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Outdated / unprofitable / excessively risky existing products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