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The insurance industry has been purchasing technology for over 40 years. We have gone through many technology cycles and purchased large, enterprise systems before. So we must have devised a clear and scientific method to weed out the best and worst of the technologies and provide a clear vision to the purchases needed.
Unfortunately, a review of the RFP processes in the industry reveals a much different picture. Instead of a convergence on a best practice honed through years of use, we are seeing a wide variety of forms and flavors in evaluation methodologies. Place this with the McKinsey statistic that, on average, large IT projects run 45 percent over budget, 7 percent over time and deliver 56 percent less value than predicted and the picture is not pretty, indeed.
We all know the more traditional approach: issue a massive RFP, followed by the conference room demo, create a short list for a “deep dive” demo, and then make a decision. The challenge here is that the extremely detailed RFP can create too much data for the evaluation teams to consume. Even dividing the evaluation task up by functional team can create miscommunication and duplication. Even with the detail, far too often the vendor responses tend to be generic and provide just enough information for the vendor to move on, but usually not enough for a full evaluation.
Over the years this traditional approach has been modified over and over in attempt to find a better evaluation process. Variations like the smaller initial RFI, the conference room pilot or “bake off”, the sandbox environment and the product incubator concept. In fact, the challenge of finding a process that is truly indicative of success led one carrier to invite all vendors in the room at once to respond to questions and answers verbally and challenge each other in real time like Sunday morning talk shows. While each modification has positives, there are pitfalls as well like, by necessity, limited scope and lack enterprise complexity like interfacing.
So in this environment and with tens of millions of dollars and careers at stake, what is an insurance carrier to do to better ensure success?
Unfortunately, there is no silver bullet to solve this question. If there was, the industry is smart and would have landed on the best solution long ago. Still, there are a few things that can help enhance the evaluation process. As an initial step, there are advisors and consultants who deal in the vendor space on a regular basis. They have seen vendor technologies in action and have visited the vendor sites to learn more about the teams doing implementation. Some of these advisory firms even publish rankings and grids showing how vendors rank. Make use of these with one caution. Many advisors have a stake in the vendors being chosen. Make sure you understand any commercial relationships between the vendors and the advisors and what is done to keep arms-length and objective. Most advisors do a good job of this separation, so ask and be informed to make sure you are getting a level playing field in the guidance you get.
Carrier experience over technology
New technology is cool and most IT shops want to be on the cutting edge. Still, do not underestimate the value of being on a road already traveled. Check with peer companies on their experiences, not just with a particular vendor, but also on the best practices they learned on their transformation journey.
Incremental approach (module) over big bang
Many companies look to take a big bang approach to technology transformation falling on the mindset that “this is our one shot to get everything done.” The challenge with the big bang is that it heightens the risk in the RFP evaluation process and, as the McKinsey stat notes, the big bang often blows up. An incremental or modularized approach provides the chance to know more about the technology and learn how you can work with the vendor before over-committing on the money side. Most importantly for CIOs, you get to show your business partners regular successes that will help prove out the evaluation made, increase the business buy in and help solidify budgeting for the future.
Eliminate the conversion question
Finally, many technology buys and transformation programs get hung up on the question of conversion. There is a thought that if the old books of business are left behind, that the transformation is not complete. On the other hand, viewing the conversion question as a completely separate business challenge from the modernization strategy can free carriers to be more creative in their solutions. Modernization is about setting the technical and process foundation for building the strategic business over the next 20-30 years. Conversion is about cost containment and risk-mitigation. Conversion can be dealt with in a variety of ways from BPO to ASP to Admin Reinsurance. These conversion challenges are separate from the need to make an informed evaluation about the strategic, go-forward technical platform.
Instead of utilizing the flavor-of-the-month RFP methods, insurance technology officers should adopt a detailed strategy including trusted advisors, peer reference points, an incremental proof-point approach, and focus on the go-forward business strategy over a rear-ward conversion. That should help move the industry toward a more effective and standardize way of picking from the buffet of great options put before them.