The Pendulum Swings: Build-My-Own is Gaining Adherents in Claims, Policy Admin, and Distribution Software Applications
Novarica recently sent out a short blog on an emerging trend called the Re-Emergence of the Core System Custom Build, or as I put it, crazy talk around the IT campfire. You know how it goes: as Summer winds down, friends and co-workers gather for a little team building and talk about how they see things, eat some S’mores, and throw out the big what if.
The big what if sounds like this: hey, here’s an idea, why don’t we build our own policy admin system? Novarica picked up this emerging change in technology acquisition, noting that “much has been written already about the advantages and drawbacks of custom building. . .suffice to say that a solid business case and honest self-assessment is critical.”
Historically, the buying process for insurance companies operated in a 5 to 7-year cycle where one extreme involved buying existing applications that solved the business problem while the other involved building your own application to solve business problems. At one point, this cycle showed the business side of the company managing the acquisition of technology while searching for benefits afforded by the off-the-shelf application. On the other hand, the cycle also showed how technology and IT departments could analyze how various vendors market, build the desired application, and avoid all of the costs associated with licensing software, maintenance, service, and meeting the needs of the overall business.
When a company deploys a centralized approach to acquiring technology you will see:
A “one company” perspective
Rationalize processes and reduction of redundancies
Development of best practices
Centralized IT for governance, oversight, and review
When a company deploys a decentralized approach to acquiring technology you will see:
IT embedded within the business units
Decision making by the business unit management
Focus on transactional and customer-facing systems such as underwriting and claims
Lastly, when a company is aligned between centralized and decentralized you will see:
Alignment and shared decision making between IT and business units
Leverage technology across the enterprise as appropriate
Build-out business unit competencies
In the real world, insurance companies are continually assessing their business models based on a variety of factors which gives rise to the 5 to 7 year IT acquisition cycle. There are shared themes for both the centralized and decentralized models. These themes include technology as a means to create business value and the requirement for technology to show financial impact both with ROI and the business case.
The commercial off-the-shelf (COTS) that Novarica pointed out is gaining advocates because it is believed that they can deliver more advanced technology than their vendors are bringing to market. Add in the improved project management skills and methodology such as Agile and Waterfall and a reasonable case can be made for the “build my own” camp.
Novarica’s succinct message tells us that if you are an applications vendor, especially in a core area such as policy administration, claims, or distribution, your technology must keep up with the rapid changes that occur regularly in the insurance business. For technology vendors, there is no time to rest on your laurels. Product improvements, enhancements, and software issues must be dealt with promptly and communicated to customers. The old philosophy of issuing a new software release every couple of years doesn’t work anymore. Now, it is all about continual process improvement. Five years ago, clients were getting a grip on User and Customer Experience (UX or CX); now they expect software applications to have functionality that far exceeds what was once considered to be great UX or CX.
Here at VUE Software we are unabashedly a software application vendor that specializes in insurance distribution management. If I look at our pipeline reports, we regularly have several who have told us in our qualifying process that they are considering building their own distribution management system. Generally, those who think they can replicate the feature and functionality that we deliver don’t completely understand the complexities of agent onboarding and compliance, compensation, portals, and process analytics. We’ve been at this for more than a decade, and it’s hard to believe how much our technology has changed and adapted to market forces.
Vice President of Corporate Strategy
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