There may be nothing new under the sun, but in the world of new products for personal lines, carriers are certainly making it appear that way. The research and advisory firm Strategy Meets Action has released a report: Product Development: Insurer Plans and Priorities and the author, SMA partner Karen Furtado, discovered the problems that plague carriers in this area and what they plan to do about it in the next three years.
The competitive challenges in the personal lines market—particularly personal auto—have created an upsurge in new products to the point where it seems like there is a new policy for each customer, according to Furtado.
"Look at something like vanishing deductibles," she says. "That is part of a whole new wave of products. The sophistication behind the differentiation of the competition in personal lines is fierce. The variables are multi-dimensional in rating and personal lines are almost to the point of one-to-one rating."
Insurers have spent a lot of time implementing changes within their core systems, explains Furtado, but legacy systems were not designed with the way the personal auto market has advanced with new products.
"How do we understand the requirements and get it into a flexible system," she asks. "External rating systems help, but more and more we see both policy administration and rating systems coming together and offering product configuration capabilities so the rate can be configured without the paradigm construct of previous policies. Today the questions are: Do you want a deductible? How do you want it to work? Before, the question would be: How do you want the deductible to work?"
Insurers always want to increase their speed to market with new policies and the report shows there is reason for concern. The report lists the average implementation time for new products as 7.7 months with only 28 percent of new products implemented within 120 days.
"What is taking insurers so long to implement?" she asks. "If they are going to spend an average of 7.7 months to implement a new product in this hypercompetitive environment, that is a long period of time."
So, who has it easier in the ability to get a new product to market? Surprisingly, Furtado believes it might be easier 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 specialty lines books of business, so they have a lot of products," she says. "They are well behind. They are taking 11.2 months to implement a new product."
Furtado points out that it is difficult for a carrier to gain much traction from a new product if it takes more than half a year to reach the point where agents can actually sell policies.
"It takes from six months to over a year for over 80 percent of their new products," she says. "They are the most challenged, typically because of the product mixes and the grouping of insurers that tend to be super-regional to small national carriers."
New product development has been one of the sleeper areas in insurance IT budgets, points out Furtado. The report showed that 29 percent of insurance IT budgets is spent on new product implementation and the maintenance of existing products and the number will be going up significantly.
Fifty-four percent of insurers will increase project spending for product changes in 2013 and 70 percent will increase spending in the period of 2014-2016. Twenty percent expect to increase spending significantly (more than 20 percent) in that period.
"To go from such a flat [spending] number to almost 70 percent increase in investing in the future for product development and configuration is a huge jump," she says.
"We feel we were at a tipping point and the survey information certainly echoes that. There is a shift when we talk about what those systems will look like in the future and the requirements," adds Furtado.
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