July 11, 2023

Build vs Buy Insurance Software – A Platform View

Risk Management

When property and casualty insuran­­­ce carriers consider whether to buy or build a comprehensive automated submission ingestion platform, several factors should be taken into account. Here are some considerations and the general cost and time aspects associated with building such a platform.

  1. Definition and Scope: It’s critical to gain organizational agreement on the definition and scope of the project. Without this first step, large programs such as this can be doomed to unsatisfactory results. Many insurance organizations identify the critical components of the submission intake or ingestion process to include the following:
      1. Document splitting and classification
      2. Stages to separate clearance, rating and extraction
      3. Micro services to separate loss runs, SOV’s, ACORD forms, etc.
      4. Enrichment services
  2. Expertise and Resources: Assess the availability of in-house expertise and resources to develop and maintain the platform. Building a submission ingestion platform requires specialized knowledge in areas such as data ingestion, document processing, data storage, data extraction, optical character recognition (OCR) and integration with existing systems. If the required expertise and resources are readily available within the organization, building internally may be a viable option.
    Another useful area of expertise is data science as the platform will be most powerful as a “lifelong learner.” When insurance organizations embed machine learning models into their platforms, the system will increasingly learn from captured data. It would also be helpful to have a plan for building connections with in-house data repositories with first and third-party information so that submissions can be enriched with pertinent information prior to transmission to underwriting teams.
  3. Time to Market: Evaluate the time constraints and urgency to implement the platform. Building a platform from scratch may take a significant amount of time, likely a year or more, depending on the complexity and scale of the project. If there’s a pressing need for a solution, purchasing an existing platform may offer a faster time to market. Also, consider that most often platform development plans exceed their expected timelines.
  4. Cost Analysis: Consider the financial implications of building versus buying. Building a comprehensive platform internally involves costs associated with hiring or allocating resources, development, testing, maintenance and ongoing support. Additionally, there may be hidden costs related to unforeseen challenges during development. When purchasing a platform, costs can be well-understood in advance. That may not be so with building internally. You could compare this with building a house, where it’s common for overrides and changes to result in cost overrides of 20% or more. Compare these costs with the upfront investment and ongoing licensing or subscription fees associated with purchasing a platform.
  5. Vendor Solutions: Evaluate the available vendor solutions in the market. Look for platforms that align closely with the organization’s requirements and have a successful track record in the insurance industry. This cannot be overemphasized.
    There are many relatively young entrants in this arena and not all of them are likely to survive the test of time and capital requirements. Additionally, many vendors have broad focus beyond insurance making them potentially less able to deliver with quality results due to the specific terminology and documents utilized by insurers. One last note of caution is the distinction between vendors who utilize offshore labor versus those who use automation to perform the laborious processes associated with the insurance submission process. Automation will likely prove more reliable over time.
    Lastly, companies must consider actual system performance when selecting a vendor. We recommend insisting on an onsite demo with features to be displayed ad hoc. This approach will confirm actual system capabilities versus those that are manually assisted in the backend or on a roadmap for future development. Of course, you should also consider factors such as scalability, flexibility, integration capabilities, security measures and overall performance. And always ask for references and case studies.
  6. Customization Needs: Assess the level of customization required for the submission ingestion platform. Purchased platforms may offer a range of customization options to meet specific needs, but there could be limitations. Building internally allows for more extensive customization, tailored specifically to the organization’s requirements.
  7. Support and Maintenance: Consider the long-term support and maintenance aspects of your decision. Building internally means taking responsibility for ongoing support, updates, bug fixes and enhancements. It also puts pressure on your teams for excellent documentation and development practices to ensure the possibility of future extensibility and integrations. Purchasing a platform typically comes with vendor support and regular updates, ensuring ongoing functionality and performance improvements.
  8. Performance: The performance of internally built submission ingestion platforms can vary based on the expertise of the development team, the underlying technology stack and adherence to industry best practices. Insurers need to focus on factors such as scalability, reliability, speed and accuracy of data ingestion and processing. Performance issues may arise if the platform is not properly optimized or fails to meet the specific requirements of the organization. Rigorous testing and continuous monitoring are essential to ensure optimal performance. Outside providers can be entirely focused on the successful performance of their platform since that’s their primary mission, whereas insurers are in the business of insurance underwriting and pricing.
  9. Industry Benchmarks: Research the success record of insurers who have built their own platforms. This information can provide insights into the performance, cost and time aspects of internal builds in the insurance industry. While specific data may be difficult to obtain without conducting individual case studies, industry reports and discussions with peers can help inform decision-making. Some research makes it clear that time and cost overruns are common.

It’s becoming universally accepted that artificial intelligence (AI) and automation are essential to insurance industry competitiveness. A solid ingestion platform with these attributes, built with a focus on efficiency and extensibility—especially as the pace of technological advancement continues to accelerate—is an important asset for insurance industry underwriters and customer-facing personnel.

At the start of any digital transformation project, property and casualty insurance carriers must decide whether to buy vs build. When they consider an automated submission ingestion platform it is essential to perform a comprehensive analysis to determine the acceptable time and cost allocations, also taking into account the availability of experienced, internal human resources. The estimated delivery time for internal builds versus purchasing can vary significantly based on project complexity, resource availability and platform sophistication. With that said, it could take a number of months to onboard a purchased system. A realistic expectation for internal builds could range upward from one to two years, or longer, depending on various factors.

According to Brajesh Ugra in his article, Insurance Software Build vs. Buy: Could Speed to Market be the Decider?, Brajesh states, “The savvier companies have decided they are insurance companies and not software companies and are turning to external insurtech insurance specialists to provide core platform technology . . . internal IT teams continue to support core business need . . . in the build vs buy analysis, it comes down to the fact that digitization is bringing in changes at too fast a pace for insurance IT teams to keep up. While proprietary software might sound tempting, the risks are too high and the fear of software getting outdated after a long development cycle is real. Many insurers in recent years have poured in hundreds of thousands of dollars in custom IT solutions that did not measure up in the final analysis.”

According to Mark Breading, a partner in Strategy Meets Action, “The level of integration between possible new systems and existing systems is one of the primary considerations when evaluating buy vs build. In today’s world, most modern solutions have extensive APIs and, in many cases, are already preintegrated with other solutions in the marketplace . . . with a buy approach, you can receive upgrades from a collaborative group of users. The prebuilt solution gives you the benefit of upgrades and enhancements that come from a pool of users outside of your organization. In contrast, using the build approach requires you to continue to modify the solution based on your specific needs. This is important, as innovative software developers are always evolving. If you can’t keep up, important integrations might not work . . .”

Christine Aletti of In Thought Leadership points out that the question of build vs buy for software development should focus on, “. . . Is building software “core” to the company? This framework illuminates whether value is being created or destroyed by the decision to insource or outsource.” In other words, if you’re not in business to create software, don’t do it.

Others such as Dave Tobias, Chief Operations Officer and Co-founder of Betterview articulate the issue in a very direct way. Carriers must ask themselves, “Are we an insurance company or a technology infrastructure company?” He goes on to point out that internal teams might be best focusing on thinking and developing at a more strategic level.

Ultimately, the decision to buy vs build a submission ingestion platform should be based on a thorough evaluation of the factors and viewpoints mentioned above, combined with a clear understanding of the organization’s goals, resources and long-term strategy. If you need an opportunity to discuss this more in depth, schedule a time to meet with our team.

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