TigerEye: build vs. buy

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Managing and deploying capital more effectively than the rest of the market is a key characteristic of successful (re)insurance companies. To accomplish this goal, carriers need highly specialised analytical tools. With the need for advanced tools a given, companies are faced with the question of whether to develop the technology themselves, or whether to buy what is commercially available. Naturally, there are pros and cons for each option.

The high cost, uncertainty and complexity of building such tools internally can be offset by resultant benefits such as unique market insights, speed to market and greater control. But being at the “bleeding edge” of technology suits only a few.

Most insurers prefer to license proven technologies, which carry lower risk and lower maintenance overheads, freeing them up to focus on their core competencies of underwriting, client acquisition and claims management. Over the past decade, for example, catastrophe models developed by the main vendors have generally been superior to anything a (re)insurance company could build on its own. Indeed, these readymade models have become the industry standard for assessing catastrophic exposure to wind, earthquake and flood for individual locations and/or portfolios.