Build or Buy? The Ongoing Debate for Core Insurance Systems
Introduction
It’s the inevitable debate for any insurance company seeking a new core system: build or buy? Option 1, building an insurance software system from scratch (either internally or through outsourcing) or Option 2, purchasing an off-the-shelf solution from an external provider. This debate regarding insurance software solutions is complex, with a no one-size-fits-all answer. The right choice will depend on an insurer’s unique context, goals, and available resources. Whether building or buying, the key ultimately lies in aligning the selected insurance software solution with an insurer’s long-term vision and ensuring it supports their ongoing needs in a very competitive insurance marketplace.
Pre-Decision Factors
Before making their build or buy decision, insurers should first consider some pre-decision factors that will help guide them in their choice. Insurers need to think about basic organizational needs and goals, budget constraints, time to implementation, and internal technical expertise before proceeding with their decision. Of particular importance is assessing internal capabilities: do they have a dedicated team with the appropriate skills available to develop the insurance software solution, or would it be easier and more efficient to rely on external resources?
Although insurers preferences have varied over the years depending on the evolution of technology[1], insurer size and internal considerations (size of the internal development center, internal politics, budget allocation across departments, etc.) have often had the most impact on the final decision. Today, the insurtech evolution is playing a central role in core system offerings, in particular AI in insurance, predictive analytics, and other technology advancements that are enhancing user experience and overall customer engagement, often requiring an external vendor partner to leverage the pace of this change.
Build or Buy: Pros and Cons
Once the preliminary discussions have concluded, insurers can focus on the pros and cons of each option. Building an insurance software solution internally offers several advantages, especially for organizations with unique operational needs. Some key building benefits include:
- Customization. Tailoring software to specific business processes can lead to improved efficiency and a better fit with existing workflows. Insurers can develop features that directly address their unique challenges, making the insurance software system inherently more aligned with their objectives.
- Control. When an insurer develops its own insurance software system, it retains complete control over the development process, updates, and future enhancements. This autonomy can foster innovation and allow for quicker iterations based on internal feedback.
- Integration. Custom solutions can be designed with seamless integration in mind, connecting easily with existing systems and databases, thus minimizing disruptions in operations.
However, building software is not without its challenges. It can be time-consuming, resource-intensive, and make the ongoing software maintenance fall squarely on the shoulders of the insurer, potentially straining resources over time.
Alternatively, the buying option for insurers offers the following benefits:
- Speed to Market. Off-the-shelf solutions can be implemented quickly, allowing insurers to leverage new technologies without waiting for lengthy development processes.
- Proven Technology. Many vendors provide software that has been tested and refined in real-world environments. This reduces the risks associated with deploying unproven technology.
- Ongoing Support and Updates. Established vendors often provide ongoing support, updates, and enhancements, which can alleviate the burden on internal IT teams. Vendor-sponsored user group communities can provide carriers with industry best practices and access to a broad group of constituents.
However, the buying route has its own drawbacks. Finding the appropriate vendor and depending on them for ongoing support, limited customization of off-the-shelf products, and integration issues, can all be a burden that takes away from the theoretical ease of outsourcing for a core insurance solution. Insurers need to do their due diligence on potential vendors, understand their offerings, and ensure they align with their organizational implementation and transformation needs.
The Final Word
For insurers, the decision of whether to build or buy affects not only their immediate needs but their long-term strategies on advanced Insurtech, customer engagement, and overall growth and market impact. Through careful consideration of each approach to make an informed decision, insurers can enhance their operational capabilities and position their organization for success in an ever-increasing competitive industry.
[1] “The New Build vs. Buy Debate; Is this the Agony of the Core Insurance System Package?” Celent, Craig Beattie and Nicolas Michellod, February 2018, pg.2
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Joanne Collins Joanne Collins is Vice President, Customer Success at Sapiens, where she in manages key client relationships in North America. She began her career with Lincoln National as a life reinsurance pricing analyst and progressed through the organization holding key positions including as President, Lincoln Life & Annuity of New York. Other roles included leadership positions at Union Planters Bank and Hancock Bank, SCOR and RegEd, Inc. Joanne also holds her CLU (Chartered Life Underwriter) and FLMI (Fellow Life Management Institute) designations.