Build vs. Buy … Still?

The insurance industry’s debate over whether it’s better to build systems or to buy them dates back almost 3,772 years to the reign of King Hammurabi in Babylon. Within the Code of Hammurabi, the first written insurance policy was inscribed into a Babylonian obelisk. It indemnified debtors against re-paying loans if some personal catastrophe made recompense impossible.

After the Babylonian Treasury had underwritten a number of risks and needed a way to administer them, Avil Kush, the kingdom’s CFO, CTO, COO, and CWW (chief worry wart) arrived at the palace to discuss the matter with the King:

Avil: Your Majesty, since the bar chart hasn’t been invented yet, we must build enormous columns of rocks with which to keep track of our premiums and claims.

Hammurabi: Wadda you, nuts? Why would be build it ourselves? Call Nargal-sar-ussur at Marduk Megasystems and have him implement it.

Okay. None of that actually happened. But the debate rages on. We think we can settle it once and for all.

Two Questions

To decide whether it’s better for insurers to build or buy their systems, we need to answer two questions:

  1. How do we define better? We won’t presume to answer that question. But we will suggest the perennial challenges of profitability, compounded by the changing nature of system requirements, might make it a little daunting for insurers to define better as DIY.
  2. As an insurer, would you rather be in the insurance business or the technology business? We won’t presume to answer that question, either. But we will state (proudly, if we may) that we put 22 percent of our annual revenue back into continual development and refinement of our product suite. That kind of investment on an annual basis might be a tough nut for insurance company shareholders, stakeholders, and employees to swallow.

To cite another ancient king, the resolutions of this dilemma might not require Solomon.

Leave It to the Pros

We can’t speak for everyone in the insurance technology vendor community. But it’s a fairly safe bet most of them don’t write insurance on themselves. It’s equally fair to imagine there are numerous good reasons for that. By the same logic, then, it’s probably better, short term and long, for insurers to buy their systems, rather than to build them.

If nothing else, it seems like an astute division of labor, with or without stone columns.

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