By Chris Newman, President International
How an insurance organisation accesses, manages, and transfers its data is integral to its success within the global market. In an increasingly digitalised ecosystem, insurance stakeholders are finding that leveraging the right tools is not just an enabler of success – it is a prerequisite. With Lloyd’s Blueprint Two implementation on the horizon, the question of digital capability adoption is more pressing than ever.
When it comes to the design, development, and deployment of key systems, it long has been the conventional wisdom that businesses must carefully navigate the “build vs. buy” dilemma: whether to create bespoke systems in-house, or purchase and integrate off-the-shelf solutions. Once again we find this debate rearing its ugly head. Should London Market practitioners build or buy – or is the question even still relevant in today’s technology ecosystem?
In the modern London Market, insurance stakeholders must consider how their solutions, whether built or bought, will connect with coming digital services and enhance the benefits of standardised data exchange. “The imperative of greater systems integration and the importance of sharing and analyzing ever-growing amounts of structured data certainly sharpens the edge of the build vs. buy dilemma,” says Steve Jolley, Group CIO of Miller Insurance Services LLP.
“The growing trend of insurance interconnectivity and vendor collaboration has significantly impacted the traditional ‘build vs. buy’ dilemma, making it a more complex decision for stakeholders,” adds Sabine VanderLinden, CEO and Managing Partner of Alchemy Crew.
Why Build?
Building bespoke insurance systems requires greater IT expertise, resources, and time to market, but it could provide a more unique, flexible solution than an off-the-shelf product.
Advocates for this strategy argue that building can enable competitive advantage, as well as more control of critical processes. “One must consider the customisation required for their organisation's needs. A tailored, in-house solution may provide more control and adaptation possibilities,” says VanderLinden. If an organisation requires unique functionality and flexibility, it may be beneficial to build.
“[London Market modernisation] has already resulted in an uptick in building in one sense, in that vendors of existing systems are changing them to accommodate the CDR and messaging integration with market systems and gateways,” adds Jolley.
Though it’s not without its challenges, some digitally enabled organisations find that the build strategy has become more accessible due to the standardisation of data formats. Jolley argues, “Moving to a standard common data format and messaging standards means that it is easier for new systems to be built because there's a level playing field and an increased demand for systems to be integrated around that common data set.”
By building in-house products, many insurance companies aim to create a competitive edge in a rapidly evolving ecosystem, but some argue that the time, cost, and resources required may be unnecessary for their specific use case.
Why Buy?
In an effort to avoid the risk associated with developing bespoke systems, many insurance organisations choose to buy solutions that fit their needs right out of the box – or at least as close to it as possible.
“The industry's rapid digital transformation and evolving regulatory landscape have led to an acceleration in the development of new insurance and reinsurance products, which has made leveraging existing solutions to be sometimes more cost-effective and time-efficient,” says George Di Martino, EVP and Chief Information Officer of TransRe. “The need for extensive customisation, which often favored building in-house solutions, has diminished as current modern systems provide more features.”
“If the problem is not specific to your core business function, it may be unnecessary to build the solution. “If the requirement is for a widely shared, well-understood function, say an HR system, then buy it,” argues Jolley. “Just make sure it has a public and transparent architecture you can integrate with.”
Purchasing existing solutions may not offer the same flexibility as building from scratch, but it allows for faster time to market, lower costs, and improved regulatory compliance. As stakeholders prepare for phase one of Blueprint Two integration, these become even more compelling factors.
Many off-the-shelf solutions are designed with Blueprint Two in mind, and equipped with the functionality necessary for full connectivity. “The widespread use of application programming interfaces (APIs), and increased vendor collaboration have made it easier to integrate different systems,” says Di Martino. “A ‘buy’ approach may facilitate easier collaboration with partners through standardised systems,” adds VanderLinden.
A Third Path
While building allows for greater customisation, buying enables faster configuration – both worthwhile advantages in a competitive and fast-paced environment. Due to the unique pros and cons of building and buying, some have found that a hybrid strategy is ideal. “Many see hybrid approaches as optimal – buying core systems from solution vendors but building specialised components internally,” says VanderLinden. “The decision depends on the specific requirements, capabilities, and constraints of each organisation, aiming to determine the best approach for their modernisation efforts,” adds Di Martino.
Stakeholders who implement a hybrid strategy can optimise their systems for their unique business needs, while leveraging the insurance community’s collective experience with common issues and pain points. “The key factor is whether or not the solution requirement is for a ‘heart and soul’ element of the business, something that is unique to the business or gives it competitive advantage,” concludes Jolley.
However, the biggest reframing of the fundamental “build vs. buy” debate may be coming not from the end users at all, but from the vendors. The current generation of digital enablers and rich array of third-party components may well render the entire premise of the dilemma obsolete. An insurer or broker with a base system can easily integrate any number of “add-ons” – often from multiple vendors – to enrich and validate data. With Blueprint Two and other market initiatives driving greater adoption of market-wide data standards, as well as a collaborative mindset in general, leading solution providers have prioritized interoperability as a cardinal virtue.
Confident that their solutions are speaking a “common language,” these vendors have embraced the concept of assembling ecosystems of point solutions, leveraging partners’ best-of-breed tools for capabilities such as data extraction or digital messaging. These solutions, as we have seen in our experience at ACORD Solutions Group, can even be built from the ground up in collaboration with other vendors and our collective client communities. By integrating these systems, they provide their clients with not only more freedom of choice, but help to future-proof them against costly maintenance overhead as the industry continues to change at an accelerating rate.
This upending of the “build vs. buy” conundrum at its source has subtly changed the familiar procurement process, creating a complex tapestry of practitioners and vendors where ecosystem awareness is key. “Achieving success depends on how well-informed an organisation is when it comes to building or buying,” VanderLinden adds. “This requires sufficient in-house expertise, staying updated on industry trends, and collaborating with trustworthy vendors.”