Insurance Product Development (Excerpt, Part 1)

Innovate now: Desperation may be the mother of invention -- but is rarely a good mother.

Every major change in the world began with a single creative thought. The New Product Development Reference Guide was developed as a tool to be used by any company wishing to create a corporate structure for the development of new (from the slightly enhanced to the new to the market) products. It is written as if the reader is a profit center leader or a company executive who is interested in furthering the successful development and launch of new products in his/her company or division. This guide is not meant to be a set of fixed rules but rather provide a road map for customization by a particular company based on its own culture, history and policies. More documents helpful to the innovation process can be found at CHAPTER 1: Summary of Chapters This guide is divided into the following chapters: Chapter 1: This chapter summary. Chapter 2: Principles of Innovation – Provides a philosophical look at the underpinnings of innovation and how organizations successfully integrate innovation into their growth strategies. Chapter 3: Creating and Working with a Centralized Product Development Department – Provides details on what is a centralized product development department, if and how it should be created. This chapter also includes an examination of innovation tracking and management, as well as a new product intranet and internet site. Chapter 4: Roadmap to Creativity – Provides the key steps necessary to ingrain a culture of creativity into a profit center. This chapter outlines the basic mechanisms for new product responsibility and accountability – a “New Product Director, New Product Council, New Product Champions, New Product Award Program and Specific New Product Goals.” Chapter 5: Generating Ideas – Provides the types of new products and the areas of change from which most new product ideas emerge. This chapter also identifies the resources, both internal and external, that might be useful sources for new product ideas. Chapter 6: Evaluating Ideas – Outlines how to evaluate whether a new product idea has the three components of a successful insurance product – demand, underwriting and distribution. This chapter also walks the reader through the Preliminary Analysis Conclusion Memorandum template that allows the reader to document a product’s demand, underwriting and distribution assessment for initial executive approval. Chapter 7: Developing the Product Idea – Outlines all the steps of preliminary planning that need to be considered before the actual design of the product begins. These steps include forming a development team, developing a project plan, drafting a policy form summary, O&S planning, regulatory assessment, reinsurance assessment and third-party agreements. Chapter 8: Designing the Product – Provides important development tips for all of the components of a new product. These tips include the policy form, the rating tool, application, underwriting guidelines, five-year proforma financials and quote and binder letters. Chapter 9: Idea and Product Validation – Provides useful information on the methods and tools that can be employed to validate both the product idea and final policy design. Chapter 10: Operations/Systems Planning – Provides an overview of the operation and system issues that should be consider when determining which underwriting platform will be utilized for the new product. Chapter 11: Marketing Your Product – Provides an overview of all the marketing issues that should be considered during the product design stage. These issues include branding your product, IP protection, marketing campaign plan and budget, distribution plan and training. Chapter 12: Compliance and Approval – Provides a New Product Development Checklist that can be used to document each stage of a new product development process and a listing of the most common approvals that a profit center may want to consider when developing of a new product approval process. Chapter 13: Launching Your Product – Provides information about the regulatory filing, training, educational seminars and launch events that should be a part of a new product offering. Chapter 14: Monitoring Your Product’s Success – The final chapter emphasizes the importance of accurate premium tracking, monitoring of a new product’s sales and marketing execution. The information in these chapters contains all of the recommended detailed tasks, research and analysis that are performed at each stage of the comprehensive, end-to-end new product development process. Included in this guide is a series of useful templates (Exhibits A-O) that are referenced within the chapters. CHAPTER 2 PRINCIPLES OF INNOVATION Definition: Innovation – the process of bringing new value to the marketplace sustainably and more successfully than the competition. 2.1 Why Innovate? The only Credible Response to Commoditization, Margin Pressure and Growth. Change is transforming the business world at a velocity never before seen because of the convergence of many forces: economic, political, technological and environmental. Attributes that in the past may have afforded sufficient competitive advantage, such as superior service, highly rated capacity and global reach, lose their distinctiveness as competitors expand or new entrants join the market with different business models and sometimes with no or lower legacy costs or infrastructure. The battle against commoditization never ends; neither does margin pressure. Constant innovation is the only path to securing and defending competitive advantage and realizing new revenue opportunities that are needed for sustained profitable growth. 2.2 When? Before Necessitated by Crisis or Decline Innovation undertaken by organizations in crisis or decline does not surprise us. Desperation may be the mother of invention, but, the data indicate, rarely a good mother. The desperate measures called for by desperate times more often fail than succeed. Managers nevertheless are instinctively reluctant to question a winning formula. “If it ain’t broke, don’t fix it.” This sentiment goes to the heart of one of the most commonly asked questions regarding innovation in large, successful organizations. Why now? If an organization is growing profitably, is an industry-leader and has a well-established track record, then it clearly “ain’t broke” and has no reason to change. In fact, the contrary is true. The optimum time to question accomplishments and to effect change is from a position of strength and success. This is precisely when an organization is best-positioned to unite as a community behind a shared vision and supporting values, not when fraught by economic, brand, morale or other issues. 