As insurers derive a greater percentage of new premium dollars through independent distribution channels, meeting the needs of independent producers becomes more important. While ease of doing business is vital, producers continue to cite product selection as the prime driver of their choice of carrier.
So how does an insurer make certain it has the right product at the right time? For most insurers, designing competitive products isn't the issue. Rather, insurers struggle to support innovative product designs in a timely and cost-effective manner. Shadow accounts and secondary guarantees for non-traditional life insurance as well as guaranteed minimum benefits for annuity products are becoming more popular. The rapid rate at which these offerings are evolving demands rapid product development and launch. This is true whether the carrier is a product innovator or a fast follower.
Moreover, the ability to rapidly introduce new products is tied directly to insurer growth and profitability. Life insurers that exhibit mediocre performance have relatively poor speed-to-market capabilities.
Process Improvements Alone Deliver Limited Benefits
Making process improvements is often the easiest step to take. Many insurers have adopted well-defined and communicated best practices, eliminated redundant tasks, and created standard metrics. These initiatives can yield more predictable development time frames, improved quality and better prioritization. But to achieve substantial gains, insurers need to adopt a modular approach to supporting rapid product development. Lacking this capability, these scenarios are likely to continue:
- Marketing demands a product with complex features that are not easily supportable by existing systems; the insurer's IT area eliminates most of the unique product features, which makes the product both supportable and mediocre.
- The product is launched as originally designed, but without automated support for certain features, meaning they must be supported manually (driving up administration costs) and risk being out of compliance.
- The product cannot be launched at all, because customization costs would be too high and/or the time line for implementation too long, making the product obsolete before it can be supported.
Creating a modular approach to product development requires rules-based and formula-driven systems. Sales illustration and policy administration systems that include reusable product/coverage components and user-configurable rules result in products that are easy to modify. Among the gains: an enhanced ability to respond to market changes, better profitability management, significant improvement in time to market, improved ability to support innovative new products and faster compliance with regulatory changes.
Product Configuration Tools Fall Short
Over the past several years, there has been an influx of product configuration tools using component-based technology and a graphical user interface (GUI). These systems make it easy for a business analyst to select from various parameters to define new product attributes, such as policy type, coverages, limits and exclusion rules. While these tools allow for the flexible definition of calculations, they presume the existence of pre-defined feature types, including the processing logic associated with the feature itself. Thus, while there is flexibility in defining the calculations associated with the benefit and/or the charge structure of the feature, programming is still required to support the underlying feature mechanics (e.g., the impact of the feature on the policy or contract or the timing of the feature).
These capabilities represent an improvement over coded and table-driven systems to be sure, but are hardly a panacea for the rapid introduction of innovative products. In fact, by their very nature, these tools act to impede true innovation: They provide a product designer with a limited set of benefit types that can define only calculations for pre-defined benefit types. To deliver the ultimate flexibility in product design, systems must go beyond the limitations of conventional product design.
Truly Flexible Support for Innovative Product Designs
To truly speed innovative new products to market, insurers need a configuration tool that can define a feature from scratch, with no pre-conceived notion of the feature's properties. This means that not only the calculations (benefits and charges), but also the mechanics (logic, process and transactions) associated with a given feature must be configurable. Critical to this concept is support for both the Generic Feature and Transaction Configuration. A Generic Feature allows for the creation of a benefit framework, where the calculations for the charge and benefit structure can be defined from scratch, and the timing of the feature's impact on a policy can be defined. The Transaction Configuration determines the timing and impact of the Generic Feature, by adjusting various policy attributes and triggering additional actions.
With these powerful tools, the product designer has the ability to truly exceed the boundaries of traditional product design and do so without programming, expediting innovative product introduction. It is only with this flexibility that insurers can expect to offer the right product at the right time, a capability critical to driving independent producer loyalty and revenue growth.