Life insurance product development …
… a brief overview
Michael Frylinck September 2012
Introduction
Greetings
Objective
Structure
Disclaimer:
The opinions expressed are my own and do not necessarily represent the views of Sanlam or its subsidiaries.
Objective
To give you a brief overview of the product development process
the steps involved,
the methodology used,
the challenges faced
Structure
The structure of this quick information session is completely flexible
Any question should be asked as soon as the uncertainty arises
=> feel free to stop me at any time instead of waiting until the end
Product development process The process consists of the following
stages
1. coming up with a product idea
2. researching the idea
3. designing and planning
4. Implementing
5. Monitoring
Product idea
The new product must:
fill a need or solves a problem
(not already addressed by existing products)
be consistent with company goals and strategies
be legal and not make the regulator unhappy or uncomfortable
Sources of product ideas Inspiration / creative genius
Overseas more mature markets
Competitors’ new products
Reinsurers
Intermediaries
Consumer focus groups
Gap in existing product range
Outdated / unprofitable / excessively risky existing products
Research Determine if it is feasible to develop and
offer this new product
The research includes:
market research
competitor product analysis
identify product risks and constraints, and
speak to many other areas in the company to get their input
(Distribution, competitor intelligence, marketing, legal, tax, valuation, finance, investments, IT, etc)
Designing and planning
Coming up with the product design (inner workings and mechanics)
Developing pricing models
Deciding on the assumptions to use
Set the prices for the product
Decide on the type of and how much reinsurance to use
Ensuring that legal and compliance are happy
Key challenge in pricing & product development
Balancing the following four needs:
1. the need for the company to make a profit
2. the need to be competitive
3. The need to offer value to the clients
4. The need to remunerate the intermediaries.
Cash flow modelling
Life insurance and annuity products are modelled in specially designed actuarial software packages (e.g. Prophet, Moses, )
economic scenarios and actuarial assumptions are tweaked within the models
until the desired answers are produced
Implementation and launch building the product on the various IT
platforms
negotiating reinsurance arrangements
designing marketing and training material for intermediaries
designing quotation systems, application forms and other client facing documents
launching the product in media and to intermediaries
Monitoring Once a product is launched we monitor:
sales levels
business mix (males/females, smokers/non-smokers, underwriting classes, etc.)
actual expenses
on-going profitability
level of risk
Similar products offered by competitors
Purpose: to decide if the product should be changed or stopped.
The Product Development Cycle
The stages listed so far create an on-going cycle
The product development process can move back and forth between each stage as needed
(For example, during the design stage, we can always go back to the research stage if an aspect of the product needs more research)
The following diagram illustrates the cycle
The Product Development Cycle
Questions and answers