Buying Another Policy Administration System: Negotiating Tips
We recently met with some of the senior technology people at a life insurance company here in the US. After a long exhaustive analysis, the company was completing the selection process for a new policy administration system. They had narrowed it down to two leading systems from a short list of 7 or 8.
While both of the finalist systems had their attributes and selling points, it struck us that the newer of the systems had been around for almost ten years and the older of the two had been around for twice that long. Surely, they had been re-architected and improved in that time, but for both of these systems “new” is not exactly the right description.
In terms of track record, the insurance company openly acknowledged that neither of the finalists had had much success actually implementing their solution in the past 5 years. Their estimation was two or three truly successful implementations between the two vendors since 2005.
Anything a company can do to improve the likelihood of success with a policy administration vendor relationship is important. From a contracting perspective, here is what we recommend:
- Get source code. Regardless of the administration package or the vendor-speak about not requiring source code, we strongly recommend that you negotiate rights to code (not source code escrow). If the vendor claims that they don’t provide source code access, the vendor should be able to represent in the contract that they have not licensed source code (or given the option to buy source code) to any other client.
- Get reasonable provisions around your rights to use third parties to maintain and configure the system. The vendor should have to earn your business on an ongoing basis. Most vendors will have a list of competitors that cannot access the system. Be sure to limit this to providers of competing SOFTWARE. You need the flexibility to contract with outside experts who can do some or all of the implementation and maintenance.
- Do not start the project without a signed license. However, you should have the ability to opt out (and get a refund of the license) if the services estimate exceeds a certain threshhold. Also, to facilitate the contracting process, you should agree to a term sheet with the MAJOR deal provisions (like getting source code).
- Get the “A team” from the vendor and get that commitment with named resources in the contract.
Obviously, a good license contract is only part of the equation, but it’s a start.