Guest commentary from industry sources
Buy or Build or Both?
The choice doesn’t have to be between buy or build. Insurers can consider
a hybrid approach when modernizing systems. By Sundar Vallinayagam
When it comes to modernizing sys- tems, there is no silver bullet. Insurers typically consider one of two approaches: buy or
build. Experience shows that both
approaches have serious drawbacks. That’s
why today, many insurers are considering a
hybrid approach, one that lets them buy
some components, build others and finally
assemble the best environment for their
The build approach is complex, costly and time-consuming. It requires many
new skills, and often years to complete, a
luxury small and mid-sized insurers
with limited IT resources cannot afford.
That’s why many consider the buy
approach, but that is not easy, either. It
may help to think of system modernization as a kitchen remodeling exercise—
many constraints must be taken into
account, such as immovable walls, windows and doors to adjacent rooms.
When considering the best approach to
system modernization, interoperability
with existing back-end and downstream
systems is a key issue.
A DIFFERENT APPROACH
If build or buy is the not the right
approach, what is? Insurers are finding
the “assemble” approach taps into the
best of both worlds. Instead of building
from scratch, insurers can leverage best-of-breed horizontal and vertical components while supplementing with custom
components where needed. Custom
components need not be simple.
Insurers are building sophisticated components—underwriting desktops, rules
engine services, predictive analytics for
risk selection, self-service portals—that
create a competitive differentiator.
While the assemble approach
involves leveraging off-the-shelf components, it differs from the best-of-breed
approach in four ways.
1. Selective rebuild. The assemble
approach never takes in-house development off the table. When a custom environment is assembled for the company,
an insurer can perform a selective
rebuild of components that are most
critical to the company and for which
off-the-shelf components are not good
enough or flexible enough. This enables
the insurer to build flexible components
that can be reused in multiple applications across the enterprise.
2. Leverage horizontal components.
In addition to insurance-specific vertical
components, insurance companies need
to take advantage of mature horizontal
components such as business rules management systems, workflow, technology
toolkits and frameworks. Horizontal components provide ready solutions for several architectural issues, prevent common
pitfalls and accelerate implementation.
3. Standardize middleware. The
assemble approach reduces integration
issues by requiring insurers to define an
interface standard. Thus, instead of trying
to integrate with the interfaces provided
by vendor components, the interface
standard is communicated to vendors
who then create appropriate connectors
— Jarus Technologies
or adapters to make their components
work with the standard.
4. Own user interface. Many components include a user interface layer, which
is considered suitable only for internal
users. As a result, many insurers would
like to own a simple user interface layer
that is consistent across all business functions irrespective of the back-end fulfilling the user transactions. The assemble
approach provides that flexibility.
A key step in getting started with the
assemble approach is to create a reference enterprise architecture—a logical
architecture identifying patterns, frameworks and standards for use across all
systems within the company. The reference architecture will identify logical
blocks for all the required functionality
(such as underwriting, claims, billing,
etc.). In this step, in addition to the logical architecture, a common, high-level
Business Object Model is defined that
can be mapped to concrete implementations such as XML, Java or .NET.
The next step is to map logical blocks
to physical components. The components can be vendor or custom components that are built in-house. The architecture and standards are communicated
to the vendors along with functional and
other technical requirements. The development of custom components must
leverage toolkits and frameworks to
accelerate development and testing.
Applications are then assembled using
the components and interconnecting
them through a middleware such as
Enterprise Service Bus.
Using best-of-breed components
combined with selective rebuild results
in a flexible, interoperable system that is
less expensive to build and maintain
compared to pure buy or build options.
In addition to the direct, measurable
benefits such as total cost of ownership
and return on investment, the assemble
approach results in a number of additional benefits such as better business fit,
long-term flexibility, no vendor lock-in.
This results in less licensing and upgrade
issues and a mature architecture that permits incremental replacement and
smooth transition. INN
Sundar Vallinayagam is the CEO of Pittsburgh-based Jarus Technologies.
For more about modernizing systems search “A
Legacy of Bad Decisions?”