Believe it or not, at one time if a company wanted to acquire data processing functionality for a particular purpose, it had to hire programmers and systems integrators and create the needed solution from scratch.   In fact, nowhere has that been truer than in the insurance industry, which was among the early pioneers in using mainframe technology to make sense of the volumes of customer data that must be dealt with daily. As far back as 40 years ago, insurers began building such systems—the halcyon days when the industry was actually on the cutting edge of technology.   Obviously, those programmers of bygone days did a bang-up job, because many of those early insurance systems still live on in some form today, especially in the enterprises of larger insurers. Certainly, those systems have been modified to some extent and have been subjected to software manipulations that allow modern technology to work with what we now call “legacy” applications.   But while these systems have aged—some gracefully and some not so gracefully—something else has been happening. Software vendors, eager to tap a very stable and lucrative insurance market, have been developing newer systems aimed specifically at the insurance industry. These systems have grown more sophisticated and more effective over the years to the point where they do a nice job for a sizeable portion of our industry.   So this begs the question: Have the days of homegrown insurance systems come to an end? One reason it may seem so is that building a new system—such as a policy administration system—from scratch is a costly undertaking that is subject to the same problems and failure rate (more than 50% on average) that apply to any IT project.  Further, many of the newer systems that are sold—or available as outsourced products or parts of products—have benefited from years of research from very motivated vendors.   The relatively low cost and risk associated with buying or outsourcing certainly makes them a more appealing choice in this time of economic turbulence. So what on Earth would ever make an insurer think of building its own systems again?   Simply this: Insurers, more than anything, want a competitive advantage over their rivals. If a carrier can build in its own unique functionality that trumps what its competitors have, that is worth a lot. But insurers are also cautious above all things, so the thought of building such functionality in these times is probably far from their minds.   Once things improve on the economic front, however, don’t be surprised if a few larger carriers begin cranking out their own systems, and saying very little about them. Once the market improves, the risk profile improves, and the idea of homegrown systems becomes somewhat more appealing.   No, homegrown systems won’t be a major movement. Existing vendor solutions are effective and getting better. Still, there will be some carriers who wonder, “What if I built something no one else has?” It will be interesting to see how that develops. This article can also be found at InsuranceNetworking.com.

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