Beat the Clock

Beat the Clock

By Robert Regis Hyle

Many factors contribute to an insurance carrier's ability to attain market leadership. Getting products out on the street quickly 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 expect quality 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 people aren't part of the team. That is especially true when insurers discuss speed to market–the development and implementation of new insurance products. But insurers also are challenged by the equipment they have around them and the need to deal with state regulators for product approval.

Whether an insurer uses an in-house or a vendor system, Mike McLaughlin, global leader for actuarial and insurance solutions with Deloitte Consulting, believes the chances are there is some level of customization needed for any kind of new or unique feature in a product. “What we tell our clients is you have to have a more organized process rather than a less organized process in the creation of product-design features,” he says. “What happens is you have a brainstorming session where the actuaries get together with the sales representatives and other parts of the organization to talk about what a new product or an enhancement to an existing problem would look like. The last guys who get invited to the discussion are the IT guys when, of course, they should be among the first people there because of the need for customization.”

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

Getting the IT and the back-office business people involved early is important, according to John Johnsen, senior manager with Deloitte. What he has discovered in many companies is a team of business analysts take the product specs from the actuarial or underwriting people and build business requirements so the programming people can program those changes in the target system.

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

One, Two, Three

There are three aspects that allow new products to move from product definition to getting to the marketplace, believes Jack Dugan, vice president of Capgemini and leader of the consulting group's North American insurance practice. The first aspect is defining the product. “The challenge on the product definition side is less around the access to the data and more around the organizational fortitude to make changes quickly and without extensive actuarial analysis,” he says. Dugan contends the issue comes down to culture within the carrier rather than insights into data. “You have to have the culture to mobilize quickly,” he says.

The second aspect, relates Dugan, deals with filing the product with state regulators. “I don't know whether we've seen great acceleration around the filing process, given that you are dependent on regulatory agencies,” he says. Dugan points out there is opportunity to be gained with filing, such as segmenting states by their filing rules to expedite the process. “We're seeing carriers that are able to segment like-minded states,” he says. “This may not speed up [a carrier's] national rollout, but it certainly will enable carriers to get into the market quickly in select states.”

The third aspect involves engaging the business with the technology. “Here is where the true winners differentiate themselves,” Dugan claims. The carriers he describes are able to externalize their business rules and aren't paralyzed by their legacy systems. “They are able to integrate the product from policy admin, underwriting, rating, and issuance perspectives,” says Dugan. “[Insurers] aren't paralyzed by duplicate rule stacks and hard-to-get-at data.”

The Right Tools

ICAT Managers uses two sets of tools to manage its catastrophe products. One is a database table for older systems. “[The underwriters] have structures that allow them to make changes quickly, and then [IT] uploads those changes into the system,” says Joan Zerkovich, CIO. ICAT also is implementing a new policy administration system (from FJA-US) in which IT no longer will have access to the interfaces that allow changes to the underwriting rules.

Underwriters will have a graphical user interface and make changes directly to factors and business rules, according to Zerkovich. They will be able to model the output of those changes to compare the changes with the book of business and understand what impact the changes will have. Policies then will go into a quality assurance environment, and once approved, policies are moved into production. “There's no more JAVA programming or Oracle database updates–[IT] won't do any of that,” she says. “All the work will be done through the tools [the underwriters] have available to them.”

The job of the business users essentially is unchanged, reports Zerkovich. “They still have to analyze the market and the product,” she says. “[Business users] have to determine the best rating factors and underwriting rules.” What will be removed is the extra step where underwriters communicate business requirements to the IT staff and the IT staff provides programming. “Now what will happen is [underwriters] use the same tool for their analysis, their changes, and their understanding of the impact,” she adds. “They can 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 company has cut out a huge step of communicating between underwriters and IT with the programming work basically being done by the underwriting staff.

