Optimising Functionalities Between Out-of-the-Box (OOTB) and Custom-Built Solutions

August 07, 2024

Establish design principles in core system for insurance architecture: Optimising the right set of functionalities between OOTB and custom-built solutions

The insurance industry is at an inflection point for digital transformation. Companies have recognised the need for modern core systems to stay competitive – by making accommodation for new margin scrutiny and adapting to changing customer demands and expectations.

Many have acknowledged their legacy systems have reached end-of-life and present mounting operational risks.

This is now an era of core modernisation and establishing design principles for insurers’ core architecture is critical for evaluating business needs and any overarching technology strategy.

One of these design principles highlights how insurers will achieve their architecture blueprint.

Avoid reinventing the wheel

Traditionally, insurers preferred custom-built solutions tailored to their specific operational workflows and customers’ needs, viewing this customisation as a competitive edge and a means of differentiation in the market.

This reliance on custom code can lead to a slower time-to-market and higher initial capital requirements, potentially delaying early value creation and posing risk of heftier write-offs if the project fails.

In recent years, advancements in technology have introduced high configurability solutions ‘out-of-the-box’ (OOTB) across products, processes and business settings. While customisation is still necessary in the last mile, these solutions represent an opportunity for the insurance sector, promising enhanced efficiencies, accelerated speed-to-market, cost reductions, and the ability to explore new business models with lower barriers to entry.

As basic configurability, flexibility and capabilities become commoditised, insurers must differentiate themselves and stay competitive. Adopting a new tech stack is crucial for leading in a fast-changing market, as insurers using legacy systems risk falling behind those who embrace the agility and speed-to-market offered by modern technologies.

Let’s look at the two approaches that insurers might adopt.

The Digital Opportunist archetype refers to insurers that have recently embarked on their digital journey. This may include insurers that are interested in expanding their digital footprint, are mindful of staying current with the digital trends, and may have initiated small tactical plays.

However, they retain some level of scepticism of the potential of digital or the need for digital transformation. For this reason, they have not allocated substantial resources towards these efforts.

Breaking down the terminology

OOTB software comes with configurable options alongside pre-packaged sets of features and functionalities. This allows the assembly of existing features and modules more quickly, removing the need for code development thus, accelerating the foundation of a modern core system.

These components have configurable workflows that allow functionalities to be aligned to modern practices at a lower cost. Depending on the maturity of the configurable settings, insurers may be able to set up the system for their unique business requirements without incurring time-consuming and costly customisations.

Being able to configure settings at earlier parts of the value chain – ie, product configuration – means they will be directly linked and integrated into business logic that flows through sales, policy servicing and claims, transforming capabilities into a true end-to-end system.

The scope of OOTB capabilities and functional coverage will minimize the growth of future technical debt from stale customisation, making it appealing to insurers looking for swift digitisation.

Custom-built functionalities are commonly designed from the ground up to fulfil an insurance company’s specific requirements, in particular around gaps where existing solutions have not worked. This requires sourcing expertise, often in-house or externally on a one-off basis, which creates complexity and challenges for future maintenance and adaption for an ever-changing landscape of technical and functional user needs.

This means the build phase involves starting from scratch and crafting a solution tailored to the insurer’s exact specifications. Over time, trade-offs may be sanctioned in order to meet tangible milestones, which can compromise the original vision.

That said, customisation can solve the insurers’ immediate needs exactly, but it will come at a cost. The process is costly, demands specialised expertise, and is time-consuming, posing a risk that the resulting system may be obsolete before its launch.

Better by design

At face value, OOTB solutions appear to be a better fit than a custom build. OOTB not only meets the fundamental functional requirements by allowing customisation through configuration and accelerating the speed-to-market, but introduces new concepts to address the actual requirements.

Most of these requirements are broken down by configurability, API aggregation and the integration of plug-ins. While nothing matches the flexibility of customisation (assuming no budget or time constraints), OOTB solutions reduce initial investments and future customisation efforts for evolving needs. They also give insurers greater control over the shape and evolution of solution as the project matures.

In turn, this helps to deal with the problems of return on investment (ROI) that are unavoidable in a custom build.

However, there will always be certain areas of the insurer’s business that are considered unique – points of differentiation or unsuitable for the configurability offered by OOTB solutions. In these cases, a more granular, custom-built solution may be necessary.

How this is identified and integrated into the project is an important part of the design process.

Important considerations - Measure twice, cut once

Balancing custom-built solutions with the benefits of OOTB configurability is crucial. An 80:20 ratio – where 80% of functionalities are covered by OOTB solutions and 20% involve minimal customisation or “last mile customisations” – has proven to be a popular strategy for insurers seeking speed-to-market and adaptability. This may be localisation or integration to legacy, other custom solutions, or other third-party products.

Establishing the optimal core design principles is not about just driving efficiency. It is also a strategic attempt to drive growth and elevate customer satisfaction to ensure lasting engagement and retention.

