November 16, 2023 | Glenn Shapiro, Former President of Allstate Insurance and Founder, Board President at KodiakCare

Why Buying Wins Out Over Building When It Comes to Insurance Technology

One of the stories I used to tell during town hall meetings at Allstate was about the Allstate-brand car, a vehicle Sears introduced in 1952.

This piece of Allstate’s story always surprised people. Visitors walking through the Allstate lobby would see the vehicle as a nod to Allstate’s history of innovation. But I saw it differently; I think the vehicle serves as a cautionary tale – the perfect illustration of the buy versus build discussion that takes place throughout our industry.

The Allstate sedan didn’t work, primarily because we didn’t specialize in car manufacturing. The car didn’t sell well, and it was pulled off the market not long after launching.

I would say to Allstate employees, “Every time you walk past the car in our lobby, think about the things we’re trying to build that others are better at building.” I wanted everyone to consider: what are we really good at? Are we building the right things? And if we can build new technology, do we have what we need to continuously maintain and improve it?

Buying is almost always the right decision when making an investment in technology because it allows you to focus on what you’re really good at.

Building Is a Long-term, Costly Investment

The justification for building your own technology is often that the investment will pay off because your technology will be free for you to use.

But is it really going to be free? You’ll need people to maintain that system and to keep it current. You’ll need ongoing funding to keep up with maintenance and improvements. Five years from the day you launch it, how will you keep it from operating the same as it does today? And this will sound familiar to technology leaders: it’s unlikely that your existing in-house technology will get funding over a new project. Rather than create a fixed cost inside of your business of having to own and run your technology, think about generating a variable cost of renting the technology.

When considering the ongoing costs of maintenance, research, prioritizing features and ensuring a good quality product—there is no way the math will work out so that building is cheaper than buying.

Compliance Is Not Easy to Manage and Maintain

On top of that, there’s compliance–a key component of maintaining a consumer-facing software platform. For my nonprofit KodiakCare, which provides funding for critical veterinary care to families who lack financial means, I use a tool called Bloomerang for donor management. People can type “stop” and automatically be removed from a list, versus our team having to remove each person manually.

Respecting consumer choice, capturing opt-ins and opt-outs, using compliant language, handling sensitive information—these are all software components that require design and thorough testing. Compliance is a critical component of technology – no one can afford to overlook it.

Just Because You Can Doesn’t Mean You Should

If your company asked your team to build a cellular network, you could rent space on towers, get capacity in the system, source hardware from manufacturers and make contracts. At this point, you might be rolling your eyes. Who would do that in reality? The technology is readily available at Sprint, AT&T and other carriers.

Your answer to your company might be, “We can do this because we’re smart and capable, but it’s not the best use of our resources–we could be focused on priorities that are more core to our business.”

Ask yourself—what will you be giving up in order to build your own technology? The answer could include important updates or improvements to your existing technology, or you might give up projects that have an immediate return on investment.

The Bottom Line: Don’t Waste Your Precious Time and Resources

It almost never makes sense to build your own technology when it is commercially available from someone who does it as their “day job.” You have a precious number of resources and time, and making software scalable isn’t easy.

Remember, anything that takes you away from your core business is a cost. You’ll possibly take engineers or other employees off projects that have more immediate value, and in parallel, you’ll miss out on the innovations that existing technologies bring to the market.

Of course, all of these reasons you shouldn’t build stated above—the opportunity costs and the investments into people, compliance, innovation, and more—make sense if you are buying technology from an expert partner. Your choice to buy also depends on your vendor. Make sure your partner builds cutting-edge technology, continuously improves and innovates, and takes a rigorous, buttoned-up approach to compliance.

If there’s quality software available that serves the need you have, and it allows you to test the technology and use it immediately, the savings of buying it over building it can be great.

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