san antonio - the product development process - getting your

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66 PD, Product Development Process –

Getting Your Product to Market Quickly

June SOA – San Antonio, TX

Overview

♦ General Overview of the Life Insurance Product Development Process

♦ Potential Road Hazards♦ Who can help

– Reinsurance Assistance– Consulting Assistance

♦ Insight into the Annuity Product Development Process

♦ Questions?

SOA 2004 San Antonio Spring Meeting - 66 PD, The Product Development Process - Getting Your Product to Market Quickly

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Process OverviewFrom Product Ideas to Product Development Project

1. Idea Generation And Filtration

2. Idea Approval and Priorities Set

3. Marketing and Financial Objectives

4. Pricing Iterations

5. Contract Drafting Rate Development Risk Analysis

6. State Filing Rate Delivery Marketing Plan

7. Monitor State Approval

8. Marketing Launch Product Training

9. System Implementation












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Strategic Fit

Competencies

Profit Potential

Sales Potential

Resources Consumed

Timing

Is there something better












4



Project Benefits

Impact of Not Doing it

ScopeProductFilingIllustrationsMarketingAdmin SystemsNew Business












5



Targeted CompetitorsSales ConceptsWho does it wellHow do they do it.Who will sell itWhat makes a good productProfit PotentialIdentify Risks Risk Management












6



Product Outline

Checkpoint #1

Initial System Specs

System Scope/Impact












7



Checkpoint #2

Product Design Tests

Competitive Review

System Specs

System Design

Risk Analysis Work

Checkpoint #3












8



Actuarial Material

State Variations

System Building/Testing

Product positioning

Marketing Plan












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Objection Responses

Product Positioning

Competitive Review

Marketing Materials

Admin Testing












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Roll-out

Sales Systems Mailed

Applications

Transition Rules

Field Reaction












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Implementation

Monitoring begins

Competitive Review

Financial Review

Typical Time Frames:LIMRA Individual Life Product Development Market Scan

Average New Product Development Time Frames

6.35.89.9

8

11.6

7

54.49

6.5

10.1

6

05

101520253035404550

Wee

ks

Var. Life VL overlap Term TermOverlap

Idea Generation Product Concept & FeasibilityProduct Planning and Design Product RequirementsDevelop Products Launch Products

Source: LIMRA, April 2004

39.9 34.3


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Potential – Road Hazards

♦ Lack of Senior Management Commitment to Priorities

♦ Unclear/Unrealistic Marketing and Financial Objectives

♦ Market intelligence is imperfect

♦ Inadequate expertise

♦ Insufficient resources

♦ Competition is a moving target

♦ Product Design doesn’t work

♦ Failure to identify material risks and management plan

♦ Regulatory Changes

Reinsurance AssistancePotential to Primarily Address♦ Inadequate expertise

♦ Insufficient resources

♦ Market knowledge

Primarily in Product Development to Product Implementation♦ Rate Development

♦ Pricing Iterations

♦ Risk Analysis


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Reinsurance AssistanceRate Development

♦ Premium – reflect marketing goals/strategy

♦ Mortality consultation– Underwriting requirements and preferred criteria

– Target market and distribution

– Underwriting exception processing

– Mortality experience

♦ XXX reserves on term

♦ Expense, interest rate, lapse, RBC and other assumptions including market intelligence feedback

♦ Reflect reinsurance rates

Reinsurance AssistancePricing Iterations

♦ Pricing profit analysis

♦ Mortality / underwriting expense trade-offs

♦ Premium trade-offs

♦ Impact of various reinsurance arrangements, if other

reinsurers in pool


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Reinsurance AssistanceAdditional Support

♦ Prospective X-factor development and retrospective X-factor testing on term products

♦ Periodic product review

♦ State filing assistance

♦ Analysis of impact of new regulations

Reinsurance AssistanceSuccess Story – Product to Market Quickly

♦ Clear, reasonable goals

♦ Eliminated variations before modeling, example risk class structure and focus on one pricing cell initially

♦ Little experience to analyze

♦ Clear communication with all interested parties

♦ Senior management committed and available for decision making

♦ Dedicated reinsurance resources available for on-sight model work

♦ Start to Finish (reinsurer involvement) – 3 weeks


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Reinsurance AssistanceNot so successful story

♦ Unclear plan, lack of consensus

♦ Multiple pricing scenarios

♦ Long delays for management review and approval

♦ Lack of communication with all interested parties

♦ Start to finish (reinsurer involvement) – 9 months

Additional areas that may be considered to help speed product development

♦ Robust Experience Studies need to be on a regular cycle so that flow of assumptions is expedited:– Mortality (annually) in detail– Persistency (at least annually, but maybe semi-annually)

by age, gender, size– Expenses (annually) with fresh look taken at allocations

each year– Business mix (as needed) – gender, age, risk class– Experience study actuaries sometimes part of product

development department


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Additional areas that may be considered to help speed product development

♦ Investment strategy and portfolio mix should be discussed and agreed to prior to pricing products– Selection of assets, with duration elements, spreads over

Treasury, and default risk charges– Reinvestment approaches– Active management practices– Tied in with stochastic modeling– Investment actuary to bridge gap between investments

and product helpful

Annuities bring some additional considerations for rapid product

development

♦ Filing can generally be much more modular♦ Use of riders can help simplify pricing, filing,

and sales process.♦ Stochastic models must be refined and efficient

to speed pricing.♦ Annuities can be managed on a micro, not macro

basis.


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Annuities bring some additional considerations for rapid product

development

♦ For equity-indexed annuities, simplify designs and have (non)-securities issues covered.

♦ Significant sources of competitive information available (VARDS, Fisher, Web Sites, Jack Marrion, Beacon)

♦ Spreads are main pricing variable

♦ Clearly identifiable filing issues in certain states

Roles played by consultants can help speed product development

♦ Baseline pricing (pricing system compatibility helpful)

♦ Difficult to obtain competitive information

♦ Insight based on prior experience that can avoid wheel spinning

♦ Participate in regulatory filing discussions

♦ Generate reserve factors and/or approaches

♦ Quick entry into new lines of business where in-house expertise lacking (start at second base)


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Roles played by consultants can help speed product development

♦ Importance of legacy documentation♦ Allows concurrent activities to take place with

existing staff♦ Potentially validate or draw into question prior

conclusions♦ When not to use consultants:

– Lack of consensus about their value– Where not positive about their expertise– When the motives are political– When they will be placed in a box professionally


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