Digital Transformation Requires a Transformation of the RFP Process

Using a modern approach, insurers can make better decisions about which platform vendor best meets their needs, and they can do it faster and at less cost.

(Image credit: Adobe stock.)

Platforms are rapidly overtaking core systems in the insurance industry. Celent predicted that 2018 would be the year of the platform, first anecdotally, and then more formally. Gartner agreed, estimating that platform purchases will dominate 100 percent of the deals in the North American P&C core insurance market by the end of 2019.

The increase of vendor platform options across the industry is good for insurers, offering a number of key benefits including a broader set of services and offerings, and the ability to select solutions that better align with their specific functional requirements, user experiences, and organizational culture.

While the idea of incorporating platforms to expedite digital transformation is rapidly gaining traction, insurer’s processes for selecting platforms and their components has not evolved much and often produces results that fail to recognize their unique needs.  In other words, many insurers are using legacy approaches to modernize their technology stack. These legacy approaches have led to unnecessary expenses, increased time to selection and deployment, and occasionally, the best solutions for a particular insurer being overlooked.

The Traditional RFP Approach

Insurers typically begin an RFP process with an agonizing effort that involves creating a document with hundreds of questions and requiring hundreds of hours to draft. For many insurers, the RFP may be vetted or created in partnership with an analyst or consulting firm, which can add valuable experience but with increased costs.

Prior to actually reviewing the thousands of aggregate answers, insurers also must build a scoring mechanism that assigns weight to certain questions or sections of questions to reflect the relative importance of those areas to the insurer.

Whether they realize it or not, insurers almost always have seven to ten “knockout questions,” which can eliminate a vendor based on their purely on their response to any one of those questions, regardless of how well they may score in aggregate.

Demonstrations within the Traditional RFP Approach

Once the pool of RFP respondents has been narrowed down to the short list, most insurers will schedule half-day or full-day workshops and demonstrations with vendors. These demos, while helpful in some ways, often suffer from two critical challenges that reduce their effectiveness in helping an insurer select the best solution for their unique business needs.

The first has to do with the depth and breadth of what can be learned during a demo. Often, the breadth of what an insurer wants to see limits insight into the depth of how they do it.  In many domains, most vendors have solutions that cover almost all key functions. There may be some gaps, but more typically it is the differentiation in how a vendor covers those key functions that needs to be evaluated to determine the best fit for any individual insurer.

The second challenge is the use of rigid demo scripts that all vendors are required to follow.  While the concept of trying to create an environment where an apples-to-apples comparison can be made makes sense on the surface, the reality is that overly rigid scripts don’t allow the solutions to be shown in the way they were designed to operate.  All vendor solutions are designed to work differently, and any insurer looking for a vendor solution should expect to adjust their processes to make the best use of whichever solution they ultimately select.  It’s only by seeing the applications demonstrated in the way they were designed that an insurer can best evaluate the relative value of those applications in their unique environments.

On average, the traditional RFP process typically takes 4-6 months to reach a recommendation on a specific vendor and solution. As a result of these challenges, the traditional process takes longer, costs more, and isn’t guaranteed to result in an optimal selection.

A More Modern RFP Process

With so many vendor solutions available and fewer gaps between them, a more modern RFP approach is required to help insurers identify the solutions that work best for them, rather than an option that may have been more popular among other insurers with very different needs. This more modern approach will significantly shorten the schedule and reduce the cost of the selection process, and more importantly, it will improve the likelihood that an insurer will identify the solution that is the best fit for them.

This more modern RFP approach can be summarized in these three steps:

  • Fewer, open-ended questions: The traditional approach creates hundreds of questions and builds complex scoring structures with response options that are largely drop box selections with 3 or 4 options, few of which effectively differentiate solutions. The more modern approach is more focused and concise, covering the knockout questions and only those areas critical to the evaluation process.  The target should be something in the range of 15-30 questions.  The open ended form allows the vendors to provide meaningful insight into how they address those key areas, so the insurer can better assess the fit for their needs. Since these questions cover those capabilities that are most important to the insurer, they will be sufficient to identify a short list of candidates worthy of additional review.
  • Cast a wider net: Since the RFP is smaller and tighter, it is possible to expand the pool of participants. The number of vendors offering some form of “insurance platform” has grown tremendously, meaning there is more opportunity for insurers to gain competitive advantages by seeing what is available beyond the most common solutions that may not be the best fit for them.
  • Workshops with demos that differentiate: Once the list of candidates has been vetted and narrowed down, insurers should bring the remaining candidates in for workshops to provide the information necessary for a final selection. The workshop could range from 1-2 days, and should cover these 4 key areas:
    • Demo of basic functionality—Provide areas for the insurer to show that they can support key functions to ensure there are no major gaps in capability. Be sure to specify what should be shown, not how.
    • Deep Dive Demo on specific key areas—Specify a small set of key areas or transactions for the vendor to demo their capabilities in detail (ex: out of sequence endorsements, configuration of a LOB, or how integrations support a specific target application).
    • Demo of differentiating capability—Give the vendor an opportunity to highlight specific areas of their solution that they think differentiate them from the market or fit a specific need that the insurer may have.
    • Discuss Key Areas to Assess Alignment—The vendor can describe how they operate in key areas such as implementation approach (resource models, project management, QA approach, etc.), key processes (e.g., how does the insurer get support for questions, how are software fixes delivered, what is the process to move to new versions of the software), relationship, and culture.

Sample Knockout Questions

Here is some sample knockout questions that I’ve seen insurers use to identify vendors and solutions that don’t fit their needs and can be used to expedite the RFP process:

  • How many years have you been offering your software solution(s)?
  • How many insurance clients do you have in production (perhaps of a certain size)?
  • How many implementations do you have in place supporting the following lines of business (or claims, etc.)? (Most insurers don’t want to be first to try a solution)
  • What database technology (or technologies) do you support?
  • Describe your approach to pricing for software, maintenance and implementation.
  • Describe your process for handling out of sequence endorsements, specifically identifying any aspects where user action is required.
  • How many production implementations of your solutions have integrated with the following systems (ex. a specific general ledger package)?
  • Describe how your solution supports ISO or NCCI reporting.
  • What industry standards or models do your database and integration models leverage?
  • What tools and packages are (or can be) used for reporting and analytics with your solution?
  • What support do you provide for multi-currency (or multi-lingual or international) requirements?

There is a tremendous amount of inefficiency in the way that many insurers approach solution selection, unnecessarily adding significant time and money to the process and often not identifying the best partner for their unique needs. Well, the traditional RFP approach is due for its own digital transformation. Using the more modern approach outlined above, insurers can expect to make a much more informed decision about which vendor best meets their needs, and they can do it faster and at less cost. This will improve their time to market and accelerate the realization of business benefits.

If 2017 Was the Year of Insurtech, Will 2018 be the Year of the Insurance Platform?

Bruce F. Broussard, Jr. // Bruce Broussard is Senior Vice President of Insurity’s Data Solutions division. Broussard has held senior positions at Pan-American Life Insurance Company and IBM. His areas of expertise include core insurance transformation, insurance product administration, project and engagement management for large and complex efforts. 

Leave a Comment