There may be nothing new under the sun, but in the world of newproducts for the personal lines, carriers are certainly making itappear differently. The research and advisory firm Strategy MeetsAction has released a report: Product Development: Insurer Plansand Priorities and the author, SMA partner Karen Furtado,discovered the problems that are plaguing carriers in this area andwhat they plan to do about it in the next three years.

The competitive challenges in the personal linesmarket—particularly personal auto—have created an upsurge in newproducts to the point where it seems like there is a new policy foreach customer, according to Furtado.

“Look at something like vanishing deductibles,” she says. “Thatis part of a whole new wave of products. The sophistication behindthe differentiation of the competition in personal lines is fierce.The variables are multi-dimensional in rating and personal linesare almost to the point of one-to-one rating.”

The competitive challenges mean that personal lines insurershave been forced to push the innovative and creative boundaries,according to Furtado. Unfortunately, the challenges are beyond whatmany insurance carriers can handle.

“There is a level of sophistication needed not just to develop[products] but to support them as well,” says Furtado. “I breakdown the product development lifecycle into product creation—thenew innovative ideas—and product configuration—all theimplementation work. We are trying to get a pulse on what lever istaking the most time and we found it was configuration.”

Insurers have spent a lot of time implementing changes withintheir core systems, explains Furtado, but legacy systems were notdesigned with the way the personal auto market has advanced withproducts such as vanishing deductibles.

“How do we understand the requirements and get it into aflexible system,” she asks. “External rating systems help, but moreand more we see both policy administration and rating systemscoming together and offering product configuration capabilities sothe rate can be configured without the paradigm construct ofprevious policies. Today the questions are: Do you want adeductible? How do you want it to work? Before, the question wouldbe: How do you want the deductible to work?”

It is not just the mainframe policy and rating systems that arestruggling to keep pace, Furtado believes the client/servertechnology of the late 1990s is inefficient in this regard aswell.

“Many of the client/server systems were built with moderntechnology, but there were older paradigms around what a productis,” says Furtado. “When you look at the technology side, you arestarting to see some policy administration systems starting toaddress the verbiage. We have product development or productconfiguration engines. New entrants in the market have productconfiguration beyond the rating engine. Insurers are pushingtechnology to go to places they haven't been before.”

Insurers always want to increase their speed to market with newpolicies and the report shows there is reason for concern. Thereport lists the average implementation time for new products as7.7 months with only 28 percent of new products implemented within120 days.

“What is taking insurers so long to implement?” she asks. “Ifthey are going to spend an average of 7.7 months to implement a newproduct and in this hypercompetitive environment, that is a longperiod of time.”

So, who has it easier in the ability to get anew product to market? Surprisingly, Furtado believes it might beeasier for smaller tier insurers.

“What we found from our data is that those insurers that are at$1 billion to $5 billion (in direct written premium) have specialtylines books of business, so they have a lot of products,” she says.“They are well behind. They are taking 11.2 months to implement anew product.”

Furtado points out that it is difficult for a carrier to gainmuch traction from a new product if it takes more than half a yearto reach the point where agents can actually sell policies.

“It takes from six months to over a year for over 80 percent oftheir new products,” she says. “They are the most challenged,typically because of the product mixes and the grouping of insurersthat tend to be super-regional to small national carriers.”

The survey showed that Tier 4 insurers—with less than $50million in written premium—are able to be more aggressive inintroducing new products.

“They are the only insurers that can do something in less than30 days,” says Furtado. “They are in fewer states and are notdealing with the complexity that larger insurers face. They arespread thin as far as what they offer, but they are getting there.They have to. A long timeframe to implementation would be a deathmarch for them if they want to compete. Having good implementationtimes is critical if they are to be responsive and customerfocused.”

New product development has been one of the sleeper areas ininsurance IT budgets, points out Furtado. The report showed that 29percent of insurance IT budgets is spent on new productimplementation and the maintenance of existing products and thenumber will be going up significantly.

Fifty-four percent of insurers will increase project spendingfor product changes in 2013 and 70 percent will increase spendingin the period of 2014-2016. Twenty percent expect to increasespending significantly (more than 20 percent) in that period.

“To go from such a flat [spending] number to almost 70 percentincrease in investing in the future for product development andconfiguration is a huge jump,” she says. “We feel we were at atipping point and the survey information certainly echoes that.There is a shift when we talk about what those systems will looklike in the future and the requirements.”