Product lifecycle management (PLM) systems promise carriers the ability to create new products, reuse components and manage products over their lifecycles in a starkly more efficient manner. However, many life insurers aren't biting, as growth of PLM technology has been tepid and may get even weaker. Factors stalling adoption are insurers' severe financial constraints, addiction to legacy systems, or their concern that they must first have a new overarching product development strategy before making such a drastic technology shift. Yet, there are those who are staunchly touting PLM systems as vital in their drive to get a leg up on competitors, in particular, by getting products to market more quickly.
Before implementing PLM systems, which are designed to help insurers understand and manage product data from the product's inception to its retirement, some insurers see the need to cultivate an internal cultural and behavioral shift so these systems can be implemented effectively. For instance, if insurers are looking for actuaries to start modeling their products on such a system rather than using their Excel spreadsheets and much of their historical data, then not only do processes change, but a cultural change also is required.
Hartford Life hasn't adopted PLM systems because it must first analyze why it hasn't been able to get products to market as quickly as it would like, says Karen Chamberlain, VP of IT for the global operations and technology group of the company. The Hartford, Conn.-based carrier doesn't want to put the cart before the horse and adopt such technology before understanding the business case and strategizing more. "If you implement a bad process with technology, you still have a bad process," says Chamberlain.
In mid-2008, the company began a 12-week process to evaluate its end-to-end lifecycle of product development, starting with the retail products group. Its aim: to reduce the time for new product launches by 50% through process reengineering. "We are not sure where it makes sense for us to externalize rules or calculations, or whether we actually should conduct more of an end-to-end workflow approach," explains Chamberlain. "So as we are reengineering the process, we want to get at the low-hanging fruit and process changes that we can address immediately and see what that actually yields for us in terms of time and schedule."
With economic hardship either upon them or looming, insurers may be even more cautious about undertaking big, bold, expensive technological shifts. "Possibly this isn't one of the areas that companies are ready to invest in," says Chamberlain. "There are so many other things that we need to look at in terms of data, administration, service and sales tools that maybe it just doesn't make the top of the list." SEG Software LLC, Hartford, Conn., for one, has five insurance customers, but recently lost two potential deals due to the flagging economy, says Ric Young, SVP of sales and marketing for the provider of policy administration software for the annuity and life insurance industry.
Conscious of budgetary concerns and firmly believing that its officials know its products best, Hartford Life is calling upon in-house staff, rather than a management consulting firm, to reduce its product management inefficiencies.
OPPORTUNITIES FOR PLM GROWTH
Other life insurers believe that PLM systems must be paramount for CIOs now, and perhaps even more so amid the financial turmoil. If insurers are not nimble and flexible enough to make product changes and respond to today's market conditions, then they will not be able to compete effectively, according to Kevin Murray, EVP and CIO for New York-based AXA Equitable Life Insurance Co. Within the next three to five years, competitive insurers will need to have a product rules engine and a policy administration system that can change products quickly, he believes.
With consumers reeling from stock market and housing woes, and insurance products facing downward pricing pressures, carriers can use PLM systems to effectively analyze market conditions and assemble or customize new product offerings that fulfill customers' changing demands. "In an economic crunch, a customer's willingness to pay life insurance premiums can be dramatically different depending on a customer's income bracket, age and maybe the number of children they have or other beneficiaries," says Roy Wildeman, senior analyst for Forrester Research GmbH & Co. KG, in Frankfurt, Germany.
Additionally, some insurers have already firmly budgeted for long-term PLM transformations. "CIOs are savvy about keeping those programs going so that they can see success, and can see them through completion," says Wildeman. "So, that type of program initiative tends to weather the ups and downs in the market."
Modern PLM technology may not be practical for those with legions of legacy systems who are unable to convert annuity contracts, life policies and other "old" policies from these systems, or those who believe they would have to shed them all entirely and make a wholesale transformation. Yet, AXA sees value in making a gradual shift, or "putting a stake in the ground." AXA has put into production a new policy admin system for both life and annuities, and has begun to put new business on it while mothballing certain legacy systems. The carrier needed both customer service and new business front-ends that could speak to its legacy systems and new platforms so that it was transparent to its service centers, both in bringing in new business and servicing existing business.
