Considerations for New Technology Deployment: Buy vs. Build vs. Hybrid

Insurance technology ecosystems will continue to evolve in the 2020s. CIOs and CTOs will have to decide the types of technologies they should deploy, the cost and length of time needed to deploy those technologies, and the ongoing requirements to support new technology—potentially for many years after the initial deployment. 

Inevitably, CIOs and CTOs must navigate a maze of choices about whether to build solutions, buy them from core and other vendors, or create a hybrid environment of built and vended components. This post outlines some factors to consider when making these choices.

Consider the benefits and disadvantages of building or buying portions of the technology ecosystem

Most insurance carriers buy a core system package and follow the vendor’s recommendations when building out the supporting technology ecosystem. In these cases, insurers may choose to utilize third parties that are part of a supermarket of pre-integrated solutions in the cloud that can be subscribed to and activated without worrying about data and integration issues. 

A minority of insurers are looking to support digitalization, provide more customer value, and differentiate experiences in the marketplace; they will build additional capabilities and utilize APIs to communicate back to the core components. In some cases, when the product workflow or the product design and configuration are difficult to create in an existing vendor package, these insurers build a custom core system. 

Determine what capabilities must be built and which are most appropriately built 

If no system is available because of the uniqueness of the product and workflows, build may be the only option. The majority of insurers will end up with a hybrid solution, in which some pieces of the technology ecosystem are bought or subscribed to, and others are built.  

Over time, insurance core system packages have evolved from monolithic to componentized, with APIs to communicate and activate the components. External point-solution packages are often pre-integrated with a core, even though they are not part of the core and come from separate vendors.  

Review IT talent needs arising from the choices selected 

The useful life of quickly developing technology and the skills needed to optimize that technology is shortening. When making decisions around buy vs. build vs. hybrid, insurers need to consider the talent they have and the talent they will need. Inevitably, any buy vs. build decision may create a need to recruit new people with specific skills. 

Choosing to build a solution offers professional development opportunities. Buying a package may not offer the same opportunities unless there is a lot of work around integration. However, a buy decision still affords opportunities for younger employees to be mentored by seasoned employees as part of the software implementation project. 

There is no right answer to whether an insurance carrier should buy core suite software, additional point solutions, build software, or create a hybrid environment. Datos Insights’ recommendation is this: Don’t decide based only on a vendor’s recommendation or choose what your firm is familiar with due to fear of the unknown or the amount of money available.  

For more information about the pros, cons, and considerations of making buy vs. build vs. hybrid decisions, see Datos Insights’ report CIO/CTO Checklist for Insurers: Build vs. Buy vs. Hybrid, July 2023.