July 10, 2014
Insurance Product Development (Excerpt, Part 2)
by Ty Sagalow
Why innovation requires a centralized department -- and how to build one.
CHAPTER 3: Creating and Working With a Centralized Product Development Department
There is no single corporate structure for developing a successful product development process. However, there are numerous advantages of creating some type of centralized function. The size and scope of the function depends not only on the size and scope of the corporation itself but also its product development goals. In general, the more robust the product development goals, the greater the need for some centralized unit. For companies that are not large enough to support a centralized division of any size, there is wisdom is creating a senior position that could help the CEO direct innovation within the company. This position has been called the chief innovation officer, the chief strategy officer or even the chief scientist.
The mission of a centralized product development department is to assist in the creation of innovative and profitable products and services, contributing substantially to the bottom line. Usually working in partnership with the company’s profit centers and the brokerage and risk management communities, a centralized team of creative, experienced professionals can provide a full range
of customer and results-driven solutions, including idea generation and validation, product design and implementation, and post-launch evaluation.
Expertise and Services
Product development as a process includes underwriting, actuarial, legal, compliance, marketing and, perhaps most importantly, project management. The larger the centralized department, the more of these services can be housed in the department. However, as mentioned above, there is no single solution. In many cases, some of these services are provided by a department outside of product development such as the office of general counsel. In my 30 year career, I have led large departments which housed centralized all the necessary product development functions as well as smaller departments which housed some of the function and then partnered with other departments for those services not found within the centralized department. At its most robust, the make-up of a centralized product development team is made up of seasoned professional with experience across all general insurance lines, including Specialty Lines, Personal Lines, General Liability, Property, Casualty, Small Business, Accident & Health, and Financial Lines. Together with these insurance SMEs are a team of dedicated “support staff” including legal, actuarial, marketing etc. An example of a robust centralized new product development team is included in the appendix. This team of professionals works closely with the profit centers, brokers, agents, and risk managers to provide total “end-to-end” services for all areas of product development.
The following is a comprehensive list of potential services that could be offered by a centralized product development department:
- Innovation Education and Culture Creation
- Idea Generation
- Total Project Management
- Comprehensive Research
- Product Demand Analysis
- Underwriting Assessment Analysis
- Distribution Assessment Analysis
- Legal Drafting
- Actuarial and Rating Plan Creation
- Financial Analysis and Proforma P&L Creation
- Marketing Strategies and Communications Implementation
- Claims Analysis
- Sales and Business Development
- Technology, Operations, and Systems
- Liaison with Risk Managers/Brokers
Each corporate profit center should be encouraged to use as many of the services as their new product development requires. This may mean total end-to-end project management or an a la carte selection of services. This team leads the process of new product development as described in the father chapters of this Guide which include:
Innovation: The process of creating a “culture of creativity” (Chapter 4).
Trend Identification (Generating the idea): Early awareness of societal changes, creating new or increased risk that could be the subject of an insurance product (Chapter 5).
Preliminary Analysis (Evaluating the idea): The new product idea is reviewed to determine viability through an analysis of product Demand, Underwriting, and Distribution (Chapter 6).
Scope and Definition (Developing the idea): Partnering with a profit center, the new product idea is sufficiently assessed to determine a final go/no-go decision on the product idea (Chapter 7).
Design: Partnering with a profit center to create all the components of an insurance policy are created – policy form, rater, application, marketing plan, etc .(Chapter 8).
Implementation (Launching the product): Underwriting and broker training sessions are completed and a “launch event’’ for the product is scheduled. (Chapter 10 -13)
Product Performance Review (Monitoring the product): Three-, six-, and twelvemonth reviews of the product’s performance are done with the profit center to determine if the product needs to be adjusted (Chapter 14).
All of the detailed tasks, research, and analysis that are performed at each stage of the product development process are outlined in this Guide.
Tracking and Managing Innovation
It is a good idea to have a database which tracks the submission and progress of innovative ideas that come to the company. This can be done as simply as a spreadsheet with internal protocol that all ideas are eventually submitted to the holder of the spreadsheet, or could be done by way of a more sophiscated web based data base specially designed for this purpose. Regardless of method, it is advantageous to have all new product ideas entered into the database. In addition, at the time of final product resolution either through product launch or termination of development, it is recommended the database be updated as to the new product status. If terminated a reason should be given (e.g., insufficient demand). As discussed in chapter 3.5 below, best practices to have a dedicated new product web page and intranet site which would allow the easy submission (via a simple to use form) to the centralized department for tracking, and assistance if desired. This will also prevent duplication of effort and the sharing of information across the enterprise.
New Product Web site
It is advantageous to have a dedicated intranet new product web site which is linked to the company’s intranet home page. This site can offer a comprehensive overview of the activities of the centralized department, encouraging executives and employees as well as (if there is an internet site version) brokers and risk managers to participate more fully in the product development process, while providing business unit partners with a convenient, centralized means of promoting their new product activities.
The site offers descriptions of recently developed products as well as some of those currently in development; provides news items of relevant interest; offers easy access to idea submission; and familiarizes the reader with the product development process. Anyone seeking information about new product initiatives will find a centralized source of information on the site.
Employees, brokers, and risk managers who are interested in submitting a new product idea may do so easily and quickly through the portal. Business units that are engaged in new product development or have recently launched a new product can reach interested audiences worldwide by posting information, knowing that readers who access this central repository of new product knowledge have already demonstrated interest in product development, creating a robust marketing opportunity.