Several insurance companies are in the process of undergoing a once-in-a-generation business transformation and replacement of core systems, including policy administration systems. As the policy admin vendor landscape has matured over the last few years, there is a growing belief among many insurers that a software vendor solution can solve all of the challenges they face with their aging legacy platforms, and increase their success in a very competitive market.
By replacing or modernizing the legacy systems and doing nothing more, carriers are missing significant opportunities to create competitive advantages, including an improved future state operating model, superior customer experience, enhanced distribution capabilities and re-engineered processes. It is imperative that carriers let business priorities and an industry competitiveness benchmarking process drive the process of selecting a PAS vendor. Too often, PAS teams will begin selecting a vendor without having clearly defined business needs.
In my previous posts, I discussed the importance of developing a business strategy,
As the PAS vendor space has matured, new players have emerged that offer solutions providing a wide breadth of functionality, which are built on flexible technology architectures that use a modern code base. However, the sheer number of PAS vendors in the marketplace makes it very important for insurers to thoroughly understand their business needs, which can differ based on company size, product mix, and geographical presence, to identify the appropriate match. While research analyst reports and rankings certainly have their place in evaluating the field of viable PAS vendors, they should not be the only criteria. They should be part of the overall criteria in an evaluation that also considers leading industry practices and the issues that are unique to one's own business.
Criteria for Vendor Selection: If a dedicated business team works with IT, then fast-tracking an objective, fact-based vendor evaluation process can and should be done within a 10- to 16-week timeframe, and can be completed faster under certain circumstances. The following checklist should prove useful in preparing to select a vendor:
1) Functionality - Conduct a high-level, functional assessment that focuses on core areas such as product management, underwriting and rating, core policy administration, distribution, internationalization, etc. Based on our experience, carrier business functionality commands approximately 60% of weighting on vendor scorecards.
2) Business Scenarios with Real-Life Data - Prepare a number of real-life scenarios that can drive later vendor's proof of concept demonstrations. Plan to collect real (scrubbed) data that the business can understand and see in action within the vendor's tool.
3) Architecture and Flexibility - Prepare an architecture assessment that focuses on the vendor components and how they need to integrate with other in-house applications/data stores. Don't discount the possibility of choosing a cloud-based solution for PAS. Focus on the integration requirements and challenges and how you can overcome them.
4) Delivery Model and Third-party Integrator Market - Among the vendor selection criteria, carriers should consider whether a secondary market for vendor solution services exists. Carriers embarking on PAS transformations will enter long-term partnerships with their solutions vendors, and they should make sure that the vendors allow third-party consultants to configure and customize the vendor product code. Carriers also should consider the availability of a secondary sourcing market for a vendor solution.
5) Cost - Total cost of ownership should be another consideration. Carriers should consider vendors that offer business-aligned partnership models that factor in risk and reward scenarios.
Formal Evaluation & Scoring: With this foundation, the evaluation can proceed to the following:
1) Request for (Proposal/Information/Quote) ("RFx"). Your functionality and architecture assessment can be part of the criteria in this request. We recommend including any helpful blueprints on your architecture to provide vendors context. RFPs tend to be more detailed and longer than RFIs or RFQs. By making your business scenarios more lifelike and meaningful, you can save a lot of the time it takes to create an exhaustive, full-blown RFP.
2) Vendor Background. Make sure your RFx includes questions about the vendor's background, how many carriers in your space they've signed in the last two years and last 12 months, ownership, etc.
3) Site Visits. Visit current installations of the vendor's PAS suite and vendor sites for detailed reviews of functionality (based on one or two critical-use cases).
4) Client References. Conversations with vendor clients can yield additional scored criteria.
5) Proofs of Concept (using the business scenarios designed above) - An on-site proof of concept over the course of one to three days, using data and scenarios you have prepared with the business, gives the carrier the opportunity to confirm that the prospective vendor's architecture is consistent with their business and technical requirements. While the scenarios provide structure to what otherwise could be a random series of questions, you should also prepare follow-up questions to further understand how the vendor delivers a particular capability.
In conclusion, it is imperative that carriers' business priorities and the competitive industry benchmarking process drive the selection of a PAS vendor. Too often, PAS teams will begin selecting a vendor before business needs are well defined. It is always difficult to keep the business engaged in ongoing evaluations and cognizant of the underlying case for change. By helping you focus on what matters most to the business, this framework should enable you to mitigate risks when selecting from an increasing number of vendors.
(Editor's Note: Click on the following links to read
Imran Ilyas, partner with
Paul Livak and Anup Madampath of PwC's Diamond Consulting Services also contributed to this post.
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