The Hidden Costs Behind Large ERPs

Large ERP

The Hidden Costs Behind Large ERPs

The insurance industry’s profitability has been turbulent in the last few years due to inflation and extreme weather-related losses. And with tariff changes, costs are expected to rise even more. 

Private insurers are under increasing pressure to streamline operations and reduce costs to adapt to the rapid pace of change and prevent further impacting customers through premium pricing hikes and pulling back high-risk coverage.

For many, this means reevaluating their technology stack, including costly enterprise resource planning (ERP) systems. By identifying areas with bloated overhead, like legacy ERP software, businesses can uncover significant savings opportunities while improving efficiency and agility.

Hidden (Overhead) Costs

Here’s a breakdown of the most common types of overhead associated with large ERP systems:

  • Lower Value of Licensing & Subscription Fees
    After the initial purchase cost, enterprise-level ERPs often have high annual maintenance fees and cloud subscription fees.  The hidden cost lies in how these products are packaged.  Enterprise-level ERPs are typically licensed in large bundles, forcing customers to pay for modules, features, and functions they may not use/need.

    For example, an insurance company with a bundle license may pay for functions they don’t need, like supply chain management, timekeeping, and project management.
  • Increased Staffing & IT Infrastructure
    On-premise ERPs require servers, backup systems, and additional storage.  Legacy ERPs may also need the support of a full-time dedicated IT team to administer and maintain the system. When upgrades are needed, it can take months, be deferred, and sometimes, be put off altogether. This creates additional cost, but more importantly, higher risk for companies.
  • Lower Efficiency, Higher Risk
    Companies on legacy systems are likely to be running on unsupported versions or with outdated technology.  As a result, companies are paying full fare but don’t have access to the most modern features available.

     

    Outdated technology creates compliance risks, which add to operating risk and costs with human capital or manual workaround processes.

Sample Cost for a Mid-Sized Insurance Company

A mid-sized insurance company using a large ERP could easily spend upward of $250,000* implementing a new system, around $100,000* per year in licensing and support, and additional resources and time for IT and training over the ERP’s lifecycle.

Contracts typically require a 3-5 year commitment, further increasing the total cost of ownership.

*Estimates are based on market averages and may vary.

A Solution Built for the Insurance Industry

Flexi—built for insurance—offers faster deployment, lower total cost of ownership (TCO), and focused accounting functionality, without the added weight of unnecessary modules.

For mid-sized insurers, Flexi’s full-featured software includes everything you expect in a comprehensive, enterprise platform, including a powerful general ledger and financial suite, financial suite, workflow automation, and reporting and analytics tools. 

Compared to a large ERP, Flexi delivers:

  • Higher ROI on subscription fees
  • Lower cost of operations
  • Reduced compliance risk

These savings stem from lower licensing fees, reduced implementation and maintenance costs. Flexi also offers the flexibility to scale with the business growth.

See how industry giant Mercury Insurance Group found success and value after switching to Flexi.

Single-Provider vs. Best-of-Breed ERP: Which is the Right Solution For You?

Best of Breed ERP

Single-Provider vs. Best-of-Breed ERP: Which is the Right Solution For You?

When it comes to choosing the right ERP system, financial services companies face an important decision: go with a single-provider platform that offers everything under one roof, or a best-of-breed approach that selects the top solution for each specific need.

Both strategies have their advantages and potential drawbacks. 

For mid-sized financial services companies, the choice often comes down to priorities like integration, flexibility, scalability, and long-term support.

Single-Provider ERP: The Benefit of Integration

One of the main benefits of using a single-vendor ERP is the integration across all business functions. With a full suite of solutions under one ERP, businesses have the convenience of using a single platform for all core functions. 

However, convenience can come at a cost, especially in an evolving financial landscape. 

Some challenges that institutions may face with getting a single-provider ERP include:

  • Vendor Lock-In: Companies deeply embedded in one ecosystem can struggle with flexibility, particularly during mergers and acquisitions.
  • Dependency: Fintech conglomerates that offer a full suite of solutions may sunset core systems and shift directions without warning. This is the risk of relying solely on a single vendor.
  • Solutions Not Created Equal: When a single vendor offers multiple applications, it is often through assembling multiple solutions and multiple layers of acquisitions.  The result is that the competency of each solution may not give you the level of results you are looking for. What you’re left with is a system that could excel in one area but fall short in another. 
  • Lackluster Support: When problems arise, getting effective support is critical. Multiple rounds of acquisition can create high turnover in the support department, and support personnel are often trained across several applications. Having highly specialized support teams can solve a customer’s issues faster and with more efficiency.

Best-of-Breed ERP: Focused Innovation

Focused solution = focused innovation.

With a best-of-breed ERP, you pick and choose the individual solution that is right for each practice area. 

This approach offers:

  • Specialization: A bespoke ERP with hand-picked solutions means a specialized solution for each area, including Accounting, EPM, Compliance, and HR/payroll. This results in deeper functionality, stronger performance, and a better user experience.
  • Flexibility: A best-of-breed approach enables organizations greater flexibility and personalization as they build out their tech stack strategy. It is easier to replace or upgrade components without overhauling the entire ecosystem.
  • Future-Proofing: Instead of being locked into a single system that may eventually become discontinued, a best-of-breed approach gives your institution the flexibility to adapt and grow with your business.

Which Solution is Right for You?

Ultimately, there’s no universal answer. 

A single-provider ERP can offer the ease of integration and centralized management. A best-of-breed ERP delivers flexibility and the ability to tailor each solution to a specific function.

No matter which approach you choose, a reliable provider is key.

Business people using Flexi Why Flexi? 

Flexi has supported financial institutions for over 30 years, delivering powerful, dependable accounting tools built specifically for the needs of banks and credit unions. 

Flexi’s software is tailored to the operational, compliance, and reporting demands while ensuring a seamless and efficient process.

Contact us for a free demo.