Should an insurance carrier buy, build, or outsource the development of its systems?

That's the subject of a new report from Novarica released Tuesday called, "Buy vs. Build in Insurance Core Systems." The report was written by Novarica principal Chad Hersh and analyst Kim Markel.

The report explains the build/buy debate is common among IT professionals. According to Novarica, the report provides CIOs for U.S. insurance carriers an overview of building, buying, and outsourcing systems, including justifications for each, concerns of each, and the overall trends in the insurance industry.

Hersh explains the trend has shifted in recent years as the packaged solutions market for insurance has expanding greatly. Hersh feels this has been amplified by the shift toward modern solutions being offered en masse.

This report examines some of the facts about the build/buy options and allow more grounded debate about which approach to take and when.

Hersh points out it is quite common for a carrier to use a homegrown system, but he adds it is rare for carriers to continue to build their own systems considering what options the insurers have in the software market.

Examples of where insurers are still building systems, according to Hersh, are data warehouses, dashboards, ancillary or non-core systems, point-to-point manual integrations, and portals.

But with legacy systems aging and growing more difficult to maintain, Hersh believes insurers are increasingly turning to buying new systems. On the property/casualty side, Hersh reports this is happening in near record numbers, despite the recent economic downturn and soft market.

As for outsourcing, insurers continue to use BPO/TPA options, ranging from FNOL (first notice of loss) to full virtual insurance company operations, according to Novarica. Newer varieties of outsourcing include ASP/hosted solutions, and Software as a Service (SaaS).

The primary benefits of these systems, explains Hersh, is they can be implemented quickly and help limit initial capital outlays.