with multiple vendors will likely add up in costs and time to market.
Option 3: Insurance Infrastructure as a Service
Unlike the traditional outsourcing partner companies, insurance infrastructure as a service (IIAAS) companies like Boost provide everything you need to start offering insurance to your customers. Think of us like a one-stop-shop for all of your insurance program development needs.
As a first-of-its-kind IIAAS partner, Boost has already gone through the build-a-program steps we looked at in the first section, and has put together the necessary infrastructure for every aspect of new insurance product development. In fact, we are the only outsourcing partner that assembles compliance, risk capital, and technology infrastructure under one roof.
An IIaaS partner like Boost handles every aspect of development in-house, including
This is an important distinction because, in comparison with DIYing it or working with multiple traditional partners, working with an IIAAS partner will help you cut down expenses and minimize the effort of juggling multiple contracts and partnerships. You can leverage your partner’s existing expertise and infrastructure to get to market more quickly, with lower overall costs.
Whether you decide to build from scratch, partner with traditional partners, or embrace the innovative IIAAS approach, launching a new insurance program is an intricate journey with multiple avenues to explore.
If you want to learn more about partnering with Boost to build a custom insurance program, contact us.