Tag Archives: Donald Light

How to Speed Up Product Development

The traditional product development cycle in property and casualty insurance moves at a snail’s pace. Drafts, approvals, revisions, verifications of key details and other steps place months between the moment a product is envisioned and the day it becomes available to customers.

As technology speeds the pace of daily life and business, the traditional product development cycle continues to represent a drag on P&C insurers’ efficiency and bottom line. Here, we discuss some of the biggest pain points in the product development cycle and ways to boost speed without sacrificing quality.

Cycle Slowdown No. 1: Outdated Processes

During the last few decades of the 20th century and into the 21st, speeding up the product development cycle wasn’t on most P&C insurers’ to-do lists, Debbie Marquette wrote in a 2008 issue of the Journal of Insurance Operations. Using the fax and physical mail options of the time kept pace with the as-needed approach to product development.

Marquette noted that in previous decades, product development not only involved a team, but it often involved in-person meetings. “It was difficult to get all the appropriate parties together for a complete review of the product before the filing,” Marquette wrote, “and, therefore, input from a vital party was sometimes missed, resulting in costly mistakes, re-filing fees and delays in getting important products to market before the competition.”

In the 1990s, the National Association of Insurance Commissioners (NAIC) realized that the rise of computing required a change in the way new insurance products were filed and tracked. The result was the System for Electronic Rate and Form Filing (SERFF).

SERFF’s use rose steadily after its introduction in 1998, and use of the system doubled from 2003 to 2004 alone, according to a 2004 report by the Insurance Journal. By 2009, however, SERFF’s lack of full automation caused some commentators, including Eli Lehrer, to question whether the system needed an update, an overhaul or a total replacement.

Property and casualty insurers adapted to SERFF and the rise of other tech tools such as personal computing, word processors and spreadsheets. Yet adaptation has been slow. Today, many P&C insurers are still stuck in the document-and-spreadsheet phase of product development, requiring members of a product development team to review drafts manually and relying on human attention to detail to spot minor but essential changes.

The result? A product development process that looks remarkably similar to the process of the 1980s. The drafts and research have migrated from paper to screens, but teams must still meet physically or digitally, compare drafts by hand and make decisions — and the need to ensure no crucial detail is missed slows the product development process to a crawl.

See also: P&C Core Systems: Beyond the First Wave  

Cycle Solution No. 1: Better Systems

The technology exists to reduce the time spent in the development process. To date, however, many P&C insurers have been slow to adopt it.

Electronic product management systems streamline the process of product development. The “new-old” way of using email, spreadsheets and PDFs maintains the same walls and oversight difficulties as the “old-old” way of face to face meetings and snail mail.

In a system designed for product development, however, information is kept in a single location, automated algorithms can be used to scan for minute differences and to track changes and tracking and alerts keep everyone on schedule.

By eliminating barriers, these systems reduce the time required to create a P&C insurance product. They also help reduce errors and save mental bandwidth for team members, allowing them to focus on the salient details of the product rather than on keeping track of their own schedules and paperwork.

Cycle Slowdown No. 2: Differentiation and Specificity

Once upon a time, P&C insurers’ products competed primarily on price. As a result, there was little need to differentiate products from other products sold by the same insurer or from similar insurance products sold by competitors. During product development, insurers allowed differentiation to take a backseat to other issues.

“Prior to the mid-1990s,” Cognizant in a recent white paper notes, “insurance distributors held most of the knowledge regarding insurance products, pricing and processes — requiring customers to have the assistance of an intermediary.”

Today, however, customers know more than ever. They’re also more capable than ever of comparing P&C insurance products based on multiple factors, not only on price. That means insurance companies are now focusing on differentiation during product development — which adds time to the process required to bring an insurance product to market.

Cycle Solution No. 2: Automation

Automation tools can be employed during the product development cycle to provide better insight, track behavior to identify unfilled niches for products and lay the foundation for a strong product launch.

As Frank Memmo Jr. and Ryan Knopp note in ThinkAdvisor, omnichannel software solutions provide a number of customer-facing benefits. A system that gathers, stores and tracks customer data — and that communicates with a product management system — provides profound insights to its insurance company, as well. When automation is used to gather and analyze data, it can significantly shorten the time required to develop insurance products that respond to customers’ ever-changing needs.

“An enterprise-wide solution enables workflow-driven processes that ensure all participants in the process review and sign off where required,” Brian Abajah writes at Turnkey Africa. “Subsequently, there is reduction in product development costs and bottlenecks to result in improved speed-to-market and quality products as well as the ability to develop and modify products concurrently leading to increased revenue.”

