Beat the Clock

By Robert Regis Hyle

Many factors contribute to an insurance carrier's ability toattain market leadership. Getting products out on the streetquickly is certainly one of them. To achieve speed to market,carriers must involve a diverse group–product developers,underwriters, state filers, and, of course, IT–if they expectquality products to be in the hands of consumers ASAP.

Teamwork always is a best practice in today's business world,but working well together can be undermined if the right peoplearen't part of the team. That is especially true when insurersdiscuss speed to market–the development and implementation of newinsurance products. But insurers also are challenged by theequipment they have around them and the need to deal with stateregulators for product approval.

Whether an insurer uses an in-house or a vendor system, MikeMcLaughlin, global leader for actuarial and insurance solutionswith Deloitte Consulting, believes the chances are there is somelevel of customization needed for any kind of new or unique featurein a product. “What we tell our clients is you have to have a moreorganized process rather than a less organized process in thecreation of product-design features,” he says. “What happens is youhave a brainstorming session where the actuaries get together withthe sales representatives and other parts of the organization totalk about what a new product or an enhancement to an existingproblem would look like. The last guys who get invited to thediscussion are the IT guys when, of course, they should be amongthe first people there because of the need for customization.”

McLaughlin has been working to identify best practicesthroughout the policy development process–from conceptualizing theproduct to launch. “If I had to pick the one area that has the mostroom for improvement, it is the implementation of product featuresinto the new-business and administrative systems that are in use,”he says.

Getting the IT and the back-office business people involvedearly is important, according to John Johnsen, senior manager withDeloitte. What he has discovered in many companies is a team ofbusiness analysts take the product specs from the actuarial orunderwriting people and build business requirements so theprogramming people can program those changes in the targetsystem.

What transpires in some cases, though, is some groups within thecompany begin writing test conditions, so the analysts have todetermine what the actuaries and the business requirement peopleactually want. “I've always pushed that the people who write thebusiness requirements [should] write the test conditions andactually participate in the testing process so you don't have ahandoff of knowledge and a relearning that would take place,” saysJohnsen. “When the programming people start making changes to thesystem, concurrently the people who are writing these test scriptsshould be [writing those scripts] with the programming people. So,once the programming changes have been delivered for testing, youdon't have to start from scratch building test conditions. It's aconcurrent process and a collaborative process.”

One, Two, Three

There are three aspects that allow new products to move fromproduct definition to getting to the marketplace, believes JackDugan, vice president of Capgemini and leader of the consultinggroup's North American insurance practice. The first aspect isdefining the product. “The challenge on the product definition sideis less around the access to the data and more around theorganizational fortitude to make changes quickly and withoutextensive actuarial analysis,” he says. Dugan contends the issuecomes down to culture within the carrier rather than insights intodata. “You have to have the culture to mobilize quickly,” hesays.

The second aspect, relates Dugan, deals with filing the productwith state regulators. “I don't know whether we've seen greatacceleration around the filing process, given that you aredependent on regulatory agencies,” he says. Dugan points out thereis opportunity to be gained with filing, such as segmenting statesby their filing rules to expedite the process. “We're seeingcarriers that are able to segment like-minded states,” he says.“This may not speed up [a carrier's] national rollout, but itcertainly will enable carriers to get into the market quickly inselect states.”

The third aspect involves engaging the business with thetechnology. “Here is where the true winners differentiatethemselves,” Dugan claims. The carriers he describes are able toexternalize their business rules and aren't paralyzed by theirlegacy systems. “They are able to integrate the product from policyadmin, underwriting, rating, and issuance perspectives,” saysDugan. “[Insurers] aren't paralyzed by duplicate rule stacks andhard-to-get-at data.”

The Right Tools

ICAT Managers uses two sets of tools to manage its catastropheproducts. One is a database table for older systems. “[Theunderwriters] have structures that allow them to make changesquickly, and then [IT] uploads those changes into the system,” saysJoan Zerkovich, CIO. ICAT also is implementing a new policyadministration system (from FJA-US) in which IT no longer will haveaccess to the interfaces that allow changes to the underwritingrules.

Underwriters will have a graphical user interface and makechanges directly to factors and business rules, according toZerkovich. They will be able to model the output of those changesto compare the changes with the book of business and understandwhat impact the changes will have. Policies then will go into aquality assurance environment, and once approved, policies aremoved into production. “There's no more JAVA programming or Oracledatabase updates–[IT] won't do any of that,” she says. “All thework will be done through the tools [the underwriters] haveavailable to them.”

