For insurers, product lifecycle management is not what it used to be. Indeed, a constantly evolving technology ecosystem — paired with changing customer expectations and an uncertain business environment — mean that to prosper, carriers must now adapt the manner in which they conceive and manage their products.
Historically, carriers faced a variety of challenges getting products to market in a timely manner. For many years, technology was almost as much a hindrance as an enabler for some companies as new insurance products would need to interact with a hodge-podge of systems from policy administration to rating en route to market. Now a maturing set of product lifecycle management tools expressly built to enable insurers to better manage a product from conception through design, distribution and service, coupled with the advent of service-oriented architectures, have served to lower the IT hurdle in the product development cycle.
"Five years ago IT was the longest pole in the tent in terms of getting a product to market, but we have improved the development and are much quicker to develop and modify products on our IT platforms," says Steve Mabry, SVP of annuity product development at AXA Equitable. "Now, regulatory is becoming the longest part of the cycle."
The Tools
One of the technologies that is a mainstay of a modern product lifecycle management solution and has helped insurers shorten product development cycles is a centralized depository for the product rules. By standardizing product definitions and storing business and underwriting rules in a manner in which they are readily availability for use with data gleaned from other core insurance systems and external systems, a central data repository for insurance products is critical in expediting product workflow. Much as SOA has made re-use a core principle at the architectural level, product repositories seek to pre-fabricate products by culling from hard-coded operational systems and enabling products to be built in a more modular manner and easily modified if need be. Modern PLM systems also enable greater automation and transparency. For example, ProductAuthority from Camilion Solutions includes Lifecycle Manager, which provides a Web-based view into the process, enabling the tracking and management of all participants and tasks to facilitate effective collaboration.
This plug and play approach pays several dividends. In addition to speeding development, it enables insurers to experiment and adjust offerings that are already on the market to appeal to different segments of the marketplace. "We are now building in a much more modular sense," Mabry says. "A feature we put on one product we may bolt on to another."
Moreover, Kimberly Harris-Ferrante, VP and distinguished analyst with Gartner Inc., agrees that while getting products to market faster is still important, the ability to customize niche products that can quickly take advantage of fluctuating market and customer demands is the next phase for insurance. "We are seeing a movement from mass product development to segmented product development," she says. "Insurers need to dive into different customer segments to figure out the differences in product needs. It's a major change."
This move to craft more niche insurance products mimics the strategy of online retailers who sell a large number of unique items in relatively small quantities to great success and were the inspiration for Chris Anderson's bestselling book The Long Tail: Why the Future of Business Is Selling Less of More.
Harris-Ferrante says the rise of the Internet and the self-segregating qualities of social media sites enables insurers to seamlessly target diverse subsets of customers, say, college professionals or motorcycle enthusiasts, and create products especially designed to appeal to those segments. "If you wanted to create a product targeting those radically different consumer segments you now can," she says. "The Internet is allowing insurers to go after customer segments with unique needs in a very cost effective way."
Too Much Too Soon
While decoupling products from the confines of the IT department and placing development solely in hands of business is a good in theory, it does comes with some attendant risk. Indeed, Mabry says product development has progressed to the point where the concern now is about not overwhelming distribution partners with constant product releases. "From a distribution view, you have to be smart about their limited shelf space," he says.
Another concern is that product development becomes so easy that carriers introduce too many products that compete with existing products and erode profitability. Just because you can introduce products quickly and target niche segments, doesn't necessarily mean you should. Absent sufficient data for underwriting, insurers could be wasting money and time and be tarnishing their brands with the groups they hope to serve.
"These technologies considered advantageous and transformational could be detrimental to the industry if you don't know how to use them appropriately," Harris-Ferrante warns. "It has to be the right product and a quality product. If you don't have good risk data on the customer segment you could underwrite these products incorrectly, which leads to losses."
Thus, Harris-Ferrante counsels a greater focus on product rationalization among insurers. "You need rationalization around what products you create and how you introduce them, otherwise you risk overwhelming the sales channel," she says. "Carriers need to ask 'Should we have so many similar products?'"
Moreover, insurers need to embrace PLM as a end-to-end methodology and reinforce its relation with other critical business processes such as underwriting and claims.
If modern product development enables insurers to target new markets, it also impels them to redouble efforts to learn the unique aspects about that segment as well as what customers in it would want from an insurance product. This means improving risk profiling and fine-tuning underwriting rules to figure out how to price the product and what coverages need to be in the product.
In AXA's case, it meant getting a better sense of longevity risk as the carrier expanded its offering with lifetime income guarantees. "Guaranteed lifetime income resonates well with the public, so it's incumbent on us as we price these lifetime guarantees to factor in longevity risk," Mabry says. "Challenges certainly do strengthen you. We've improved the design of our products that offer lifetime income."
Greater Dexterity
Modern product lifecycle management tools also afford carriers greater agility when reacting to market conditions. In the case of life insurers, whose products must comport to the wilds swings of the financial markets and the macro economy, the importance of being able to modify products with ease is hard to overstate. "Products have a much shorter shelf life than they used to," Mabry says. "They have to adapt to ensure that they fit within the current volatile interest rate environment and changing market conditions. When we go back and look at it historically, we are considering the last three years to be a 200-year storm in terms of the volatility for both interest rates and equities."
Considering both the uncertain financial system and the rapidly evolving nature of consumer demand, better use of product lifecycle technology will pay dividends in both the front and back office. Mabry notes that AXA now sports a wealth of mobile apps, such as retirement income and life expectancy calculators, for both BlackBerry and Apple products. "We continue to evolve and are constantly looking at ways to use technology to bring products closer the rep and the client."
