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  • Jeff Bergman in ITA Pro

The Transformation of the Core

Has the build vs. buy question really changed that much?

About 10 years ago, I penned an article on how to derive a decision between build vs. buy (or blend) in insurance core systems. At the time, the focus was primarily on P&C claims solutions since only a few technology providers had anything robust enough from the buy solution side that could compare with building a solution.

In most cases, a blend solution became more of a reality with insurers buying solutions that covered some of the necessary requirements, but then had to keep a legacy component or build something to produce the full solution they required.

Fast forward 10 years and the market for comprehensive core systems has grown significantly given the increase in package billing, and policy administration solutions available. Insurers realize, like the claims package solution market 10 years ago, many of the key processes and functions in billing and policy administration are not secret sauce and aren’t enough of a strategic differentiator to deserve a special best-of-breed or customized build solution or justify the added expense.

There are legitimate areas where strategic differentiators absolutely exist, such as underwriting and pricing, but it is conceivable that accommodating those special strategic functions within a package solution is realistic. Moreover, the allure of integrating to a common suite solution can lower IT complexity and cost.

Business Case Considerations

The key decision element that has gone unchanged is the importance of building an accurate business case. So often, insurers made the decision to buy, build or implement a blend solution first and then have difficulty fitting and determining the real business case behind the decision.

For example, Insurer A wants to buy a package solution, but believes its process is different from other insurers. If the company purchases a package solution, it will need to do heavy configuration on the product. In this case, the insurer may not only underestimate the configuration effort on the initial implementation, but also the impact of maintenance on the overall total cost of ownership.

Once the insurer extends the business case five to 10 years, it will show the maintenance effort can become more complex and costly. Additionally, given Insurer A has moved away from the out-of-the-box version so significantly, the company will have to grapple with that every time they upgrade.

Insurer B wants to purchase a higher-priced package solution which it thinks is close to meeting business and technical requirements. Budget constraints force them to purchase another solution that has a lower price point, but because it lacks their desired level of functionality, the company plans to configure it. Typically, the amount of work required in these configuration situations is significantly underestimated and in the end, Insurer B will end up spending more than the original option, which was a better fit for their business.

Final example, Insurer C has done well to avoid the mistakes of Insurers A or B and implements a solid buy or build solution. Unfortunately, they underestimated either the need or the budget required to effectively perform some of the most critical elements to a successful implementation: organizational change management and training. This oversight results in the operational efficiencies they were counting on in their business case to be lower than expected or delayed due to adoption, training or operational process issues. This situation will typically require more training and cost than originally expected in the original business case.

Building the Suite Business Case

An additional factor in building a business case that has not changed over the years is the difficulty to make the same positive ROI business case you could for claims transformation or for the billing and policy transformations. Typically for billing, a break-even ROI is standard and acceptable given the business case drivers are not as robust in the headcount reductions and process efficiency benefit areas and more robust in IT legacy system replacement and improved customer experience.

With a policy system replacement, the same drivers apply, but adding in better rating capabilities and downstream analytics helps the business case turn more positive and make the decision to transform easier. Typically in today’s marketplace, the policy administration core transformation decision is more focused on a risk mitigation decision due to business resumption fears and the cost avoidance of same, and less focused on a positive business case, which is difficult to develop.

Bottom Line

In the end, the good news is there are many insurance core system transformation solutions to choose from to make a more thorough and worthwhile build vs. buy decision. It is important to ensure that not only your business objectives match your chosen technology solution but also the true cost of your technology requirements is represented in your business case to avoid any unpleasant surprises you will need to explain later to your board.

Jeff Bergman is managing partner of the MVP Advisory Group. He can be reached at

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