The job of the business users essentially is unchanged, reportsZerkovich. “They still have to analyze the market and the product,”she says. “[Business users] have to determine the best ratingfactors and underwriting rules.” What will be removed is the extrastep where underwriters communicate business requirements to the ITstaff and the IT staff provides programming. “Now what will happenis [underwriters] use the same tool for their analysis, theirchanges, and their understanding of the impact,” she adds. “Theycan see all that in a single place. When they are done working with[the policy], they release it for testing, and when [the product]is approved as a whole, it is released for production.” The companyhas cut out a huge step of communicating between underwriters andIT with the programming work basically being done by theunderwriting staff.

Insurers are seeing the same trend in preparing reports,Zerkovich explains, as companies are moving to businessintelligence where the tools enable business users to do their ownad hoc reporting, eliminating the reporting department in IT. “Astechnology improves, we try to remove that intermediate stepbetween the business person and the technologist, so the technologybecomes easy enough for the business person to use it directly,”she says.

Doing It the Best

Older systems can contribute to delays, Johnsen believes,particularly legacy systems that were built in-house by insurancecompanies. Some vendor packages are a little long in the tooth, aswell, he observes. “The thing I will say in favor of the oldersystems is they generally have a lot more functionality built intothe systems that you can choose,” he says. “Once you build afeature in a [legacy] policy admin system and you want to use [thefeature] in other products, the feature is there. Older systemsmight take a little longer to program, but they've got a lot offunctionality you can pick and choose from.”

Of the best practices for achieving speed to market, McLaughlinasserts the first is to lay out a time line for the productdevelopment process–from inception to launch. “I think there isroom for improvement there,” he says. “Lots of companies believethey are experts at product manufacturing, but if you look at theprocesses they follow, there almost always are one or two breakpoints where there wasn't an early enough discussion of a productdesign feature.” This leads to stumbling blocks that occur later inthe process while the company comes up with a last-minute fix toget a product feature implemented, McLaughlin explains.

Another area Deloitte discusses with companies concernsidentifying a good product idea from a bad product idea. “There aresome product ideas, which, although they sound pretty appealing,don't have broad market appeal,” says McLaughlin. “One of the bestpractices is how you are going to sift through the ideas you haveand select the winners from the losers. How do you kill those ideasearly before you overcommit resources?”

What Johnsen has seen work in a number of insurance companies isa product nomination process, so not every product idea goes tomarket. “You really need to pick and choose what you are going togo forward with,” he says. “This needs to be a collaborativeprocess where you involve all the stakeholders in the company whoare going to have some involvement in launching that product.”

Capgemini has seen the top carriers in the marketplaceintegrating product administration with policy administration. “Itis as much culture as anything else as [carriers] recognize theimportance of administering the product,” says Dugan. “We've seencarriers run off on the policy admin front without properlyaddressing the product side and not [understanding] the need tointegrate the product admin piece.”

Commercial Time

Speed to market is absolutely critical for carriers, Duganbelieves. In the commercial space, he reports seeing a clientimplement roughly 20 changes into its small-business product andimmediately experience a 30 percent to 40 percent gain in themarket because it was able to implement the changes so quickly.“There are leaders and followers,” he says. “This particular clientwas both. There were some activities in the market it reacted to,but at the same time, it proactively implemented some things itfelt would drive the marketplace.”

When The Combined Group began investigating how it could deliveran E&S product on the Internet on a comparative basis, therereally wasn't a solution that was Web enabled, according to DavidTaylor, executive vice president and CTO. The InsBridge solutionhis company purchased was a good fit, he explains, because IT couldoffload what traditionally has been the responsibility of aprogrammer–the rating algorithm–to a skilled power user. “As far asspeed to market, that allows us to have a business analyst beginthe process of developing a rating algorithm for a particular lineof business and, at the same time, have a developer start workingon the interview process associated with that and deliver them bothat the same time,” he says.

Speed to market has been a critical issue for ICAT since 2004and the first of back-to-back record-setting storm seasons. With alot of standard insurers and reinsurers leaving the Florida andGulf Coast market, the company perceived a need for builders riskcoverage.

“Being able to move quickly after the storm season [which runsfrom June 1 to Nov. 1] is over, you've got to get your products outon the market and begin writing them right away,” saysZerkovich.

