How many carriers should be invited to an RFP opportunity? Our industry wrestles with this question daily. Are four carriers enough? Is nine too many?
Brokers operate on gut instinct rooted in their individual experiences. Some brokers shotgun the market. They send their clients to market every year and invite more carriers than needed out of fear of being undercut by another broker. Retaining your client base and managing relationships are both equally important. Striking a balance of these two priorities when conducting an RFP can be challenging without data.
In economics, it’s generally believed that a "sufficiently large" number of competitors is necessary to achieve an efficient market. However, there’s no universally agreed-upon number of competitors to guarantee that efficiency. The number of competitors required to create an efficient market varies depending on the industry, market characteristics, and specific context.
Learnings from 5,000 placement events
To answer this question, we dug into our data. As a Benefits Placement System (BPS), we focus exclusively on enabling brokers and carriers to collaborate during the placement event (renewal and RFP) process. Our analysis was based on over 5,000 placement events. Here’s what we found:
1. The chances of obtaining savings from the market peak at four invited carriers, and doesn't meaningfully increase as more carriers are invited.
When 4 carriers are invited the probability that each will provide a response with savings is 80%. This probability reduces to 75% when 5 carriers are invited. It further reduces to 71% when 10 are invited and 65% with 12 invited carriers. The likelihood of finding more savings by inviting more carriers continues to diminish beyond this point.
We believe this is because carriers are more likely to decline to quote (DTQ) rather than spend their time on an RFP opportunity with an unreasonably high number of competitors. As a former group rep, that’s what I’d do. Working on an RFP has a fixed time cost, so a results-oriented team would instead work on one they had a higher likelihood of winning. Our data reinforces this theory.
2. The more carriers brokers invite, the higher the DTQ rate. Note: non-responses are considered DTQ.
- 2 invited: 1.7 submitted quotes, 15% DTQ rate
- 4 invited: 3 submitted quotes, 25% DTQ rate
- 6 invited: 4.1 submitted quotes, 32% DTQ rate
- 8 invited: 5 submitted quotes, 37% DTQ rate
- 10 invited: 6.4 submitted quotes, 36% DTQ rate
- 12 invited: 6.7 submitted quotes, 44% DTQ
3. The average coverage move rate is 35%
ThreeFlow partners with brokers who genuinely want to re-evaluate their client’s benefits and service offerings to find the best fit. Our data suggests that when a broker sends an RFP, there’s roughly a 35% chance it’ll move to another carrier and a 65% chance it’ll renew with the incumbent. This doesn’t suggest a carrier’s persistency rate, which includes all the business that didn’t go to market and renewed as is. The data tells us that when receiving an RFP through ThreeFlow, there’s roughly a 1 in 3 chance it’ll be won as new business by a prospective carrier.
4. Carriers are 15% more likely to win if they submit their quote on or before the due date.
It turns out that speed matters. When a carrier responds on time it demonstrates interest, and organizational readiness to support the employer in the next steps of becoming a policyholder. Our data suggests that brokers take notice, and reward this behavior with new business.
So how many carriers are typically invited on ThreeFlow? The average number of carriers invited (including the incumbent) was 6 in 2020-2021 and 5 in 2022. We’ve observed that 7 carriers or less are invited 75% of the time.
As our industry continues to evolve, it’s essential to embrace a forward-thinking approach that combines experience with evidence, enabling brokers to navigate the carrier invitation question confidently and pave the way for more efficient markets. By leveraging data-driven insights from ThreeFlow, brokers can make more informed decisions about the number of carriers to invite.