Insurance companies are in the process of undergoing aonce-in-a-generation business transformation and replacement ofcore systems (policy administration, billing, and claims). As thevendor landscape has matured over the last few years, there is agrowing belief among many insurers that a software vendor solutioncan solve all of the challenges they face with their aging legacyplatforms, and increase their success in a very competitivemarket.

But what is the best core software vendor solution to helptransform the organization? The highest rated one in industryresearch reports? The one with the most functionality for thelowest price? By simply replacing legacy systems with a newsolution and doing nothing more, carriers are missing significantopportunities to create competitive advantages, including animproved future state operating model, superior customerexperience, enhanced distribution capabilities and re-engineeredprocesses.

Who should make the selection? Carriers that limit thedecision-makers to one part of the organization (e.g. IT orprocurement) run a significant risk of misaligned expectations withbusiness users, second-guessing the decision, wasted time and moneyto re-evaluate prior decisions, and ultimately missed opportunitiesto stay competitive.

Carriers should let business priorities and industrycompetitiveness benchmarking drive the process of selecting a coresystems vendor. Leading companies follow a three-stage process toevaluate vendors and ultimately make an informed decision.

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Stage 1:  Core software vendorresearch

There is a plethora of core insurance software vendors with avariety of strengths and weaknesses. In fact, it can be easy to beoverwhelmed by all the available options. We recommend defining andprioritizing four to seven guiding principles that will inform thetype of research data to collect on each vendor. The goal here isto quickly filter out software vendors that are not well aligned tothe carrier's business objectives. Many carriers target a shortlist of five to eight vendors, though this will depend on how broador narrow the guiding principles are.

Carriers should consider the following when defining guidingprinciples:

• Experience – Carriers should look at softwarevendors that have experience in their markets and business model.Experience may include products (personal lines, commercial lines),geography (North America, state-specific), and distribution(captive, independent).
• Modern technology platform – Many carriersseek greater flexibility and speed to market with their newsystems. For these carriers, important dimensions are the abilityto easily integrate with in-house applications and the ability toeasily take software upgrades in order to stay current. Somecarriers also seek hosted and cloud-based solutions, as it furtherreduces the dependency on a potentially out dated infrastructureenvironment.
• Breadth of solution – Many carriers arelooking for end-to-end components to deliver a full suite solution.Over the last couple years, vendors have responded by implementing"single integrated suite" solutions to reduce technical complexityand lower implementation support costs. However, the definition of"single suite" continues to evolve. Today, it is primarily policyadministration, billing, and claims; tomorrow, it will includeadditional components like portal, document generation, and datawarehouse.
• Industry standard compliance – In the spiritof faster speed to market, many carriers are using thetransformation effort to more closely align themselves withindustry standards, such as ISO, NCCI, and AAIS. Many carriers lookfor software vendor solutions that provide tools to easily refreshcontent and stay current and compliant with these standards
• Fiscal stability – For many carriers, thiswill be a long-term investment. They should review vendors'financial and marketing/sales stability, as well as their recentmarket momentum, in order to be confident that their vendor ofchoice will be around post-implementation and in the years tocome.

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Stage 2:  Request for Information(RFI)

Once you have a vendor short list, it will be time to formallyask software vendors for some additional information. The more thatthe carrier can better understand and articulate their goals andobjectives, the better responses they will receive from coresoftware vendors.

Items to consider in the RFI include the following:

• Clearly articulated business goals and objectives for thetransformation effort.
• Inventory of business and technical capabilities needed fromthe core software to support the transformation effort.Alternatively, consider documenting several high priority businessscenarios to better illustrate to the vendors what you are lookingto accomplish.
• Conceptual architecture blueprints to provide appropriatecontext for vendors in terms of the environment landscape andscope.
• Instead of asking "yes or no" questions, structure questionsthat make vendors explain in detail how they would configure thesystem to support different business scenarios. In other words, thecarrier should articulate what they want, and encouragethe software vendors to explain how their software helpsthe carrier achieve what it wants.

As RFI responses come back from vendors, carriers should use aformalized evaluation and scoring process to facilitate theirdecision making. A few leading practices include:

• Cross-business representation – Ensure thecore vendor selection team includes members of key functionalareas, including underwriting, actuarial, customer service, claimsoperations, sales, marketing, and IT.
• Decision rights – Define up front who has theauthority to make the decision, who will be providing input intothe decision-making process, and which areas those participantswill have influence over.
• Scoring criteria – Objectively assess thevendor responses and identify their strengths and weaknesses asthey pertain to your company; ensure that the core vendor selectionteam is in agreement on priority areas and weightings upfront.

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Stage 3:  Vendor Demonstrations and Proof ofConcept

After the RFI scoring, carriers will have typically narroweddown their list to one or two potential vendors.  Stage 3is where they will conduct additional due-diligence before makingthe actual vendor selection. This stage typically includes askingthe remaining vendors to demonstrate their core software systemcapabilities and provide further confidence to the carrier thatthey are the right choice.

I recommend you consider the following when planning for vendordemonstrations:

• Clearly define the intended outcomes from the demonstration. Werecommend documenting a set of prioritized use cases for the vendorso it can get a good understanding of what you're looking toaccomplish with the software and tailor a demonstration that bestmeets your needs
• Get a broad cross-section of your organization to participatein the demonstrations. This will be a transformation that impactsthe entire organization, so it's important to get buy-in from theparts of the company that a transformation impacts. Involvingothers also can help generate excitement and get buy-in for thetransformation throughout the organization.
• Determine the demonstration format. Core software vendorstypically have a great deal of core functionality to offer;carriers should use the demonstration to gain a comfort level withthe software and the vendor (who will be a key businesspartner for years to come). Because of this, carriers willtypically have vendors conduct a 3-4 day demonstration thatincludes a combination of:
• Vendor-led demonstrations, which involves the vendor walkingthrough pre-populated examples and scenarios (based oncarrier-provided use cases) that have been built before thedemonstration;
• High-level discussions of product functionality, processes, andcapabilities not covered in use cases (e.g., software upgradeapproach, integrations and conversion, training practices, etc.);and
• Shoulder-to-shoulder demonstrations, which are more of aclassroom in which business users operate the software with vendorguidance.

A core business transformation is a fundamental change to hownearly everyone in an insurance organization conducts business andperforms their day-to-day job. The vendor selection process is notjust selecting a new software system. It is an opportunity to unifyleadership around a common vision, generate enthusiasm for changeamong staff, and ultimately ready the organization to significantlychange and improve its business.

Imran Ilyas, partner with PwC's Insurance AdvisoryServices, co-authored this piece with MattHurlbut of PwC's Advisory Services.

Imran Ilyas is a Partner withPwC's Insurance Advisory Services practice with 18+ years' industryand consulting experience, primarily in insurance and financialservices. He supports clients with technology program management,solutions delivery, IT strategy & assessment, and enterprisearchitecture planning.