Insurance Networking News

VANTAGE POINT 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 needs.

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

Sundar Vallinayagam

— 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.

REFERENCE ARCHITECTURE 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