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December 21, 2010
A colleague in our Communications Department recently shared with me an article titled “Why Requests for Proposals Are Unhealthy.” Since responding to Requests for Proposals is a big part of my job, I read this with interest. The article’s author suggests that Requests for Proposals (RFP’s) are unhealthy for both buyer and seller because the RFP process commoditizes products and services and “… reduces differentiation, even if it pretends to ask for differentiation.” He further argues that once a product or service is reduced to a commodity the only differentiator between you and your competitors, is price.
It was not clear which industry this author represented, but based on some of his examples, he most likely represented a company that frequently responded to RFP’s where the low bidder was selected no matter what. AND, he didn’t like the antiseptically level playing field that price-driven RFP’s created; he wanted to give his pitch, in person, directly to the buyer. Anyone, in any industry, who has responded to an RFP and was not the low bidder and therefore not selected, will emotionally agree with this argument.
My industry has been commoditized almost since its inception. We all hear the daily ads extolling us to save money on insurance, from the mouths of a gecko, duck, caveman, etc. For the individual insurance buyer, price is everything. But for businesses, the stakes are different. Seasoned businesses know that price is important, but not everything. For this audience, an RFP may be the key to unlock the differentiators between competitors that are not price driven.
An RFP seeking the lowest bidder may mask the talent and creativity a broker can bring to a business’ insurance program. It may also ignore the broker’s ability to lower a business’ cost of risk. In selecting an insurance broker, the so-called “conceptual proposal” – no price quotations – can expose differences in experience, industry knowledge, similarities in serving like clients, background and expertise of the individual service teams, and the broker’s innovation in designing a comprehensive, cost effective insurance program. RFP responses act as the “resumes” that tee-up the finalists who are qualified to do the work and have demonstrated their experience in doing so for others. RFP’s are successful screening devices which generate interviews, and interviews are the forum where buyers can evaluate, face to face, the potential “fit” for long term relationships.
As one whose career has been in the insurance industry, and who has responded hundreds of RFP’s for our firm, I believe RFP’s have their place and are not toxic to buyer or seller. Well-crafted RFP’s give the buyer answers that can clearly differentiate a broker’s strengths and weaknesses. RFP’s give the broker a chance to showcase how they can provide service, innovation and value. We never shy away from presenting a competitive price for our work, we just look for opportunities to illustrate the differentiators that make our firm unique.