What is critical for her company is the ability to developrapidly a rating algorithm and underwriting rules and get them intothe automated systems, Zerkovich explains. All of the ICAT productsare sold online, so the company needs to get the underwriting rulesonline as quickly as possible. “What we've been doing is putting asmuch of the development of the business rules and the ratingalgorithms [as possible] into the hands of the underwriting staffand removing IT from that process,” she says. The tasks includeallowing underwriters to update directly factors, the values forthose factors, and the business rules around underwriting andconstruct the products themselves.

Regulators

Insurance is highly regulated, points out McLaughlin,particularly on the life side where products are not standardizedand have to be filed and approved in advance. “Depending on thestate regulator–some are more difficult than others–that could meana delay,” he says. “The good news, though, is [the regulatoryprocess] is relatively predictable, and companies can take thatinto account when doing the planning for the product cycle.Everybody wants [the regulatory process] to be faster, but it is,to some extent, predictable.”

An important factor in speed to market involves insurancecompanies dealing with 50 different state regulators, all withtheir own filing requirements. Some states make it easy to file,and some make it very difficult, according to Boyd Adams, assistantvice president, state filings, with XL America Group.

When the business side prepares to introduce a product, Adamslooks for ways to get the product through the state insurancedepartments as quickly as possible. “We look at whether the statehas any speed-to-market filing guidelines so we can go through itschecklist, statutes, laws, and regulations and go through ourproduct to comply with the state's insurance laws,” he says. “Thebetter we can do that, the more quickly we can get a productapproved in a state.”

Product developers with XL will look to the regulatory servicesgroup within the product development process to make sure theproduct will meet the state requirements, explains Adams. “A lot oftimes [developers] will give us the policy and endorsements and askus what needs to be done to gain compliance,” he says. The filingsgroup studies the state laws and regulations and drafts mandatoryendorsements so the policy will meet the state's needs. The filinggroup also studies the rates to ensure compliance with staterequirements. “We'll look at [the policy] with a compliance eye,”he says.

The laws in each state are different, continues Adams. Forinstance, the cancellation/nonrenewal provision is different inevery state, so there is some type of change the carrier will needto make in each product. Some states are easier to get through.“Some will allow you to submit a filing, and you are allowed to usethe product prior to receiving an acknowledgement,” he says. “Somestates require prior approval where you can't use the product untilyou get an official stamped approval back from the insurancedepartment.”

The tool XL America uses from CCH Insurance Services allows thecarrier to enter company information once, and it populates all thestate filing transmittal forms at one time. It also gives customersthe filing requirements for each state. “You can develop astate-by-state matrix for all the filing fees in each state orwhatever you need to build into the filing,” Adams says. “Itstreamlines the filing process tremendously.”

Johnsen doesn't believe regulatory matters are the criticalissue for insurers. Rather, delays often are caused by the systemsinsurers are using. Companies have the ability to get productslaunched faster, but something else may be holding the process up,he explains. “Testing might be delayed, or the marketing materialsmight not be ready, or training the sales staff might not be inplace,” he says. “It always seems to me if you fix one thing,something else surfaces at a critical path.”

The National Association of Insurance Commissioners has heardthe demand for electronic filing and offers SERFF, which Adamsmaintains has been extremely helpful in a lot of states. “Itactually has increased our turnaround time for approval,” he says.“A lot of states will look at a SERFF filing before they look at apaper copy of the filing. We try to get all our filings out byutilizing SERFF.”

Bonnie Wittman, state filings director with Allstate, affirmsSERFF has become so popular most carriers are filing formselectronically, thus the advantage gained over paper users isdisappearing. “So many companies now are using SERFF I think it isgoing to go back to first come, first served again, and things willstart slowing down,” she says. “What we've seen using SERFF isfilings get there immediately and are assigned very quickly.”

Looking Ahead

Zerkovich reports her company is working on a couple of newproducts for 2006, and the time frame for turning those productsaround is anywhere from four weeks to six weeks as opposed to fourmonths to six months in the past. Improvements have been gradual asthe company upgraded its systems and streamlined changes in oldersystems. But with the new policy administration system comingonline in June, she believes there will be a major jump in speed tomarket. “As we make improvements in the systems we have today,” shesays, “we know what we're looking for in terms of turning over muchof the product design to underwriting.”