Speed to market is a top priority for insurers across the board, especially so for many insurers operating in a hyper-competitive market characterized by rapid changes and innovations in pricing and product attributes.
Unfortunately, many insurers' systems, designed and built in a time of less frantic product innovation, cannot keep pace with modern demands. Improving speed to market is one of the key factors in the growing adoption of new policy administration and product engines.
Although IT is often the most visible element of the new product introduction process, that may be because it's the only one confined to a single department, while other areas of the process have spread across compliance, actuarial, marketing and the executive suite. Poor overall process management can be just as much of an inhibitor as poor IT systems.
The value of speed to market is universally recognized in the industry. In fact, improving this is in the top three priorities of any insurer CIO, and is cited in almost every discussion of major core systems enhancements or replacements.
The need for speed in getting new products and product attributes to market is so generally accepted that few insurers have taken steps to quantify its value. There is a general sense of urgency, but little actual data on how much delays actually cost.
Insurers should make more formal efforts to quantify the financial impact of time to market. While it is already a general priority, each individual technology investment and organizational change required to improve time to market can be significant, and the lack of a quantified business case that includes time-to-market elements can delay investments.
A simplified opportunity cost model can be valuable in quantifying for senior management the actual dollar value of speed to market improvements, and in cost-justifying the necessary investments in process and technology.
WHAT'S NEEDED
Novarica has identified seven major components of a simplified product introduction process model:
* Executive decision-making regarding opportunity
* Developing pricing models and determining product attributes
* Developing contract language
* State regulatory filing
* IT
* Marketing
* Legal/SEC
Overall, the average time to market for a new product may vary from four to eight months. Few firms have a pure waterfall model of discrete steps among these seven areas. Most run several areas in parallel.
Since the stages generally overlap, the area with the longest single duration (IT) tends to get most of the blame for longer time-to-market processes.
There is no doubt that IT is the most significant single component of the process, given the long timeframes involved in coding and testing changes, and extensions in many insurers' legacy systems.
However, a holistic view of the new product introduction process shows that IT is only a fraction of the total time and effort involved in bringing a new product to market.
While insurers rightly focus energy on reducing the IT bottlenecks of bringing new products to market, they may overlook the potential for improvements in the other areas. In addition, many of the IT bottlenecks are caused by dependencies on non-IT processes (for example, delays in finalizing product attributes).
OTHER ISSUES
Legacy system issues often top the list of speed-to-market inhibitors, with many insurers dealing with long time-frames required for custom development and testing on homegrown or old, unsupported legacy systems, as well as the lack of human and financial resources devoted to supporting these systems.
Some insurers also have similar issues with vended software solutions, since "product development moves faster than software releases" and packaged solutions that are not highly configurable need to be adapted to support features and functions they were never designed to handle.
In addition to core systems issues, some insurers are suffering from the under-automation of non-IT processes such as state filing and content creation. Better use of workflow or business process management solutions could significantly increase the speed of some of these collaborative processes.
In many cases, though, organizational issues can be even more important. These include the lack of a single responsible executive to oversee new product introduction process, a lack of process transparency, clear lines of communication, and a clear understanding of dependencies among senior executives and line executives.
With a process involving as many different areas as the introduction of a variable annuity product, the opportunities for "dropping the ball" are many. With seven different functional areas all depending on each other, but working independently and balancing new product introduction with other local initiatives, even small lags between hand-offs can add up to delays that last months.
In discussions with insurers about their successful organizational initiatives that have improved speed to market, the common themes were: Process transparency-making sure each player in the process knew what was happening with the people he depended on, and who was depending on him for what.
Clear accountability-ensuring that specific individuals could be held accountable for hold-ups in the process and appropriate incentives were offered for strong performance.
While the most critical speed-to-market issues vary by firm, the common threads of inflexible systems and poor project management run through them all. Insurers should take a critical look at every element of their new product processes to discover where their bottlenecks are, and how to address them.
Matthew Josefowicz is director of the insurance practice at Novarica, New York. He can be reached at mj@novarica.com.
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