COM-4
PRODUCT DEVELOPMENT
CAS Ratemaking Seminar, Philadelphia
March 12, 2004
Dave McLaughry, FCAS, MAAA
Senior Actuary and Product Manager
Farmers Insurance Group
Product Development - more
relevant now than ever
• New technologies and exposures
• Active regulatory and judicial
environments
• Converging industries/product lines
Larry Keeley -- Doblin Group
www.doblin.com
10 types of innovation
Finance
Process.
Offering
Delivery
1. Business
model
How you get paid
3. Core process
How you add value
to what you offer
8. Channel
How you get your
offering to market
2. Networking
How you structure
ownership
4. Enabling
process
How you support the
core processes
5. Product
performance
How you design
your core offering
.
6. Product
system
How you enhance
your core offering
7. Service
How you stay
connected with
customers after
purchase
.
9. Brand
How you
communicate the
offering
10. Customer
experience
How you integrate
the entire
customer
relationship
4
Computers &
peripherals
Technology-driven
multimedia enhancements
e.g. Intel 486, Windows 3.0,
Adobe Postscript
Low-cost home PC’s
e.g. Windows 95, Intel Celeron
Emerging standards, specialization
e.g. PowerPC (IBM, Motorola, Apple),
Zero inventory assembly
Networked organizations
e.g. Dell paperless purchasing,
Intra/Extranets
1988
1989
1990
Going direct e.g. Dell,
Gateway Country Stores
1991
1992
Customer Experience
Channel
Product Systems
Core Processes
1998
Networking
1997
Enabling Processes
1996
Product Performance
1995
Service
1994
Business Models
Flexible financing e.g.
FreePC, Gateway Your: )ware,
Compaq leasing
Brand
1993
5
Innovation landscape: Non-life
insurance
IT systems speed
service and lower costs
New channels reinvent the industry
and make it more efficient
- Progressive's immediate
response system
- Direct Line bypasses the
agent and sells by telephone
- CT Mutual One Image
paperless electronic forms
1988
1989
- Cigna solutions and
XL Risk solutions
1998
Business Models
- Zurich Technology Risk Services
Core Processes
1997
Networking
IT integration allows
bundled services
Enabling Processes
1996
Product Performance
Service
1995
Product Systems
Brand
1994
Channel
1991
First wave of
consolidation for
1992
efficiencies of scale
and global scope
1993
Customer Experience
1990
Alliances open new
markets and channels
- car insurance through
Thailand 7-11
Technology increasing direct
channels
6
Diversified
financials
1995
1996
1997
1998
1994
1993
Customer Experience
Brand
Channel
Service
1998
1997
1995
1996
1994
1993
Customer Experience
Brand
Channel
Service
Product Systems
Non-life
insurance
Product Performance
Core Processes
Enabling Processes
Networking
Business Models
1991
Product Systems
1990
Product Performance
Customer Experience
Brand
Channel
Service
1989
Core Processes
1995
Product Systems
1988
Enabling Processes
1996
Product Performance
Core Processes
1994
Networking
1997
Enabling Processes
Networking
1993
Business Models
1998
Business Models
Comparing three sectors...
Securities
1988
1989
1990
1992
1991
1992
1988
1989
1990
1991
1992
7
Larry Keeley -- Doblin Group
Observations on Innovation
• Target the White Space
• Innovate across multiple dimensions
• Systematize the innovation process
Types of Product Development
•
•
•
•
•
•
Coverage changes
Product combinations
Unbundling coverage/service
New pricing approach
Additional services
Entirely new product
Sources of Development Ideas
•
•
•
•
•
•
•
Competitors
Distributors
Customers
Exclusions in current policies
Alliance partners
Regulators
Claims personnel
Multi-disciplinary process
•
•
•
•
•
Claims
Underwriting
Policy Processing
Marketing
Distribution
•
•
•
•
•
Systems
Billing
Accounting
Legal
Pricing
What is the Actuary’s role?
• Could be anything, ranging from pricing
expert to project leader
• Minimum:
– Consider ALL costs in setting rates
– Compare with pricing of similar products
within and outside your company
– Ensure data will be available to measure
performance
– Understand the full context of the product
Claims Hot Issues
• Is special expertise needed to handle
new kind of claims?
– Does company have this expertise?
– Should you outsource, specialize
internally, or train everyone?
• Will adjusters have access to
coverage information at time of loss?
Distribution Hot Issues
• Any special licensing requirements?
• Are distributors already selling
similar product? How does yours
compare? What about
compensation?
• How/when/who will train
distributors on new product?
Most new products fail
“I have not failed, I’ve just
found 10,000 ways that won’t
work.”
--Thomas Alva Edison
How to minimize risk/cost?
• Depends on scope of the change
• For significant development projects:
– Start with PILOT
– Develop clear expectations
– Measure everything
– Evaluate and adjust based on results
Pilot Program
•
•
•
•
•
Single state (preferably file and use!)
Short duration (90 days)
Limited distribution
Limited claims staff
Mocked-up system/manual processes
Clear Expectations
•
•
•
•
Number of customer contacts
Number of quotes
Number of sales
Number of claims/utilizations
THIS IS THE BIGGEST CHALLENGE!
Measure everything!
• Develop in advance method for
tracking and reporting on all
expectations
• Daily/weekly status reports
• Distributor feedback
• Customer feedback
Evaluate and Adjust
• Scrap project
• Extend pilot
• Expand distribution to entire state
or additional states
• Full rollout (commit to major system
changes, training, etc.)
Questions??