In their quest to create the newest profitable product, insurance companies often attempt to leverage the details found in their existing consumer profiles. However, siloed data can hinder product relevance and efficient product delivery. Rather than create new products in a vacuum, innovative carriers are breaking down their cultural and technological walls. By deploying rules-based engines that centralize enterprise data, carriers can streamline the information shared among internal departments and foster collaboration during the product design and introduction processes.
As competition across the insurance industry continues to increase and margins continue to decrease, it is more important than ever for carriers to introduce innovative products that meet consumers' needs. "It is important to deliver products that will attract and retain consumers -- the strategy should revolve around products and features that distributors can sell," says Michael Roe, CEO of Edison, N.J.-based NaviSys, a provider of software for life insurance and annuity providers that streamlines application, illustration, underwriting and administration processes. "Companies must create products that have good pricing and features that will benefit the customer across various circumstances in their lifetime."
Of course, no one division of an insurance carrier can create a new product on an island. Members across marketing, IT and research must work together to create concepts and deliver products. However, efforts often are stymied by disparate systems that are not integrated among company divisions. Challenged by how to scale solutions and still leverage their existing IT infrastructure, carriers often revert to manual processes and paper documents when creating design plans.
"Passing paper back and forth is an inefficient way to create new products, yet many companies are still stuck in this mode," says Debbi Marquette, director of compliance solutions for Markham, Ontario-based InSystems, a provider of document and compliance automation solutions for insurance and financial services. "Companies need to reengineer their processes and expand solutions across the organization," she adds. "Only then can [carriers] achieve automation and speedier delivery of new products to market."
Collaboration Is Key
Carriers that are willing to change their existing cultural and technological paradigms may be surprised at the new level of innovative products that they can deliver to the marketplace. But internal collaboration is a prerequisite for this cultural change.
"New products cannot be created in a [vacuum]. Collaboration is key for new product development," Marquette says. "For example, companies cannot introduce a product without actuaries looking at rates. The IT department needs to ensure it can be automated and maintained on the company's platform," she continues. "The claims division must be able to process these products through their systems. Sales and marketing must also be involved in the creation and delivery process."
Northbrook, Ill.-based Allstate ($156 billion in total assets) diligently demonstrates this collaboration. "Once our creative team lands a hypothesis for a [product] need, a cross-function team of people is created," explains Daniel "Butch" Necastro, vice president of product technology for Allstate. "This group is comprised of business and technological people."
This was evident when Allstate developed its new Your Choice Auto product. "The biggest thing missing in the auto insurance industry has been the creation of new products based on marketplace needs," says Jorge Quezada, Allstate's senior marketing manager and program manager for Your Choice Auto.
After conducting focused customer research and identifying a market need, Allstate began building a product that would reward its customers for being good drivers. Allstate customers can choose from a menu of packages that reward them for being safe drivers. Broken up by Platinum, Gold, Standard and Value packages, the Your Choice Auto product features immediate deductible rewards and "accident forgiveness" for new and existing customers.
"Customers that are accident-free can earn a reduced deductible," Quezada explains, adding, "Over time, this, combined with a safe driving bonus, has a tremendous impact on our customers' policies."
When it came time to develop the Your Choice Auto initiative, Allstate put its team-oriented game plan into action. "Due to Allstate's vast scale, our company is broken into areas of responsibility (AOR) across product marketing, distribution, claims and infrastructure. Then one leader is in charge of IT responsibilities across these AORs," relates Necastro. "Being the glue that pulls all of the business requirements together, the leader works in the background," he adds. "He plans all milestones and tracks progress on a weekly and monthly basis to ensure that we stay on track and launch the product in the marketplace in an efficient manner."
Unlocking the Data
As Allstate was keenly aware, the first step to reengineering processes is to leverage details stored in consumer databases. "In a perfect world, data should drive the product development cycle," says David Greenwell, practice area leader for insurance, The Revere Group, a financial consulting firm based in Chicago. "By leveraging data mining tools, insurance companies can extract and analyze trends."
As carriers use data to recognize their customers' needs, they also "gain a detailed understanding of why they buy specific products," says Gail McGiffin, senior executive and head of the global underwriting practice for New York-based consulting firm Accenture. "This data can educate carriers about which concepts can be profitable and why," she adds. "There is a world of opportunity around research."
