When its time to implement new software, carriers have three options: build, buy, or outsource. Each has its advantages, and each has its share of proponents.
The build-your-own model dates back to the earliest days of computer technology, when there were few if any off-the-shelf insurance applications. With years of experience in hiring and using their own coders, many insurers continue to practice this model and swear by its effectiveness.
There have been many genuine successes throughout the industry with in-house development, but it starts with having enough guts and wherewithal and having confidence in your people, said Ben Salzmann, CIO-turned-CEO and president of Acuity. Well bring in consultants to train our staff on new technologies and languages, but then we turn over building our systems to our own staff. They know our business and our systems best, and involving them in the development gives them a greater stake in our operations. For us, its the only long-term solution.
Building your own systems does require additional IT staffwith the salaries, benefits, and personnel issues that come with themand youll need to bring in programmers with niche areas of expertise, or else take the time to train them. The buy solution is therefore attractive for some companies.
For example, the cost of internal development led Prudential to purchase an administration system to handle its post-demutualization book of new business term life, rather than build a system as it had in the past. In spite of the costs associated with bringing a platform in and integrating it into our environment, we believed building from scratch would be prohibitive, explained Ron Belmont, vice president of information systems in Prudentials life insurance division. There are many smart people that work here, and we have the ability, but we werent willing to make such a cost investment.
But buying insurance systems generally means one of two options: finding an out-of-the-box solution that requires some degree of customization, or hiring a consultant to develop a system from scratch. Either way, youre giving up a degree of control, and when things go wrong with the system youll have to pay for support or wade through the documentation left behind. Those issues are why some insurers choose an outsourcereither a firm to actually handle their IT functions, or an ASP to provide software.
Proponents point out that, just like buying, outsourcing reduces staffing costs versus building. The outsourcing model also eliminates a large up-front investment in systems by allowing insurers to pay for what they use, and pay as they go. The staff that an insurer already has can then focus their energies on competitive differentiatorssales, claims, and underwritingversus being in the IT business.
But outsourcing does have its drawbacks. It puts you at the mercy of the vendor, so issues of stability are of key concern. Youre picking up a partner in business instead of buying a business asset. Also, in the era of Gramm Leach Bliley and HIPAA, privacy and security related to your business partners can be critical issues. And lets face it, sometimes insurers just arent comfortable letting someone else hold important data assets.
What model is best for you? In this lively, informative, and potentially contentious discussion, carriers who have tried all of the above will talk about what went right, what went wrong, and why they made the choices they did. If youll be installing new technology in the next year, you need to be here.

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Build vs. Buy vs. Outsource
A TechDEC Session
Friday, September 13, 11:00AM
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Special Reports /

Build It, Buy It, or Give It Away

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