Claims Management Systems: Build vs. Buy


The decision between building a proprietary claims management system for your insurance company or buying an off-the-shelf system is pivotal. This choice can significantly impact an insurer’s finances, operational efficiency, ability to adapt to market changes, and overall success. 

Many insurers initially opt to develop their own systems to accommodate specific needs and workflows. However, more often than not, they eventually find out that they made the wrong decision, as such systems do not perform as expected, fail to scale, and can turn into costly software development projects that divert focus from their core insurance business.

The Promise and Pitfalls of Building Your Own Claims Management System

The allure of a customized platform tailored to an insurer’s unique requirements is strong. Insurers venture into building their own platforms hoping to capture every nuance of their operation in the software. In theory, having a system that is built by your internal IT team, around your needs, seems logical, and every company in the world is indeed unique in some way.

However, the reality of such projects is usually daunting. Developing a claims management system in-house requires a substantial upfront investment in time, money, and resources. If this path is taken, and as the project progresses, many insurers encounter the following challenges, and realize that they have made a wrong decision:

1. Technical Challenges

Creating software is not easy. If you’re an insurance company, developing code is not necessarily your core competency and the developers you might employ might not be able to get management support for technical questions from insurance veterans without technical skills.

Moreover, when the need is for a software that is robust, scalable, and secure, additional layers of complexity are added. Technical design failures and issues that arise during development often yield systems that are unstable, clunky, or fail to integrate with other technologies. Such technical shortcomings can severely hinder systems’ functionality and reliability.

2. Resource Allocation and Financial Burdens

Building your own claims management system requires a significant financial investment and human resources allocation. A team needs to be set in place, and they go through a long process of defining requirements and imagining what the software could do. They then need to get buy-in from management, and source development talent internally or from a software development company that builds a system from scratch. 

The overhead time and initial development costs for building such a system can skyrocket, and when accounting for the time and these costs in the Total Cost of Ownership, you realize quickly that you’ve overspent. When the system fails to meet your schedule, budget, and needs, you find yourself pouring even more money into the failed project and software fixes, because of the sunk cost you’ve already spent and the reputation risk that is expected should this project be deemed a failure.

3. Maintenance and Updates

Software always needs to be updated. Your business changes and so do the tools that keep your business going. Your Claims Management System (CMS) needs to keep up with new business models, regulatory changes, technological advancements, and cyber security threats. Maintaining an in-house legacy system therefore requires eternal resources – people, management overhead, computing resources, and money. 

It’s a task that distracts from an insurer’s main business and the internal tech teams are never as fast and nimble as the Insurtech startup next door.

4. Competition

Even if an insurer’s management is reluctant to admit that developing its own legacy system was a mistake, the competition will make such acknowledgement a necessity. Since legacy systems do not adapt fast, competitors who are using better Claims Management Systems will soon offer better insurance products, better claims handling, better customer service, and faster settlement payouts. Then Sales and management would realize the obvious – in order to beat the competition, we need a better CMS software that can keep our customers happy.

The Advantages of Buying a Cloud-Based Claims Management Platform

Instead of bearing the burdens of developing and maintaining an in-house platform, insurers are increasingly turning to software companies who developed cloud-based Claims Management Systems. These systems offer a robust and reliable foundation for managing claims that is continuously developing so that it stays current with the latest technological advances, and offer improvements and optimizations for daily operations.

Here are some compelling reasons to consider buying a CMS instead of building one:

1. Lets You Focus on Your Core Business

By sourcing a cloud CMS, insurers can concentrate on what they do best — selling insurance policies, managing risks, and serving policyholders.

If you take an AI-Native, automated cloud-based claims management platform like Five Sigma, the platform also takes care of the heavy lifting in your claims management operations, allowing your adjusters to allocate their time towards decision making and customer service.

2. Ensures Reliability and Scalability

Choosing a ready-made system ensures that you are working with a product that has been tested and proven across various scenarios and customer needs. Such systems and companies, which serve multiple insurance customers, are built to be robust, scalable, and secure.

An additional bonus of advanced CMS like Five Sigma’s claims management platform is that it invests in the latest technologies such as AI, automation, omnichannel communication, and others to ensure streamlined operations and superb customer experience.

3. Meets Your Changing Needs

One disadvantage of many Claims Management Systems is that they don’t work exactly the way you want them with your workflows and practices. This brings you into customization discussions with the CMS vendor to tweak the system for your needs. Indeed, this can be quite expensive and tedious. 

However, some CMS are totally adaptable, at no extra cost. Five Sigma lets you design your specific workflows and fields for any line of business, with no need for coding or platform changes. This enables us to support any insurer within weeks, not months or years. It also allows you to adapt quickly to market changes down the road, changing what’s needed in a day or two.

4. Offers Simple Maintenance and Continuous Updates

With a cloud-based platform like Five Sigma, you always use the latest product version, with continuous developments and enhancements made available for the benefit of all customers. Five Sigma ensures the security of the platform against current threats, as well as compliance with the changing insurance regulations. 

Five Sigma also makes your claims operations future-proof: with configurable no-code workflows and an advanced API framework, the platform lets you define new business models, support new lines of business, and connect to any other system with no need for change requests and long waits. 

Conclusion: Buy a CMS. Spoil yourself with Five Sigma.

For insurers looking to stay ahead in a fast-paced industry, embracing a ready-made, adaptable claims management platform is the best strategy for maintaining financial viability, streamlining operations quickly, and achieving future-proof success. 

And if you’re buying a CMS, go for the best. Discover how Five Sigma’s AI-native, automated cloud platform can transform your claims operations, cutting costs, accelerating claims handling, and improving customer satisfaction.

Five Sigma - AI-Native Claims Management Platform

Five Sigma offers an AI-native claims management platform that streamlines every step of the claims process. With full visibility of the claim at a single place, advanced automation, and data-driven insights, Five Sigma empowers adjusters to excel, speeding up claims handling and improving policyholder satisfaction. Adjusters are freed to focus on decision-making and customer service. 

For insurers, MGAs and TPAs, Five Sigma is a risk-free solution that unlocks unprecedented benefits quickly. Insurers gain unparalleled visibility into their claims and operations. The result is a significant reduction in Loss Adjustment Expenses. Five Sigma is a future-proof platform that is always up to date for the benefit of all its customers and gives insurers the agility to handle any claim faster, add new Lines of Business in less than a day, and accommodate new business models easily, enabling you to adapt swiftly to market changes ahead of the competition.

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