E-bidding looks set to be the future of procurement. Gary Markham of LSG outlined to US Captive the emerging phenomenon and why e-bidding is such a strong fit for the captive sector.
Captives and captive managers have traditionally outsourced a significant amount of their business to third parties, whether they be loss adjustors, law firms, IT companies or accountants. The question has always been: how can they maximise their oversight of such vendors and the value that they deliver? This has traditionally been a challenge, but for many in the captive industry the emerging answer is e-bidding.
E-bidding is the ability to source services online, encouraging contractors to bid for your business. Such an approach opens up a world of possibilities for captives—particularly those with far-flung operations— and when you add in the capability to oversee the management of outsourced functions, the value proposition is significant.
This is exactly what LSG’s new Procure-Manage-Pay (PMP) system enables captives (and other commercial entities) to achieve. A form of e-bidding, but a step further, LSG’s PMP system has sought to apply the utility LSG has achieved with its existing Advocator System to other non-legal professionals involved in the insurance space. From expert witnesses, loss adjustors, surveyors and field engineers, the newsystem has sought to include every independent contractor used by the corporate, legal, claims or buying departments of insurers (and the wider corporate world) in an online infrastructure that enables the user to source bids from external contractors globally.
As Markham explained, “When we were considering the system we examined where the workflow for external contracts started and we quickly recognised that there was also a need for something upstream of e-bidding. What we have created is PMP, which at the front end enables captives and captive managers to send out bid requests to multiple vendors when they look to outsource operational functions.
“The system requests a provision of budget, a case plan, details of a case, or policy wording, with firms sending back their responses through the PMP system. Once all the vendors have responded to the captive’s request, the client can then evaluate its alternatives and assign third party work accordingly.”
Such a system helps to open up a world of possibilities for the client, enabling them to attract a more diverse range of vendors— by both function and geography—and consider their alternatives (based on service and price) more closely. For captives with closely watched budgets and a significant portion of third party business the value proposition is clearly evident. But PMP also goes beyond the e-bidding stage.
"Having all vendors, cases, bills and budgets tracked and interconnected in one place makes for a valuable solution for captives."
“At the back end, on the billing side, we realised that there wasn’t enough flexibility to allow non-legal vendors to submit bills electronically. What we have provided through PMP is a plethora of formats they can use to submit billing and a portal for vendors to log in and create their own invoices online. Access to the Internet is then the only technical cost. This is a significant step in the e-bidding world, with the system enabling clients to track, measure and evaluate their service providers against key deliverables. That has been a differentiator for us in the madding crowd of the procureto- pay world.”
LSG offers its PMP system as a bolt-on product to new and existing clients, with the company able to offer a menu-based approach to its e-bidding capabilities. Captives can therefore take a selective approach to the capabilities extended by LSG, with LSG offering to tailor solutions to their particular needs. And it is clear that its utility is extensive.
As Markham explained, “There is a lot more utility in this new system and although this is a great fit for insurers, it is applicable to a host of business sectors. The system allows you to bid for everything from paper clips to attorneys. Anything outside the organisation— any outside costs that you are bearing to fulfil the completion of a project—should be able to go through the same process. Same software, same workflow—electronically.”
Finding the perfect partner
Further strengthening the hand of the PMP system is Panel Partnership, an online one-stop shop for vendor information that Markham describes as “somewhat like Angie’s List, but for professional services”. With 80,000 vendors already signed up to Panel Partnership offering services across 74 countries, the vendor directory is going great guns. Markham is confident it will surpass the 100,000 barrier soon and with a number of leading corporations having signed up, Panel Partnership looks set to be a robust procurement tool for the industry.
The panel will contain pre-qualified third party providers to whom captives can turn to source business, with the rest of the qualification then carried out by the client. And it is through this system that PMP members will be able to source their vendor expertise.
Markham said that interest in PMP and Panel Partnership had been fierce among chief financial officers, with the software “helping to put a wrapper around external costs”. As he explained, “This kind of procurement is a particularly good fit for captives due to the level of outsourced work. By their very nature the distances between the parent and where the captive resides can be significant and as such there is a propensity to outsource and a corresponding reliance on third party providers.
“We believe that having those types of relationships managed through a PMP system is the way to go because it puts all the visibility and a fair level of control at the desktop of the captive. At the moment a lot of that is communicated via spreadsheets, reports and word of mouth, but having all the vendors, cases, bills and budgets tracked and interconnected in one place makes for a valuable solution for captives and others with similar third party needs.”
Markham expects strong take-up within the industry, citing a captive manager that is already rolling out the system to clients. A focus on cost post-2008 has certainly helped to focus the mind.
“The financial crisis has driven a lot of the interest in e-bidding in recent years. It was a major wake-up call to manage external costs, to have greater visibility over them and understand what bang we are getting for our buck. That has helped to kick off a discussion about getting to grips with external service provider costs—what they are doing, who have I got, how many have they got, what are the implications for my bottom line.”
E-bidding systems such as PMP offer captives the possibility of greater transparency, value and ease of operation. It seems that the benefits of a paperless office and the possibilities for captive insurers have just been ramped up.
Gary Markham is CEO of LSG. He can be contacted at: firstname.lastname@example.org