Insurers are seeing the same trend in preparing reports, Zerkovich explains, as companies are moving to business intelligence where the tools enable business users to do their own ad hoc reporting, eliminating the reporting department in IT. “As technology improves, we try to remove that intermediate step between the business person and the technologist, so the technology becomes 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 insurance companies. Some vendor packages are a little long in the tooth, as well, he observes. “The thing I will say in favor of the older systems is they generally have a lot more functionality built into the systems that you can choose,” he says. “Once you build a feature in a [legacy] policy admin system and you want to use [the feature] in other products, the feature is there. Older systems might take a little longer to program, but they've got a lot of functionality you can pick and choose from.”

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

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

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

Capgemini has seen the top carriers in the marketplace integrating product administration with policy administration. “It is as much culture as anything else as [carriers] recognize the importance of administering the product,” says Dugan. “We've seen carriers run off on the policy admin front without properly addressing the product side and not [understanding] the need to integrate the product admin piece.”

Commercial Time

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

When The Combined Group began investigating how it could deliver an E&S product on the Internet on a comparative basis, there really wasn't a solution that was Web enabled, according to David Taylor, executive vice president and CTO. The InsBridge solution his company purchased was a good fit, he explains, because IT could offload what traditionally has been the responsibility of a programmer–the rating algorithm–to a skilled power user. “As far as speed to market, that allows us to have a business analyst begin the process of developing a rating algorithm for a particular line of business and, at the same time, have a developer start working on the interview process associated with that and deliver them both at the same time,” he says.

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

“Being able to move quickly after the storm season [which runs from June 1 to Nov. 1] is over, you've got to get your products out on the market and begin writing them right away,” says Zerkovich.

What is critical for her company is the ability to develop rapidly a rating algorithm and underwriting rules and get them into the automated systems, Zerkovich explains. All of the ICAT products are sold online, so the company needs to get the underwriting rules online as quickly as possible. “What we've been doing is putting as much of the development of the business rules and the rating algorithms [as possible] into the hands of the underwriting staff and removing IT from that process,” she says. The tasks include allowing underwriters to update directly factors, the values for those factors, and the business rules around underwriting and construct the products themselves.

Regulators

Insurance is highly regulated, points out McLaughlin, particularly on the life side where products are not standardized and have to be filed and approved in advance. “Depending on the state regulator–some are more difficult than others–that could mean a delay,” he says. “The good news, though, is [the regulatory process] is relatively predictable, and companies can take that into 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 insurance companies dealing with 50 different state regulators, all with their own filing requirements. Some states make it easy to file, and some make it very difficult, according to Boyd Adams, assistant vice president, state filings, with XL America Group.

When the business side prepares to introduce a product, Adams looks for ways to get the product through the state insurance departments as quickly as possible. “We look at whether the state has any speed-to-market filing guidelines so we can go through its checklist, statutes, laws, and regulations and go through our product to comply with the state's insurance laws,” he says. “The better we can do that, the more quickly we can get a product approved in a state.”

Product developers with XL will look to the regulatory services group within the product development process to make sure the product will meet the state requirements, explains Adams. “A lot of times [developers] will give us the policy and endorsements and ask us what needs to be done to gain compliance,” he says. The filings group studies the state laws and regulations and drafts mandatory endorsements so the policy will meet the state's needs. The filing group also studies the rates to ensure compliance with state requirements. “We'll look at [the policy] with a compliance eye,” he says.

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

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

Johnsen doesn't believe regulatory matters are the critical issue for insurers. Rather, delays often are caused by the systems insurers are using. Companies have the ability to get products launched faster, but something else may be holding the process up, he explains. “Testing might be delayed, or the marketing materials might not be ready, or training the sales staff might not be in place,” 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 heard the demand for electronic filing and offers SERFF, which Adams maintains has been extremely helpful in a lot of states. “It actually has increased our turnaround time for approval,” he says. “A lot of states will look at a SERFF filing before they look at a paper copy of the filing. We try to get all our filings out by utilizing SERFF.”

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

Looking Ahead

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