The Product DevelopmentChallenge

Session COM-42

A Personal Lines Perspective

Product DevelopmentPersonal Lines• Brand new program

– New Direct Auto – New Home Warranty

• Improvement current program– New Auto/Home discount– Expanded Rental Car coverage

Product Development• Product Development is one of

the most powerful but difficult activities in business

• A dynamic time when new technical concepts create new opportunities and new threats

Product DevelopmentYears of change in:• Technology• Customer requirements• Channels of distribution• Competitors• Structure of the industry

Changing Times• Time when new demands are

emerging from customers• Time when competitors are

making new unexpected moves• Time when new ways of

competing are emerging

The New Economy• We are in the age of the new

economy• Give customers what they

want or someone else will.• Quality at a competitive price

Product Development• No one “best” approach• Some fundamental principles

involved for success• Company management needs to

foster environment that:– encourages creativity– promotes communications

•within company•between company and customers

Product Development• Chief element of success is top

management commitment– Give control to those responsible– Good working relationship– Careful, constant attention to the

marketplace

Product Development• Risk and rewards of well-

conceived and executed new products can be great

• Risk of inadequate programs, or no program at all, can be high

• You innovate or you disintegrate

Product DevelopmentFirst-To-Market-Myth:

Pioneers can target the largest,

lucrative segments and get ahead start on developing

customerloyalty, thus ensuring success

Product DevelopmentYears back, a stock broker touted:

– World’s biggest chain of highway restaurants

– Pioneer in restaurant franchising and strongly entrenched

– Highest quality investment• What Company was he talking about?

Howard Johnson’s Restaurants, not McDonald’s

Product DevelopmentAnother Example:• RC Cola was first with diet cola• Coca-Cola came out later with Diet

Coke, was able to take leadership away from RC Cola

• Late entrants can leverage brand name and distribution for successful market entry

Product Development• Some basic principles

– Customer data is key to customer relationships•Who is buying that stinky cheese?•Identify/Target niche groups•Data warehousing•Data mining

– Outside market research

Product Development• Some basic principles

– Loyal customers are profitable customers•Tracking retention rates

– How do you get and keep customer loyalty?

Product Development• What is customer loyalty worth?

– Acquisition cost: How much will it cost to get the customer?

– Revenue stream: How much revenue will customer generate over time?

– Cost stream: How much does it cost to serve the customer continuously?

– Duration: How long is the customer expected to generate profit?

Product Development• Insurance product is intangible,

harder to sell than many other consumer products

• Insurance product design faces many of the same problems of other new commercial products– Will it sell?– Will it make money?

Sport Utes Of The Future• Ford, GM bet on SUV hybrids-

Intersection of a Pickup Truck and SUV

Lincoln Blackwood Hybrid

Elements for Success• Need Strong Product

Development Team– Actuary, Agency, Claims,

Forms/Filing Unit, Legal, Marketing, Statistical, Systems, Underwriting

• Most important member of team is the customer

Elements for Success• Need top management support• Need vision, think out of the box• Need good communication• Need organization and

leadership

Elements for Success• Need knowledge of the customer• Need knowledge of industry• Need knowledge of own

company• Need field testing of product

Product Development• How is Personal Lines different

from Commercial Lines?– B2C vs B2B– Price-sensitive– Coverages/Forms more similar

– Not as individualized– More highly regulated

Product Development• What is role of the Actuary?

– Help focus market research– Analyze market/customer data– Help with product design– Evaluate the cost of customer

loyalty– Provide estimate of costs

Product Development• What is role of the Actuary?

– Evaluate underwriting– Develop rates/rules/forms– Filing preparation– Develop pro-forma– Monitor/Track results

Product Development• For company to serve

customers, and distinguish itself from its competitors, it needs an efficient product development team

• Actuary plays vital role on the product development team

• Create loyal customers