The insurance software development market is projected to reach USD 28.5 billion by 2031. According to a survey by Ovum, only 27% of insurance companies consider their implementation of a policy management system successful.
It’s important, as per Accerto’s survey 75% of online insurance purchasers reported technical problems. What’s more, Insurers with modernized IT infrastructures experience 41% lower IT costs per policy compared to those relying on outdated systems. They also noted achieve more than 40% higher productivity in terms of the total number of policies managed. But it all comes at a price. What is the insurance software cost? And why is it so high?
Project Scope and Complexity
Project scope and complexity are the main cost drivers. According to a survey by the Project Management Institute, 52% of projects experience scope creep. The more complex and customized the software the higher the costs will be. Early on in the process it’s important to do a thorough needs assessment to identify the required features and functionality. This will help you estimate the financial and resource commitment required for the project. A clear scope will prevent cost blowouts later on.
Integration with Existing Systems
Another big factor is the integration with existing systems. Seamless integration is key to business continuity but can be costly especially when dealing with old or incompatible legacy systems.
Organizations must assess their current IT infrastructure and anticipate the challenges. By identifying these early on you can mitigate unexpected costs and avoid delays during the integration process.
Development Team and Location
The expertise and location of the development team also play a big role in costs. Experienced professionals cost more but their expertise will mean a smoother implementation with fewer issues down the line. Location of the development team also affects costs. Teams based in lower cost regions may offer a more affordable solution. However, you must balance cost savings with quality of work and communication efficiency.
Project Duration and Resource Allocation
Longer projects mean more costs due to extended resource allocation – people and technology. Set clear milestones and monitor progress regularly to avoid budget blowouts and keep the project within budget.
Risk Management and Budget Revisions
Changes to project scope, technical challenges or organizational priorities can lead to budget revisions. According to a Global PPM survey by PwC, 39% of project failures are attributed to poor estimates during the planning phase, while 41% are due to changes in scope mid-project. Research suggests that organizations should allocate 5-10% of the total project budget for contingencies to manage unexpected costs effectively.
Implementation Costs Breakdown
When budgeting for insurance software implementation, you need to consider all the components that go into the overall cost.
Cost Component / Estimated Percentage of Total IT Budget (%):
- License Costs and Subscription Fees: 15-25%
- Integration Costs: 10-20%
- Employee Training and Change Management: 10-15%
- Ongoing Maintenance and Support: 15-20%
- Customization and Additional Features: 5-15%
- Data Migration Costs: 5-10%
License Costs and Subscription Fees – Example costs for software licenses: Small business: $1,000; Medium-sized enterprise: $5,000; Large corporation: $50,000.
Integration Costs – Custom insurance software with implementing key features costs can vary widely; pre-built integrations may cost several thousand dollars, while custom development can significantly increase expenses.
Employee Training and Change Management – Training costs for employees can range from $2,000 for new hires to $5,000 for comprehensive on-site training for a team of 10.
Ongoing Maintenance and Support – Ongoing maintenance typically constitutes 15-20% of the initial development costs annually.
Customization and Additional Features – Customization costs can vary, with estimates suggesting that additional features can add 10-30% to the overall project budget, depending on complexity.
Data Migration Costs – Data migration costs can range from $1,000 to $10,000 depending on the volume and complexity of the data being transferred. Data migration in insurance industry can be costlier due to compliance regulations, history of policy changes, and many more.
The Impact on Insurance Company Budget
Implementing insurance software has a big impact on an insurance company budget – short and long term. Good planning and budgeting is key to make sure the investment aligns to financial goals and strategic objectives.
Short term vs Long term Financial Implications
The initial costs of software implementation can put pressure on an organization’s cash flow. However, you must consider the long term financial benefits the software can bring. Improved operational efficiency, reduced manual errors and better customer service can save costs in the long run. In the insurance industry, it can be critically impactful, as even minor improvement can lead to major profit.
Budget Planning
70% of software projects exceed their initial budget, which often correlates with missed deadlines. Software projects that miss their deadlines can experience an average cost overrun of 27% over their initial budget. A United States Air Force project faced an increase in costs of over $1.1 billion due to delays, leading to its cancellation. Organizations must allocate funds across different components like licensing fees, integration costs and employee training.
Prioritizing key features will help you optimize your budget. Having clear financial milestones and tracking progress against the budget will give you valuable insights for future planning.
Cost Reduction
To reduce costs you can negotiate better licensing terms with vendors, look at open-source or low-code/no-code options or leverage economies of scale through group purchasing. Regularly reviewing and optimizing processes will also save costs by identifying areas where automation or streamlining can be applied.
Do You Need an Insurance Software Management System? Try Decerto solution
Decerto offers a robust insurance management system designed to streamline your operations, enhance customer service, take care of customer relationship management, and ensure compliance.
It’s perfect as an insurance agency management system. Insurance agencies will appreciate streamlined business processes, data analytics tools, automated insurance policies management, and highlighted upsell and cross sell opportunities. It should all result in overall customer satisfaction improvement, and better (and more valuable) customer relationships.
As for insurance carriers, Agent Portal joins the agency management systems, being a tool that will show the overall performance of your subordinates, all data-driven.
Integrating smoothly with your existing systems, Decerto minimizes disruptions and maximizes ROI, allowing your organization to focus on growth and innovation.
If you’re ready to elevate your insurance operations, explore how Decerto’s expertise can transform your business.
