The Build vs. Buy Debate: An Update from the Insurance System Landscape

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19 September 2011
Nicolas Michellod

Celent will publish soon a research updating a report published in 2007: The Build vs. Buy Debate. This report will draw the result of a survey we launched earlier this year in order to gather a perspective from insurers regarding the build or buy question for different types of system and components, that cover the full spectrum of the insurance system landscape from the front-end to the back-end. The survey results demonstrate that insurance companies are going to prioritize the buy approach in the future and this not only for core systems but also for certain non-core systems. Actually, there are four methods that are still to be considered by insurers when replacing a system:

  • Build. There will always be insurance companies who prefer building applications internally and we think these companies will look for accelerators or frameworks from third parties. It is important to understand that the build approach is commonly used in continental Europe in all size of insurers.
  • Wrap and extend. This approach assumes some re-usable legacy code, which is wrappered and exposed to an enterprise service bus. Wrap and extend is typically used to keep back office functionality and radically update new business capabilities. Mid-size insurers in both the US and UK where there is not a large legacy estate tend to use this approach in addition to French mutuals.
  • Best-of-breed package. Nowadays many insurers want to choose components that are best-in-class. These companies prioritize functionality richness over cost of integration. This approach requires strong IT skills in integration and clear enterprise architecture. It is a common approach in North America and increasingly so amongst large insurance companies in Europe.
  • End-to-end package. The priority with the end-to-end package approach is cost of IT over functionality. This is a typical choice of small and mid-size insurers in Europe.

A combination of risk appetite and quick benefit is leading to a best-of-breed approach in the long run and insurers are part way through legacy modernization programmes that will ultimate address their system segmentation approach. For more details about this topic I invite you to read the report we are going to publish on our website and whose title is: The Build vs. Buy Debate: An Update from the Insurance System Landscape.

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