Boston — In insurance, as in life, there is such a thing as too much off a good thing. Such is the case with product customization, which insurance carriers have long employed as a means of differentiation from their competitors.

Now, a new report from Boston-based Celent says insurers need to hew to certain principles when creating products, lest the costs of customization outweigh the benefits.
The report, based primarily on interviews with insurance carrier staff that are involved in forms management, revealed that companies surveyed create an average of 989 new forms annually and retire only 249. Even more ominous, several respondents reported creating 10 times more forms than they retired. What’s more, two-thirds of panel respondents said that, ultimately, virtually everything about a typical product is customized.

The report makes clear that the biggest drawback to the customization spree is the effort required to keep up with changes to standardized content. “The decision to go down the customization path has serious ramifications,” the report states. “It increases the analytical challenges placed on pricing and underwriting. It makes more difficult the task of crafting a marketing message and communicating that message to agents and customers. And it pushes administrative costs sky-high, particularly when inadequate tools are available to manage the complexity.”

So how do carriers resist the urge to customize everything?

Celent SVP Craig Weber, who co-authored the report along with Senior Analyst Mike Fitzgerald, says carriers need to assess their competitive intentions and map their forms strategies explicitly to those intentions. "The suboptimal use of forms and standardized content results from the reuse of traditional approaches and technology, whereas a deliberate strategy could enable vast improvements," he says.

The report advises carriers to focus on areas when crafting their forms strategy. The first is market development, where striking a balance between commoditization and customization is critical to hitting target markets. The second is product creation, where solid decision-making separates product and forms appropriately, avoiding long-term maintenance issues. The third is product maintenance, which determines the best tools and processes to intelligently manage customized forms without driving costs through the roof.

The authors also advocate carriers avail themselves of the standardized, bureau content available from organizations such as ACORD and ISO. Companies eschewing bureau content altogether, the report contends, put themselves at a severe expense disadvantage.

In addition, Celent suggest carriers give serious consideration to new tools, as "metadata" techniques have replaced point-by-point maintenance with reusable components.

Source: Celent

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