Are Software Vendors Holding Insurers Hostage? Build Your Own, Webinar Says

Some software-as-service vendors are holding insurance companies on a tight leash, charging them huge annual fees for upgrades and for the privilege of accessing their own data, according to an insurance executive and a tech company owner who spoke at an Insurance Nerds webinar last week. “We started our company very reasonably, from a cost perspective, but then we started to see those costs go up and we felt like we were being held hostage, not necessarily by the vendor, but by the situation,” said John Lucker, executive vice president of Universal Shield Insurance Group, based in Dublin, Ohio. “The move to SAS (software-as-a-service) type commercial arrangements has taken all the control away from insurers,” said Luke Magnan, a co-founder of the Insurtech known as Combined Ratio Solutions. Lucker Vendor-owned software, leased to insurers, is not unlike a tenant spending a ton of money on a new kitchen in an apartment she’s only renting, he said. A number of insurance companies have reported “nightmare” scenarios in which their data ended up being essentially owned by the software vendor firms, while the carrier spent millions of dollars to access it. Some insurers said they wanted to switch to different systems but were barred by fees and contracts, said webinar host Nick Lamparelli, who runs the Insurance Nerds website along with The Insurance Advocacy Forum of Florida, and who is chief program officer at Algorithmic Insurance Services. There’s a better way, the webinar participants said. Instead of paying software vendors fees in perpetuity for data, claims and policy administration system software, which can sometimes take months or years to be updated or improved, insurers should think about building their own systems. Combined Ratio Solutions, based in Hartford, Connecticut, now offers basic, open-source software that insurance carriers can expand on their own, using their own in-house techies. Universal Shield, formed in 2021 and which is now in the process of being acquired by TipTree Inc., adapted the Combined Ratio core software to develop its Universal Connect portal. That has proven to be fundamental to adapting functionality quickly, Lucker said. Lamparelli “Our product is our portal—how do we present ourselves to an agent,” he said. “Everything for them and for us is about speed to market: How quickly can we deliver a bindable quote and how sticky can we make that.” Now is a good time for insurers to think about building their own systems, Magnan said. Artificial intelligence platforms have made writing software code much easier and faster. And big, costly enterprise systems from vendors are beginning to lose their luster and their value, he argued. “Now, it can be buy and build, not buy or build” on insurance software, Lamparelli noted. The switch to more in-house development demands a certain culture and innovative approach by insurance companies. Universal Shield had to “marshal the troops,” including information technology staff, to build its systems. “Version one doesn’t have to be perfect,” Lucker said. “Every new release is an incremental improvement over the previous version.” The webinar did not indicate how much Combined Ratio or similar firms charge for the core software set-up, hosting and assistance, nor did it reveal whether the company paid a fee to be featured on the show last week. Topics Carriers Training Development