The digital transformation of the insurance industry presents many companies with the same strategic decision: Should they develop custom software tailored precisely to their own processes? Or does off-the-shelf software offer a better foundation in the long run?
This debate is not new. What is new, however, are the broader circumstances.
Insurers today face significantly greater pressure to change than they did just a few years ago. New regulatory requirements, rising customer expectations, digital sales channels, AI-powered processes, and ever-shorter innovation cycles demand IT systems that can continuously evolve.
This is precisely why the decision between custom development and off-the-shelf software is viewed differently today than it was ten or fifteen years ago.
Many core systems of German insurers were originally custom-developed or heavily customized over the years. There were good reasons for this.
Each company had its own products, processes, and underwriting logic. Off-the-shelf software could often only meet these requirements to a limited extent. Custom development, on the other hand, offered maximum flexibility.
New features could be implemented exactly according to the company’s own specifications.
Over the years, this resulted in an IT landscape that was perfectly tailored to each company.
However, with every additional project, complexity also grew.
Development costs are rarely the biggest problem. The real costs arise later. Every new regulatory requirement, every product change, and every integration must be developed, tested, and documented individually.
Over time, not only does the source code grow, but so does the reliance on internal specialists and external service providers.
Many insurers are familiar with this situation:
A seemingly minor product adjustment turns into an IT project lasting several months.
Not because the change is technically complex, but because it affects numerous dependencies within the existing system landscape. The result is longer release cycles, rising maintenance costs, and an ever-slowing pace of new product launches.
Not necessarily. Off-the-shelf software also has its limitations. Many traditional off-the-shelf solutions were originally developed to support as many insurers as possible simultaneously.
This resulted in systems that, while offering numerous functions, often require significant customization to adapt to individual processes. This is precisely where the next problem begins for many insurers. The more a standard software solution is customized, the more difficult subsequent updates become.
The supposed advantage of a standard solution is gradually lost. Over the years, off-the-shelf software once again becomes a custom solution—this time, however, based on a standard product.
The decision is no longer: “Standard software or custom development?”
Rather, it is: “
” How much customization is really necessary?
Modern insurance platforms therefore take a different approach. It’s not the source code that’s adapted. Instead, products, processes, and business rules are configured. This separation transforms the entire software lifecycle. While the platform continues to evolve, specific business requirements are preserved without having to modify the actual product core.
This approach is becoming increasingly important in the insurance industry. Product configurations, rates, workflows, and business rules can be managed independently of the actual platform code. This allows insurers to benefit from two advantages at once. On the one hand, they can map their individual products and processes.
On the other hand, regular product updates remain possible without the need for extensive customization projects.
Cloud-native insurance platforms, in particular, therefore consistently rely on configuration rather than custom development.
When selecting new insurance software, many projects initially focus on the feature set. Can the system meet our current requirements?
However, another question is at least as important:
How well can the system adapt to new requirements in five or ten years?
The insurance industry is constantly changing. New regulatory requirements, embedded insurance, AI, new distribution channels, and digital partner ecosystems are virtually impossible to predict over the long term.
Therefore, what matters is not whether a software solution meets every specific requirement today. What matters is how quickly new requirements can be implemented tomorrow.
Today, the most successful digital transformation projects pursue neither a purely customized nor a fully standardized approach. They combine the advantages of both strategies. The platform provides standardized core functions. Custom products, processes, and business rules are configured on top of it. This significantly reduces technical complexity. At the same time, sufficient flexibility is maintained to respond to new market requirements.
The question “Off-the-shelf software or custom digital solutions?” can no longer be answered with a simple yes or no.
Custom developments offer maximum freedom but often result in high maintenance and further development costs in the long term.
While traditional off-the-shelf software reduces development effort, it quickly reaches its limits when extensive customizations are required.
For many insurers, the most sustainable path therefore lies between these two extremes.
Modern insurance platforms combine standardized core functions with a high degree of configurability. This allows for the implementation of custom requirements without compromising the platform’s maintainability and future-proofing.
Especially in an industry that is constantly changing, it is not maximum customization that becomes the decisive competitive advantage—but rather the ability to implement changes quickly and efficiently.