At a hearing in June before a subcommittee of the U.S. House of Representatives, Joseph J. Gasper, president and COO of Nationwide Financial Services Inc., gave a telling example of the regulatory hurdles insurers face when trying to launch new products.It went like this: Nationwide had developed a new annuity last year for contract owners interested in market timing. The Columbus, Ohio-based insurer filed countrywide for product approval, but seven months later, approval was still pending in five states-four of which were major markets for the new product.
"You may be saying to yourself, approval in over 40 states in seven months is not that bad," Gasper told the subcommitte. But "the truth is, to sell this product on a national basis and still comply with individual state requirements, Nationwide had to create 35 separate, state-specific contracts."
Nationwide's example typifies the regulatory environment insurance companies face when launching new products, while their competitors-namely banks-are able to obtain regulatory approval in a few months.
With insurers facing stiffer competition from banks and brokerage firms in the deregulated financial services industry, state regulators, legislatures and Congress are under pressure to reform insurance regulation (see article, page XX).
Technology barrier
Yet, as frustrating as the state regulatory process is to carriers, it isn't the only obstacle they face in bringing products to market. They also face internal technology barriers to timely product development.
"I know of examples where the difficulty and cost of changing a legacy system (to develop new insurance products) have put carriers literally decades behind," says Neil Betteridge, director of product marketing at Toronto-based Castek Inc.
Castek is one of several insurance software providers that have developed "product configuration" tools-which usually reside in their policy administration systems.
These tools enable carriers to develop new products in days or weeks rather than many months or even years. According to Castek, they do this by "taking IT off the critical path."
Typically, product configuration tools use component-based technology and a graphical user interface, which make it easy for a business analyst to select from various parameters to define a new product-parameters such as policy type, coverages, limits, loss valuation bases, peril inclusions and exclusions, usage rules, and rating information requirements.
"The ability for the business user to define what products they want to take to market is in stark contrast to the typical legacy environment where most of the definitions about the products-and rules about how they're being sold-are buried in the old COBOL code," Betteridge says.
"The downside to having rules buried in COBOL code is that as soon as you want to change them, it's time to start writing IT service requests and count the number of months-if not years-it will take for the changes to be made," he says.
Indeed, if an insurer wants to offer a new line of business without using a state-of-the-art product configuration tool, the process is long and arduous, says Berney Bradley, underwriting product director for Sirius Financial Systems Inc., Englewood, Colo., which offers a tool called "Product Builder."
After a business analyst determines what data to capture, typically a programmer develops that capability along with a database, screens and logic, he explains. Then, the program is packaged, compiled and released to the customer.
"The problem with that scenario is that every time the customer notices something's not quite right-which is typical in the early stages-they have to go back through that same development process," he says. "So there are delays."
Using "Product Builder," on the other hand, a "power user" who knows Visual Basic can create the data model, screens, and rating rules, as well as test and tweak the application dynamically, Bradley says.
Rapid modification
Sherwood International claims an insurer can enter a new market in 100 days using its recently released Amarta LIFE FastStart-a product aimed at small to medium-sized insurers, which is based on the company's existing business processing technology called Amarta.
After the initial product is developed, the next one can be released in three days using Sherwood's technology, says Steven Bessellieu, president, North America, of the Armonk, N.Y.-based firm.
Such rapid deployment is possible because once a business analyst has populated a model with data, that same model can be copied-and easily modified-to develop a secondary product comprising different parameters, he explains.
In addition, business users don't have to wait for code to be generated or tested. "The solution generates the code for you," Bessellieu says.
The flexibility of product configurators is helping carriers respond quickly to business needs and market changes.
For example, South Africa's largest life insurer used the Amarta development tool to create a set of new products, but found that the distribution channel it had planned to use-a large bank-disappeared at the last minute when the bank found an unexpected merger partner.
Within a few weeks, the product components were rearranged-including the commission, premium collection and distribution aspects, enabling the new products to be launched through a broker channel.
Similarly, LifeHelp Insurance Administrative Services, a Redding, Calif.-based third-party administrator of group life and health products, recently implemented a new policy administration system from AdminServer, Malvern, Pa. The system includes a product configuration tool.
The tool will enable LifeHelp to add a carrier or product in one to three months-depending upon the complexity of the product, says Rob Hickman, LifeHelp vice president of marketing and sales. Without this tool, it would take LifeHelp, at best, six to 12 months to develop a new product-assuming the old system could have handled it at all, he says.
More data
Beyond improving product design cycle time, product configuration tools enable carriers to manage their businesses with more agility, according to the vendors.
"Let's say you write homeowners insurance, and a hurricane is coming along the Carolina coast," Sirius' Bradley says. "You can very easily determine at 11 a.m. that it's time to shut down new homeowners' policies on the Carolina coast-and you can bring up the rule set, add the modification to decline anything in these territories, hit 'save,' and by noon, it's in your system," he says.
Similarly, carriers can quickly and easily change referral rules, as well as capture data for statistical analysis to make better underwriting decisions, Bradley adds.
"When I was an IT manager, a lot of times we'd say, 'Gee, if we just had this one piece of data about our policies, we might find there's a link to loss ratio." But it's always been too expensive for a company to go through the lengthy system modifications to explore those possibilities.
"Before, you'd say, 'Is it worth $90,000 to see if this one (factor) makes a difference? No. It's not,'" Bradley says. With a product configuration tool, a carrier can ask: Is it worth a half hour of somebody's time to add the data field? "Sure it is," he says.