For example, Allstate began testing its Your Choice Auto program in its Oregon marketplace in December 2004. After analyzing responses from this test market, Allstate's development team made enhancements to the product and prepared its revised offering for a calculated national rollout. "As of Monday, March 20, 2006, Your Choice Auto was available in 39 states," relates the firm's Quezada. "It is such a new and innovative concept that we were really dedicated to getting our internal departments to understand the product and roll it out properly."
According to Quezada, currently, more than half of Allstate's sales are part of Your Choice Auto packages, and a majority of sales are Platinum and Gold packages. "As our media campaign says, 'We are creating a better place to drive,'" he says. "By building consumer-focused products and providing a knowledgeable team, we are creating long-term relationships with our customers and differentiating ourselves from the competition."
Some insurers have discovered that their proprietary data reveals that their most profitable products may not be new types of coverage. Rather, some carriers are bundling new services into existing products.
"Fireman's Fund Insurance Company [Novato, Calif.; $11.6 billion in total assets in 2004] is a good example of a company that understands the important niche of its high-end homeowners. Thus, it has successfully tailored their commodities to this group," explains Accenture's McGiffin. "By reinforcing claim protection and providing more services that protect heirlooms, residence renovations and loss prevention services, the carrier has developed a unique, comprehensive offering for its clients."
Historically, many companies have "not done a good job of embracing and bundling services with coverage. This is an obstacle to achieving product innovation," McGiffin says. "By refocusing on this growth area, there is an opportunity for innovation."
Sharing the Wealth
Carriers often struggle with how to share this precious data across the enterprise. By integrating common tools across enterprise divisions, insurers can effectively develop a product and carry it through implementation. "To enter new products into the marketplace, there needs to be less human intervention and manual processing when launching new products," says NaviSys' Roe. "Companies need to automate operations."
This can be a difficult task for companies that operate legacy systems, Roe adds. Often, these systems are hard-coded and operate independently in each department. Rather than rip out aging systems and sink large amounts of capital into open platforms, NaviSys offers another solution. According to Roe, NaviSys Enterprise Platform contains a rules engine that does not rely on coding. Instead, users configure product designs that can be referenced by disparate systems in need of product information.
"When introducing a new product to the marketplace, carriers' development teams, regardless of the department, need to respond to the same set of rules," says Roe. "Having a common configurable rules engine enables carriers to reduce errors and create a common platform to efficiently introduce new products."
A variety of carriers are implementing business rules workbenches, according to Accenture's McGiffin. "Insurance companies can make rule changes within mere minutes," she asserts. "This helps them to quickly implement new products."
Southampton, U.K.-based Skandia Insurance Co. ($101.9 million in net income in 2004), for example, recently added the rules-based ProductXpress product development platform from EDS-SOLCORP, a division of Plano, Texas-based EDS. The enterprise-ready, scalable calculation engine allows users to develop and reuse calculations across multiple applications, according to Todd Haney, VP and product manager, EDS-SOLCORP. This configuration reduces the time and costs associated with financial product design and implementation. "This team-based tool enables multiple users to share data within a common repository and work together to create new products," he says.
The solution, which Skandia aptly nicknamed Darwin, provides users with real-time access to customer information and full-function processing across the company's portfolio of life and investment products. Darwin is integrated with the carrier's existing front- and back-office systems, enabling users to leverage the calculation logic from current business systems across the company's complete traditional and nontraditional product portfolio.
"ProductXpress provides Skandia with comprehensive life cycle support from initial illustrations, through policy administration, to post-sales policy modifications," Haney says. "The strategic goals for the Darwin project are to condense the product development cycle, quickly respond to legislative change and reduce time to market across Skandia's European operations."
Skandia already has realized early results, including labor savings. "Historically, Skandia had a team of programmers calculating business logic across disparate areas of the company," Haney adds. "Now, only three associates are responsible for this task."
Rules-based engines also are paramount for companies to achieve speed to market. Companies using manual processes typically implement product changes in four to seven weeks, and introduce new products within six to nine months, according to Accenture's McGiffin. "Rules-based engines can reduce product changes from months to hours, and product launches can happen within two or three months," she reports. "These statistics show the strong impact that rules-based engines have on businesses."