The Future of Development: Takeaways for P&C Insurers

Insurtech has taken the lead in coordinating property and casualty insurers with the pace of modern digital life. It’s not surprising, for example, that Capgemini’s Top Ten Trends in Property & Casualty Insurance 2018 are all tech-related, from the use of analytics and advanced algorithms to track customer behavior to the ways that drones and automated vehicles change the way insurers think about and assess risk.

It’s also not surprising, then, that companies using technology from 1998 find themselves stuck in a 20th-century pace of product development — and, increasingly, with 20th-century products.

See also: How Not to Transform P&C Core Systems  

As a McKinsey white paper notes, the digital revolution in insurance not only has the potential to change the way in which insurance products are developed, but also to change the products themselves. Digital insurance coverages are on the rise, and demand is expected to increase as the first generation of digital natives begins to reach adulthood.

Alan Walker at Capgemini recently predicted that in the near future property and casualty insurance product development will become modular. “Modular design enables myriad new products to be developed quickly and easily,” Walker says.

It also allows insurers to respond more nimbly to customers’ demands for personalized coverage. And while the boardroom and paperwork approach to development is ill-equipped to handle modular products, many product development and management systems can adapt easily to such an approach.

“Insurance products embody each insurance company’s understanding of the future,” Donald Light, a director at Celent, wrote in 2006. “As an insurance company’s view of possible gains, losses, risks and opportunities change, its products must change.”

Twelve years later, Light’s words remain true. Not only must insurance company products change, but so must the processes by which companies envision, develop and edit those products.

Just as the fax machine and email changed insurance in previous decades, the rise of analytics and big data stand to revolutionize — and to speed up — the product development process.

How to Reinvent P&C Pricing

The answer to P&C pricing may lie in the insurance credit score. That is basically a set of algorithms applied to data from credit reports that provide guidance for pricing and underwriting personal lines insurance. Although the score has been a source of political and regulatory controversy over the years, the use of insurance credit scores is now widespread.

Much of the controversy has been over possible disparate impacts on various societal groups. But a root of the controversy has been the non-intuitive relationship between a given person’s use or misuse of credit on the one hand, and that person’s probability of incurring insured losses on the other hand. The correlation just doesn’t seem to make much sense. But statistically there are correlations, which in general have passed regulatory review.

See also: Credit Reports Are Just the Beginning  

Insurance credit score controversies are now ancient history (i.e. were settled before most millennials graduated from high school).

But suddenly something interesting is happening.

The race is on to find the next insurance credit score—and the winners (if there are winners) will gain a pricing (and underwriting) edge.

There are only two requirements to enter this race.

  1. You have to forget about all the kinds of data and information that insurers have been using to price and underwrite risks.
  2. You have to use your digital imagination to find some new data and models that provide the same or better lift as the old data and models that you have just thrown out the window. (Lift is the increase in the ability of a new pricing model to distinguish between good and bad risks when compared with an existing pricing model.)

So what kind of new data might a digital imagination look at?

  • For personal auto, connected cars will provide a rich data set to mine. How about whether a car is serviced at the manufacturer’s suggested intervals (correlated with whether the car is serviced by a dealer or by an independent repair shop)? Or the use of a mobile phone while the car is in motion (correlated with time of day, precipitation and whether satellite radio is also playing)? Or use of headlights during daylight hours (correlated with the frequency of manually shifting gears in a vehicle with an automatic transmission).
  • For homeowners insurance, connected homes could supply all types of new data. For example, whether Alexa (or similar device) controls the home’s HVAC systems, correlated with setting security alarms before 11 p.m. Or, electricity and gas consumption, correlated with use of video streaming services on weeknights. Or, the number and type of connected appliances, correlated with the number of functioning smoke, carbon monoxide and moisture detectors.
  • For commercial liability insurance, telematics and IoT will be the key data sources. Does a business with 10 or more commercial vehicles use both fleet management and telematics solutions? What mobile payment options are offered (correlated with dynamic pricing capabilities)? What are the business’ use of social media and messaging apps, correlated with the degree of supply chain digitization?

See also: Why Credit Monitoring Isn’t Enough  

Of course, obtaining a lot of this data will require permission from policyholders—and even with permission these methods may raise social or political issues. But premium discount and loss control incentives for telematics programs have proven effective. And for better or worse,  Scott McNealy got it right in 1999 when he was asked about privacy and said, Nope, you don’t have any.

Fascinating Patent Filing by State Farm

Sometimes other drivers can make you crazy. Maybe you’ve gestured to boneheaded motorists, safe in the anonymity of your car and the flow of traffic. Perhaps you’ve let your anger at other drivers get the best of you at times because there’s no one else in the car to judge.

But State Farm is on the case. It has developed plans to monitor your every move while you’re driving, measure your emotions, detect angry behavior and deliver stimuli such as music to calm you down.

