Build-Versus-Buy Decisions Made Without a Total-Cost View
The Build-Versus-Buy Call Reinsurers Get Wrong by Skipping the Full Cost
A build-versus-buy decision usually gets made in a single meeting, comparing a vendor's license quote against an internal team's development estimate. Whichever number looks smaller wins. Two years later, the reinsurer is often paying more than either original number suggested, not because anyone lied about the initial figures, but because nobody asked what the system would actually cost to run once it was live.
What Does "Without a Total-Cost View" Actually Mean Here?
It means the decision was made comparing purchase price or initial build estimate alone, without factoring in implementation, integration, training, and ongoing maintenance over the system's full life.
Industry data on system total cost of ownership shows just how large that gap can be. SimpleSolve's analysis of P&C system TCO states plainly that "purchase price is often just about 10 percent of the actual cost of implementation." A decision made on that 10 percent alone is, by definition, missing most of what the system will actually cost.
Why Do Reinsurers Skip This in the First Place?
Reinsurers skip the total-cost view because the upfront numbers, a license quote or a development estimate, are readily available and easy to compare, while implementation and maintenance costs take real effort to forecast accurately.
A vendor can hand over a license price in a single conversation. An internal team can hand over a development estimate after a short scoping exercise. Neither number requires the harder work of modeling integration effort, staff training time, or five years of ongoing support, so decisions understandably gravitate toward the numbers that are easiest to get.
Is Buying Always Cheaper Than Building Once Full Cost Is Considered?
Not always. Buying often carries lower upfront cost but ongoing license and customization fees, while building carries higher upfront cost but can be cheaper long term if maintained efficiently. The right answer depends on the specific case.
There's no universal rule that favors one path over the other. A vendor solution with a strong fit for a reinsurer's existing structures might be genuinely cheaper over seven years than a custom build. A highly specific requirement that no vendor handles well might justify building, provided the reinsurer honestly accounts for the ongoing cost of maintaining that build internally.
What's the Single Most Commonly Missed Cost?
Integration cost is the most commonly missed cost, since connecting a new system to existing treaty, claims, and finance platforms is rarely included in an initial estimate for either build or buy.
A Bordereaux Automation AI Agent or similar tool only delivers its full value once it's actually connected to the systems that hold treaty and cedant data. That connection work is exactly the piece that tends to get waved away in an initial cost comparison as "a detail to figure out later," even though it's frequently one of the largest line items once the project actually starts.
| Cost Category | Often Included Upfront | Often Missed Upfront |
|---|---|---|
| License or purchase price | Yes | - |
| Initial development estimate | Yes | - |
| Integration with existing systems | Rarely | Yes |
| Staff training | Rarely | Yes |
| Multi-year maintenance and support | Rarely | Yes |
Does This Problem Affect Small and Large Reinsurers Differently?
Smaller reinsurers often feel it more acutely, since they have less capacity to absorb an underestimated cost without it disrupting other priorities.
A large reinsurer with a substantial technology budget can sometimes absorb an unexpected implementation overrun without it derailing other initiatives. A smaller reinsurer or MGA operating on a tighter technology budget doesn't have that same cushion; an underestimated total cost can mean an entire year's technology roadmap gets consumed by one project that was supposed to be a smaller piece of it.
How Far Out Should the Total-Cost View Actually Look?
A common practice is a seven-year view, since that horizon captures at least one major upgrade or renegotiation cycle for most reinsurance technology investments.
A shorter window can make an option look artificially cheap if its real costs are backloaded, such as a vendor contract that escalates after an initial discount period, or a custom build whose maintenance burden grows as the original developers move on to other projects.
What's the Risk of Getting This Decision Wrong?
The risk is committing budget and staff time to a system that costs significantly more than planned to run, which crowds out other technology investments for years afterward.
That crowding-out effect is often the most damaging part. A single underestimated decision doesn't just cost more than expected; it consumes budget and attention that would otherwise have gone to other improvements, effectively setting back the reinsurer's broader technology roadmap by however long it takes to absorb the overrun.
A build-versus-buy decision made on the numbers available in a single meeting will almost always look reasonable in that meeting. Whether it still looks reasonable two years later depends entirely on whether anyone bothered to ask what happens after the contract is signed or the first line of code is written.
Frequently Asked Questions
What does 'without a total-cost view' actually mean in a build-versus-buy decision?
It means the decision was made comparing purchase price or initial build estimate alone, without factoring in implementation, integration, training, and ongoing maintenance over the system's full life.
Why do reinsurers skip the total-cost view in the first place?
Because the upfront numbers, a license quote or a development estimate, are readily available and easy to compare, while implementation and maintenance costs require more effort to forecast accurately.
Is buying always cheaper than building once total cost is included?
Not always. Buying often has lower upfront cost but ongoing license and customization fees; building has higher upfront cost but can be cheaper long term if maintained efficiently. It depends on the specific case.
What's the single most commonly missed cost in these decisions?
Integration cost is the most commonly missed cost, since connecting a new system to existing treaty, claims, and finance platforms is rarely included in an initial estimate for either build or buy.
Does this problem affect small and large reinsurers differently?
Smaller reinsurers often feel it more acutely, since they have less capacity to absorb an underestimated cost without it disrupting other priorities.
How far out should the total-cost view actually look?
A common practice is a seven-year view, since that horizon captures at least one major upgrade or renegotiation cycle for most reinsurance technology investments.
What's the risk of getting this decision wrong?
The risk is committing budget and staff time to a system that costs significantly more than planned to run, which crowds out other technology investments for years afterward.
What's a practical first step toward a proper total-cost view?
Build a simple side-by-side comparison covering license or development cost, implementation, integration, training, and estimated maintenance for at least five years, before any final decision is made.
