Life insurance product development

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mature markets Competitors’ new products Reinsurers Intermediaries Consumer focus groups Gap in existing product range Outdated / unprofitable / excessively risky existing products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