The plans, as revealed in a patent application, would combine biometric measurements with automotive data to create a “total impairment score” that could be used to set customized car insurance rates.

“Every year, many vehicle accidents are caused by impaired vehicle operation,” State Farm says in its application, recently filed with the U.S. Patent and Trademark Office. “One common kind of impaired vehicle operation is agitated, anxious or aggressive driving.”

Are you sweating, yelling or waving your arms while you drive? State Farm’s “emotion management system” would use a variety of sensors and cameras to monitor your biometrics, including:

  • Heart rate
  • Grip pressure on the steering wheel
  • Body temperature
  • Arm movement
  • Head direction and movement
  • Vocal amplitude and pattern
  • Respiration rate

The system could use “infrared optical brain imaging data” to get deeper inside your head. State Farm might even know if you’re giving the evil eye to another driver: Measurements include gaze direction and duration, eyelid opening and blink rate.

And impaired driving is not confined to angry and aggressive drivers. State Farm also would consider nervousness, distraction and drowsiness. Other sensors would keep track of your vehicle: Are you swerving, accelerating or driving too close to other objects?

[Compare car insurance quotes through NerdWallet’s Car Insurance Comparison Tool.]

Smell this and calm down

If you are “emotionally impaired” – as measured by State Farm, not your spouse – the patent-pending system would select and deliver stimuli to change your behavior. The patent application outlines a variety of options, including relaxing music, a recorded message, sounds of nature, fragrance or a blast of cold air. The system might even suggest you stop at a coffee shop or scenic overlook.

Robert Nemerovski, a licensed clinical psychologist in the San Francisco area and an expert on anger management and road rage, was skeptical about State Farm’s patent. He questioned whether an automated system could be sophisticated enough to account for the unique characteristics of individual drivers.

“I would be concerned about individual differences: people on medication, the elderly vs. the young,” he said. “Maybe they have PTSD, or they’re in recovery from a heart attack. [State Farm] would need to know nuances of human behavior and human bodies.”

In addition, “People don’t want someone patronizing you or telling you to calm down. I’m not sure it would be successful psychologically because it would be rather annoying,” he says.

state farm patent

State Farm’s depiction of an emotional impairment score on a mobile device, from its patent application.

State Farm envisions an “emotion management system” that goes beyond just monitoring behavior. The system would store profiles for each driver so, for example, it would learn which music might reduce your hard braking or persuade you to stop tailing the car in front of you. This might spell an end to your loud music.

Each time you end a trip, the State Farm system would analyze the data and update your impairment score, which you could check on your mobile device.

Because the purpose of the patent application is only to describe the system, it leaves many unanswered questions, including:

  • How much would it cost per vehicle?
  • Who would pay?
  • How often would you have to refill your fragrance containers?

State Farm, the nation’s largest car insurance provider, declined to comment on specifics of the patent application but provided this statement to NerdWallet: “State Farm is actively innovating in a number of areas that are important to improving how we meet the needs of our customers. The patent  . . . is just one example of State Farm’s innovation. Because of the nature of our innovation work and patent program, we are unable to provide further comments at this time.”

Angry about car insurance bills, too?

According to the application, State Farm is considering applying the “comprehensive impairment level” to car insurance in several ways, including:

  • Adjusting your insurance rate, up or down.
  • Requiring you to buy a minimum amount of auto insurance, or limiting how much it will sell you.
  • Offering you a discount for using the system.
  • Flagging your policy for possible cancellation.

While State Farm’s plans may never be implemented, the carrier clearly has many ambitious ideas about monitoring customer behavior, such as its previously described ideas to price car insurance by the trip and deliver targeted ads based on where you drive.

Many consumers aren’t aware that auto insurers are preparing to unleash a tsunami of such services based on telematics, systems that track your car and driving habits. Progressive was the first to enter the space and dominated it for a while with its Snapshot usage-based insurance program.

“Other big auto insurers don’t want to be in second or third place again,” says Donald Light, director of North America property/casualty insurance for Celent, a research and consulting firm that focuses on information technology in financial services.

“I believe in about five years it will be a standard part of an auto insurance policy,” Light says.  “Insurers will say, ‘If you don’t want to use it that’s fine, too, but we’ll charge you based on not having it.’”

Light sees one large hurdle to State Farm’s emotion-management plan: The company will have to convince state insurance regulators that the emotional impairment scores accurately reflect risk.

“The key qualifier is that these kinds of data have to make actuarial significant difference in the ‘risk’ of different drivers,” Light says. For example, if State Farm wants to charge more based on driver agitation, the company will have to prove that agitation causes crashes.

Nemerovski says State Farm’s emotional management system might appeal to millennials, who are comfortable with the idea of measuring physical and other metrics so they can be improved.

“But I don’t think people would want it to be shoved down their throats,” he says.