2.3 Who? The Leader, Working Visibly and Explicitly Innovation strategies need to be led from the top. Challenging the status quo is difficult – intellectually, operationally culturally, and often emotionally. It is, therefore, up to leaders to invite others to embark on a journey of reinvention or exploration that may appear inherently risky. To succeed, an innovation strategy needs to be articulated and visibly supported at the highest level so there can be no doubt of the organization’s collective commitment. The role of senior leadership and a highly visible and vocal communication of the innovation agenda cannot be overemphasized. In addition to communicating the vision with, if necessary, a sense of urgency, senior leaders must also model the way. Change, even when strategically sanctioned, is challenging and naturally provokes a chain of reactions from fear, uncertainty and doubt. What does this mean to me? What do I risk losing? Will we succeed? It is because of this natural human response that the organization’s commitment needs to be unwavering and a genuine sense of empowerment widespread. Thus, if the goal is to create a culture in which innovation not only thrives but is repeatable and systemic, then it cannot be left to disconnected individual efforts but needs to be woven broadly and deeply into the fabric of the organization. 2.4 How? Start with Innovation Strategic Agenda, “Smart Failure” Innovation strategy, like any strategy, involves choices. The key is to design an innovation agenda that best corresponds with the overall strategic direction of an organization and incorporates the unique characteristics of the company, division or group. Terms such as “disruptive,” “breakthrough” and “incremental” are used by different authors and commentators in distinct ways. The essential inference to be drawn from any of the qualities used to describe innovation goals is that they indicate degrees on a continuum of small to large innovations. Simplistically speaking, the greater the innovation, the higher the risk of failure. The higher the risk, the greater the rewards if the innovation succeeds. Innovation agendas, especially at large companies, prioritize product and service innovation; however, the greatest return on product and service innovation occurs when these are combined with process innovations. Process innovations often deliver exceptional value. At the top of the scale, business model innovation brings the highest returns but is the most difficult to accomplish. In drawing up an organization’s strategic innovation agenda, the portfolio mix of near-term, mid-term and long-term initiatives and the distribution of high- to low-risk initiatives should reflect the capabilities, appetite and objectives of the firm at a point in time. Portfolio mixes should evolve over time as internal and external conditions change. This means making the choices that inform the innovation agenda consciously and constantly reviewing them. A static iinnovation strategy, in addition to being oxymoronic, will quickly become misaligned with overall strategy. Whatever the degree and scope of innovation, it is, by its very nature, an iterative rather than linear process. Failure is part of that process. Consequently, the organization’s ability to learn from “smart failure” is critical. Smart failure embraces variance and unexpected outcomes as learning opportunities that quickly prompt reflection, correction and redirection and openly call for input in problem-solving. When failure is viewed as integral to the process, it is not error but exploration. As such, it can be -- in fact, needs to be -- visible and shared. Only then is it a learning tool. The political and economic risk of failure need to both be, and perceived to be, organizational, not personal. 2.5 How? Aligned Resources, Processes and Values Innovation needs to be a core, coherent and consistent component of strategy design and planning. So how then does an organization implement strategic innovation as a process, outcome and ultimately a systemic part of strategy operations and culture? The day-to-day implementation of innovation falls to managers and their teams. Management innovation capability is crucial because it is here that obstacles are overcome and opportunities identified. Training is vital and may involve journeying into unfamiliar territories related to trend analysis, insight gathering, customer and channel orientation, collaborative work models and fostering creativity. Afterward, talents and skills must be recognized and rewarded. With leadership aligned and vocal about innovation as a core competence and strategic imperative, empowered management and the right training and motivators for the employee community, the process becomes the stage directions that bring the entire show to life. In innovation projects, the process is as much art as science and often requires the mental agility to be at ease with ambiguity. Process needs to be rigorous to shepherd business activities on the journey from insight to commercial deliverable in a timely way. Simultaneously, successful innovation journeys follow an iterative course and must be flexible. Above all, the process should be transparent so that interaction and course direction are perceived and acted upon as steps in the process and learning opportunities. The learning organization embraces both success and “smart failure.” 2.6 The Result: Measurements Ultimately, success must be measured. The measurement techniques may vary in accordance with the quality of the innovation, the degree of risk inherent in it and the stage of development. As innovation initiatives evolve, the density and reliability of assessments, forecasts and business plans evolve in line with the maturation of the projects. Innovation projects that are competing against non-consumption rather than competitors, creating new markets rather than competing in them and working to meet unmet needs with solutions that do not yet exist, necessarily require both complex metrics and skilled judgment. 2.7 Conclusion Innovation embodies multiple layers of creativity, requires an understanding of the heart and voice of our customers and is a component of insightful decision-making across business disciplines. The best practices that help shape innovation activities serve as a critical tool with respect to product development. Creating value within products is not random; it cannot be left to chance. Strategic and tactical plans articulated by management to pursue competitive advantage, sustainable organic growth and profitability must be supported by clearly stated guidelines for innovation and the sourcing of high-quality new product ideas.

Ty Sagalow

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Ty Sagalow

Ty Sagalow is a 30-year senior insurance executive veteran, 25 of which he spent at AIG, where he held various positions. He is currently president of Innovation Insurance Group, a consulting firm to the insurance industry specializing in product development and subject-matter expertise in management and professional liability insurance.


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