Should you manage insurance licensing in-house using spreadsheets or software, or outsource it to an insurance license management services provider? Which is right for your needs? Agency founders and owners ask me about this all the time. Over the past 20+ years, I’ve made a lot of recommendations that have worked out extremely well for a significant number of clients. In this post I’ll share some insights into the questions I ask, and the information I gather to help me formulate my recommendations. I’ll also point you to some online tools we’ve created to help you get this crucial business decision right for your organization. I hope you find this post and the tools useful in your decision-making process.
When are spreadsheets the right choice?
The use-case for spreadsheets is simple. A handful of producers in a handful of states can manage their licenses utilizing spreadsheets. After that I advise founders/owners as follows: it’s not that you can’t, it’s that you shouldn’t. Why? The first reason is: most executives grossly underestimate the time – and costs – that go into using spreadsheets to manage insurance licensing. The second reason is: all too often I’m having this discussion with an owner because they’ve experienced some type of costly insurance regulatory compliance event – and that event is frequently tied to the spreadsheet.
Cost-conscious executives like to point out that using spreadsheets is “free.” We’ve been managing insurance licensing for 20+ years. Respectfully, I disagree. To help you visualize why, I encourage you to use our quick spreadsheet vs software calculator. It portrays a vivid side-by-side comparison of the time an agency would spend using spreadsheets vs insurance licensing software.
Once you’re convinced spreadsheets aren’t the way to go, you still need to decide between using insurance license management software like Creative Compliance Hub in-house, or outsourcing to an insurance license management services provider, like 3H Corporate Services. Here’s how I go about recommending one or the other.
The 3 questions you must answer for yourself
Many variables go into a business decision. But I’ve found that answers to these 3 questions carry the most weight in the software vs services equation:
1. Do you have a philosophical or organizational preference for doing things in-house or outsourcing?
This is the quintessential “build or buy” business question. Do you prefer the control derived from establishing and maintaining in-house capabilities or the flexibility associated with outsourcing? Most people are somewhere in the middle, but if you strongly feel one way or the other, it’s helpful to have started here before investing time elsewhere.
2. What is the status of your organization’s legal and licensing compliance expertise?
Perhaps you have the requisite expertise in house already. Perhaps you don’t. Either way, make sure your analysis is thorough and honest. Overestimating your expertise or underestimating the complexity of licensing compliance can lead to costly insurance regulatory compliance mistakes.
3. Does your team have the bandwidth to bring this in-house?
More often than not start-ups and small, growing agencies don't have insurance licensing expertise on staff. But if you do, you must also consider bandwidth. Who will do the work? What is the opportunity costs of using that person’s time, salary, and expertise for insurance license administration vs what that person could accomplish instead?
For great insight into this last question, I encourage you to read the excellent customer profile on Surround Insurance.
There are no right or wrong answers to these questions. They simply provide subjective, but highly leverageable data points that inform the build or buy decision. To make a fully informed decision we need objective data, too. So, with the above questions asked and answered, I typically engage founders and/or senior management in a discussion about metrics. And here, too, I have found it both possible and helpful to distill things down to three datapoints.
The 3 datapoints you need to consider
1. How many licensees do you have?
This is important for all the obvious reasons. In our experience, the economics of insurance licensing software suggest that the breakpoint for in-house vs outsourcing is a minimum of about 50 licensees. But that’s not a hard-and-fast rule. And you must also consider the next two datapoints.
2. How many entities do you have?
Obviously, the more entities you have, the more license filings and other administrative filings and responsibilities your team will have. But the next question has an even greater impact on the in-house vs outsource decision.
3. How many states/jurisdictions do you operate in?
Recognizing that 50 licensees in one state is less labor-intensive than 50 licensees in all 54 states and territories, you can appreciate the enormous impact the size of your filing footprint has on your decision. And, with more jurisdictions, there are also more rules, regulations and information needed to maintain insurance regulatory compliance across your license portfolio.
There are other factors that may influence your decision to choose either insurance license management services or insurance licensing software. Your hiring plans, acquisition plans and even exit strategies may all play rolls in your decision. But armed with answers to the questions detailed above, you have the basis for making an informed, intelligent choice.
How to think about “Cost” in your decision
Of course, you can and should compare the cost of insurance license management services to the cost of insurance licensing software. But in our experience, I can confidently share that cost is rarely the key factor one way or the other. Bear in mind you are comparing the cost of an outsourced service to the cost of software plus the “fully loaded” costs of a full- or part-time employee (1.25 to 1.4 x salary according to the US Small Business Administration) to use the software. Plus, the opportunity costs, as noted above in the bandwidth discussion.
Try our calculator to help guide your path
Perhaps the best and easiest way to use your answers to the questions above is to enter your data into our handy software vs services calculator. We created the calculator by compiling the past several years’ data from engagements with prospective clients. We then painstakingly built, tested, tweaked, and perfected formulae until the calculator consistently generated the appropriate recommendations. The result is a tool that we believe you will find useful. Kindly note that the calculator is best used to help guide your research, and not to provide a definitive answer to the question, “Which is right for me?”
I hope you found this post helpful as you consider which solution is right for your agency, in-house license management, or outsourced insurance licensing management services. Once again, to explore the economics of using spreadsheets vs purpose-built license management software, you may find our software vs spreadsheet calculator helpful. And as you weigh the benefits of inhouse vs outsourced license management, I encourage you to use our software vs services calculator. Please also explore Creative Compliance Hub and our insurance managed services offerings, review the testimonials you’ll find around our website, and most importantly, speak with an expert. We are here to help!