Is buy vs. build still the right question for insurers?

When insurance companies consider new tools, one question usually prevails: buy or build? Is it more advantageous to work in-house, or to collaborate with a partner? Recently, however, the answer to this question has become more nuanced. In fact, even saying "buy vs. build" creates a false dichotomy. Rather than thinking in binary terms, insurers should ask themselves another question: whether it's in-house, external, or a combination of both, how can they unlock the most value from technology?

The appeal – and the limitations – of "build"

There are many reasons why carriers might be hesitant to partner with an insurtech. Adding a third party to your organization always entails some amount of change management. When handled poorly this leads to failures and inefficiencies, the opposite of what carriers are looking for. Viewed from this perspective – and considering how much data carriers already have – it may seem reasonable to work internally.

But if insurers are serious about a pure "build" option, they need to be aware of all that entails. It's one thing to look at raw data, and quite another to transform it into functional tools. Realizing the full advantages of a tech solution involves several steps:

Sourcing data: Insurers today have access to an unprecedented amount of data. But high quantity doesn't always mean high quality (over 75% of insurance executives report difficulties cleaning data before analysis) Insurers must be meticulous when sourcing data, including imagery, permit records, and peril insights, or they will make damaging decisions in the long term.

Enhancing with AI: Even if an insurer has sourced the highest-quality data in the world, that's only step one. The real power lies in using artificial intelligence (AI), to transform property data into risk scores and other predictive analytics, exponentially increasing the lift of the technology.

Making it accessible: Great insights mean very little when automated processes underwriters, claims adjusters and other insurance professionals can't use them. These tools need to be designed with user experience in mind, or else technology intended to increase efficiency may do the exact opposite.

It's understandable why insurers are tempted to build. They believe it gives them more control over the process while keeping change management to a minimum. But building a tech solution is a vast undertaking. It's unreasonable to expect a carrier to accomplish this by themselves if they want to maximize value. Hence the advantage of working with a partner: developing these tools is their undivided focus. They have the time, resources, and niche expertise to "build" what insurers cannot. All this begs the question: can insurers work with insurtech partners and maintain the benefits of their own solution?

The promise of collaboration

The answer is yes, but only if the underlying relationship is transformed. Insurtechs need to start acting more like partners and less like vendors. Historically, many of these companies have done little to make their tools transparent and explainable, creating an atmosphere of mistrust. To regain trust, insurtechs must hold themselves to a higher standard. They must be upfront about the limitations of their technology; they also need to adapt to insurers' unique needs. Through a greater emphasis on transparency and collaboration, insurtechs will become far more attractive partners for carriers.

Consequently, carriers may find that the best solution is neither buy nor build, but a mix of both. This could mean carriers draw on their own policy data to evaluate risk, but later input it into third-party AI models. Alternatively, if insurers have developed their own models, they can augment them with partner data to fill in knowledge gaps. Once trust is established between insurer and insurtech there is no need to default to a strict "buy or build" mindset. Instead, both companies can leverage their own expertise to create the best possible insurance experience.

How to evaluate an insurtech partner

To build this bright future, it is imperative for insurers to diligently evaluate potential partners. This evaluation process must be rigorous and thorough to determine whether the companies are a good fit. A good checklist might look something like:

Audit technology: Insurers need tools that are transparent and explainable, not hidden in black boxes. This is especially important for AI, since biased models impact results. Insurers should always ask to see performance numbers for AI models to check their efficacy.

Focus on challenges: The solution should fit the unique needs of insurers, not be one-size-fits-all. Therefore, insurers need to center the conversation around concrete pain points when meeting with potential partners. If a company doesn't show how their solution meets your needs – and instead talks about unspecific benefits – they are not the partner you are looking for.

Take a test drive: Forget about flashy promises: what does the solution do? A great way to test out technology for property insurance is to perform a retroactive loss analysis, i.e., how a tool could have predicted losses in the past based on simulations. Not every insurtech offers this, but they should. You deserve to see technology in action before you buy it.

Ask about onboarding: When looking for a partner you can trust, ask about onboarding early and often. Does the company have a dedicated customer success team? Will they conduct thorough training? Insurtechs need to go above and beyond in helping employees adopt new tools, while also disrupting legacy systems as little as possible.

These are the essentials for insurers when evaluating a partner: transparency, adaptability, and seamless change management. If an insurtech meets these requirements, they are far more likely to deliver the full benefits of digital transformation. Ideally, insurers can even input their own policy data to enhance the solution or integrate it into their existing workflows. The best solution becomes less about "buy vs. build," and more about the degree of partnership between carriers and insurtechs. By working together, each drawing on their own strengths, they build a smarter, faster insurance experience.