In contrast, "other CIOs are waiting to see success in this area, or they just have their hands full with legacy," Murray says. "We came up with all the technology reasons why these legacy systems weren't going to bring us into the future competitively."
PLM SYSTEM BENEFITS
Among the major benefits that insurers can reap by embracing PLM systems is reduced time to market. It can take modern rules-based systems just minutes or hours to make product changes. In contrast, for insurers not using such systems, it can take up to three months to simply make an interest rate change, which is untenable given today's quick-moving markets, says Tim Attia, SVP of strategic relationships for Camilion Solutions Inc., Markham, Ontario, Canada. A product development solution can manage the complete product definition in a central repository, he says.
PLM systems also can significantly reduce system maintenance costs and boost revenue growth because an insurer can concurrently develop new products. Moreover, modern product management systems can mitigate risk and reduce workloads. "When people are looking at a modern system, they can look at the system in production format and get a feel for what it means to the organization while it is still on model office," says Young, explaining that SEG technology can eliminate manual processing for customer service, as well as exception processing. This can lead to a major improvement in productivity and customer service, he says. Those insurers using legacy systems tend to have both paper manuals and great amounts of exception processing that they have to do manually.
Accordingly, in spite of the hurdles, there is a nascent but emerging demand for PLM applications within all types of insurance, according to some observers. "In years' past, insurers would take a policy, put it into a closet or a file and then charge premiums every so often," says Wildeman. "Increasingly, based on the technology trends, there is much more demand for being responsive to customer demands and to market conditions, taking a lot of data around pricing, market segments as well as external and internal data, analyzing that, being responsive and, ultimately going to the market with products that are more customized, tailored and can optimize their profitability."
In Europe, signs of PLM system growth have been more auspicious than in the United States.
While European insurers may be equally squeezed economically, they have been more willing to implement PLM systems because of the relative simplicity of their products and less stringent regulatory environment, Young says.
Other developments bode well for PLM systems. For instance, the "chief product officer" is now more prevalent in insurance firms, says Attia. (AXA, for one, has a product development head.) And during presentations, CEOs at some of the world's top life insurance firms worldwide now cite "product" as one of their company's pillars for success or strategy, whereas 10 years ago their silo mentality led them to talk only of lines of business and organizational units. "They have started to acknowledge 'product,'" says Attia.
PLM'S TOUGH SLOG IN THE P&C FIELD
Just as PLM systems have attracted some life insurers, they have intrigued P&C carriers, too, yet the majority remains on the sidelines. "Most [P&C] insurers have just recognized some symptoms of PLM, and they really don't have a comprehensive product lifecycle management plan," says John Roller, SVP of product development and co-founder of Duck Creek Technologies, a Bolivar, Mo.-based PLM software provider.
The two types of carriers are held back by similar factors. For instance, P&C firms also must figure out how to integrate PLM into their current set of legacy systems, or assess whether they need to replace all of these systems. Many P&C carriers continue to try to look in-house to manage their products over their lifecycle, and find that "there just aren't a lot of product management tools available in general to the marketplace right now," says Roller.
Additionally, particularly in the United States, legal and regulatory hurdles confront P&C firms, as once a product has been defined, it may be required to be submitted to regulators for approval. So a carrier adopting a PLM system may become extremely efficient, only to wait indefinitely to release its new product or update a current product because regulatory approval has not yet come.
By nature risk-averse, P&C firms also might be wary of embracing PLM systems during an economic crisis. "But if they understand the ROI of a PLM strategy they might want to push forward much more aggressively, because the systems might give them a stated advantage both on the top line, and on the ability to drive more business and more revenue," says Roller.
Daniel Joelson is a freelance business writer based in Alexandria, Va.
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