2004 CAS RATEMAKING SEMINAR
PRODUCT DEVELOPMENT
(COM - 4)
BETH FITZGERALD, FCAS, MAAA
Product Development
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What is the Process?
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Examples of new lines of insurance:
 Employment-Related Practices Liability
 Executive Liability (D&O)
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Viewpoint of Actuary
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Product Development Complexities
Outline of Process
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Product Need
Business Case Proposal
Policy Form Development
Rule/Loss Cost Development
Filing Preparation
Statistical Impact
Marketing/Sales Plans
Future
Product Need
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Customer Survey
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Monitoring of Market
Business Case Proposal
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Product Description
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Business Risks
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Financial Analysis
Business Case Proposal
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Revenue Projections
 estimate number of customers
 how product is to be priced
Expense Projections
 initial R&D of product
 maintenance of product
 IST costs
 include expenses from all departments
(Finance, Marketing, Sales, Legal,
Government)
Policy Form Development
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Research Coverages
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Discuss Potential Coverages for Inclusion in
Product
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Draft Policy Forms & Endorsements
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Discuss with Insurer Panels, Agents, Brokers,
Risk Managers
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Legal Approval
Rule Development - Premium
Determination
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Decide on Rating Structure for Basic Coverage
Premium
 practicality vs. accuracy
 exposure base
 classification plan
 vary rates by state, territory?
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Decide on Rating Structure for Optional Coverages
 ILF’s, deductible/co-payment relativities
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Manual Rules Reviewed by Insurer Panels
Pricing of Loss Costs/Relativities
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Understand Coverages - inclusions, exclusions,
endorsements
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Data Needs
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Data Availability
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Decide on Methodology
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Discuss Methodology with Insurer Panels
Filing Preparation
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Loss Cost Filing
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Conform to State Regulations/Statutes
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Respond to Regulatory Concerns
Statistical Impact
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Determine Future Ratemaking Statistical Needs
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Balance Data Needs with Practicality/Cost of Data
Collection
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May Collect More Detail Than Used in Rating (e.g.
territory, individual class)
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Discuss with IST & Insurer Panels
Marketing/Sales Plan
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Decide on Target Customers
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Decide if Provide any Additional Services
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Prepare Announcement Material for Customers
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Coordinate with Internal Staff
 Sales, Marketing, Finance
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Follow-up/Feedback
Future Ratemaking
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Develop/Modify Report Systems
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Monitor Statistical Data
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Determine Ratemaking Methodology for Updating
Pricing
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short - term
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long – term
Modify Pricing for Coverage Enhancements
Product Development Complexities
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Product uses information from a third-party
vendor
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Product requires development of unique software
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Product is accessible to customers electronically
Third Party Vendor
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Define business relationship – customer or partner
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Document business relationship and all details of
business arrangements
 Involve legal staff
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Evaluate responsiveness to concerns & questions
in deciding on long-term commitment
Software Issues
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Build software in-house?
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Purchase existing software?
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Evaluate different software products
 Flexibility/options
 Customer support/Reputation of firm
 History of software
 Allow for trial period
Technology Issues
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Education on new technology
 Web-based interface
 API, EDI, SOAP
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Set up beta testing prior to product launch