The insurer must determine and align on which parts of the organisation and core processes are part of the 80%. This involves addressing three critical aspects:

Technology: What are the overarching strategic needs and priorities? Which capabilities does the business need to differentiate? Which areas will require custom technologies to be built and how do we do that? Which of these capabilities will require ongoing enhancements? Where does flexibility of re-configuration need to be?

Long-term operating context: Where do we find sufficient IT talent, capabilities and resource for the areas we control? How much control do we need over unique functionalities in technology that differentiates us? What is the implied long-term capex and opex cost?

Delivering modernization: What Is our budget? How urgent is our need for modernisation? How quickly do we need to go to market? How do we manage BAU roadmaps and systems vs new system requirements and delivery?

Before determining whether custom-built or OOTB solutions will be most appropriate, there are a few key criteria to consider:

Speed-to-market: Insurers looking for rapid digitization should opt for OOTB as they are faster to deploy than custom-built alternatives.

Budget constraints: Custom built solutions often require high investments for development, testing, and ongoing maintenance, making them unsuitable for those with limited financial resources. OOTB offers cost efficiency, as its configurability minimises the need for extensive customization, reducing development expenses.

Integration needs: If you require seamless integration with multiple systems – CRM, financial systems, third-party data providers, etc – OOTB systems with a broad ecosystem of solution providers may be advantageous.

Scalability: What does the future hold? Custom built solutions can be tailored to accommodate future expansion, while OOTB solutions may offer scalability features suitable for smaller to mid-sized insurers.

End-user experience: Customers demand seamless experiences. OOTB solutions often come with user-friendly interfaces and features that enhance both customer and employee experiences.

Maintenance and support: Custom-built systems may require more intensive care, whereas OOTB systems often come with vendor provided support.

In many cases, OOTB solutions emerge as the clear winner over pure custom-built solutions, not only for those seeking rapid digitalisation, but also for insurers aiming to retain control over development and future enhancement costs. Considerations such as project timeline, financial resources, flexibility and customisation, scalability and adaptability, ongoing support, and maintenance collectively contribute to OOTB’s superiority in achieving digital transformation goals over custom-built solutions.

Case study: Prudential Thailand

Prudential Thailand has been using modules from Peak3’s Graphene product to redefine its digital proposition.

Graphene’s capabilities enabled them to configure its customer user interface for the insurance product purchase journey. Prudential Thailand can configure the sales journey, introduce products tailored to specific consumer segments, calculate premiums, input application information, and facilitate premium payments to complete the issuance of the insurance policies.

The modules can be configured not only for different customers but also for different channels. Prudential Thailand has configured both their direct sales channel and partnership sales channel, which is provided to external distribution channels as a plugin.

The journey data can be captured in real-time as customers log on, submit forms or close their screen. This data is then integrated with Google Analytics allowing the partner to monitor events, assist analysis and optimisation of their business operations.

These developments enable Prudential Thailand to offer multiple products with varying duration, premium payment methods and payment periods, all shared through an intuitive user interface (UI) in the app.

The UI can also be re-configured and adapted into a new UI and campaign in production within 1-2 weeks at minimal cost. Users can update or add campaigns, revise the contents of the customers’ first page with different content, images, logos, etc.

It enhances the marketing efficiency by integrating with the marketing system and leveraging robust SEO support. Ultimately, the system allows the insurer to build a user interface that creates a user friendly, intuitive, and seamless customer environment, maximising any digital sales opportunities.

This innovation has proven successful for Prudential Thailand, as it transforms its traditional life insurance business into a digitalised model. The adoption of a configurable user interface for insurance sales, whether through traditional bank channels or digital leads via TikTok, feed into a fully digitalised sales journey for life insurance.

Since launching its direct-to-customer digital channel products – hospital cash in September 2020 and a digital savings product (10/4) in October 2022 – Prudential Thailand has generated almost 4,000 new policies and more than US$4 million in premiums from digital sales.

In 2022, it was ranked number two for digital sales by the Thai Life Assurance Association. The following year, it received Digital Transformation Initiative of the Year from Thailand’s Insurance Asia Awards 2023.

Prudential Thailand has been using modules from Peak3’s Graphene product to redefine its digital proposition.

Futureproofing is essential

Focusing on the right core design principles for your insurance architecture incorporating OOTB and understanding upgradability helps to futureproof operations and keep you ahead in the industry.

Solutions with wider coverage of OOTB configuration and offer upgradability empower insurers to seamlessly integrate their business logic across sales, policy servicing, and claims processes. With frequent release cycles, new functional capabilities and technological features become swiftly available to customers without causing operational disruptions.

This adaptability places insurers at the forefront of insurance innovation, maintaining a modern and secure tech stack. It eliminates the need for extensive patchwork customisations over the years, ensuring a streamlined and efficient system for the long term. Instead, only a minimal amount of customisation is needed to address for last mile of specialised needs.

Interested in learning how to optimise your core system with Graphene? Get in touch with us here.