Should an insurance carrier buy, build, or outsource thedevelopment of its systems?

That's the subject of a new report from Novarica released Tuesday called,"Buy vs. Build in Insurance Core Systems." The report was writtenby Novarica principal Chad Hersh and analyst Kim Markel.

The report explains the build/buy debate is common among ITprofessionals. According to Novarica, the report provides CIOs forU.S. insurance carriers an overview of building, buying, andoutsourcing systems, including justifications for each, concerns ofeach, and the overall trends in the insurance industry.

Hersh explains the trend has shifted in recent years as thepackaged solutions market for insurance has expanding greatly.Hersh feels this has been amplified by the shift toward modernsolutions being offered en masse.

This report examines some of the facts about the build/buyoptions and allow more grounded debate about which approach to takeand when.

Hersh points out it is quite common for a carrier to use ahomegrown system, but he adds it is rare for carriers to continueto build their own systems considering what options the insurershave in the software market.

Examples of where insurers are still building systems, accordingto Hersh, are data warehouses, dashboards, ancillary or non-coresystems, point-to-point manual integrations, and portals.

But with legacy systems aging and growing more difficult tomaintain, Hersh believes insurers are increasingly turning tobuying new systems. On the property/casualty side, Hersh reportsthis is happening in near record numbers, despite the recenteconomic downturn and soft market.

As for outsourcing, insurers continue to use BPO/TPA options,ranging from FNOL (first notice of loss) to full virtual insurancecompany operations, according to Novarica. Newer varieties ofoutsourcing include ASP/hosted solutions, and Software as a Service(SaaS).

The primary benefits of these systems, explains Hersh, is theycan be implemented quickly and help limit initial capitaloutlays.