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. 2. 3. 4. 5.
coming up with a product idea researching the idea designing and planning Implementing 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mature markets Competitors’ new products Reinsurers Intermediaries Consumer focus groups Gap in existing product range Outdated / unprofitable / excessively risky existing products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. 2. 3. 4.
the need for the company to make a profit the need to be competitive The need to offer value to the clients 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/nonsmokers, 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