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Gail McGiffin, <a href=
Gail McGiffin, Commentary
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What Commercial Insurers Can Learn from Manufacturers

Advances in the manufacturing industry provide a model for insurers to build innovative products.

The globalization and creative disruption within the manufacturing industry have been among the most compelling and instructive business stories of the last several decades. The opening of new markets and extension of supply chains around the world have been both cause and effect of a revolution in operational and strategic practices for makers of automobiles, consumer packaged goods, electronics, apparel and many other types of manufactured goods. Formalized innovation programs based on advanced R&D, sophisticated consumer segmentation and analytics, and robust product life-cycle management (PLM) capabilities fundamentally changed how manufacturers viewed their products, operations and relationships with customers. Some leading-edge firms even came to believe they could determine what consumers wanted before the consumers themselves knew.

Gail E. McGiffin, Ernst & Young
Gail E. McGiffin, Ernst & Young

From lean to Six Sigma to just-in-time inventory management, leading-edge management practices that originated in manufacturing have profoundly influenced many types of companies, especially in response to the “personalization revolution” whereby more demanding consumers expect all kinds of products and services to be tailored to their specific needs.

So what can insurance carriers – and commercial insurers in particular – learn from manufacturers? Commercial carriers can design product architectures along the lines of the “vehicle platform” systems developed by automotive manufacturers. These platforms include a standard set of components, including the drivetrain, engine and chassis, from which they can create product variation. More than just switching out exterior detail and interior features, automotive brands can develop multiple lines of vehicles based on these core assets, with each tailored to different segments of the market. This operational flexibility translates into marketing power and the ability to profitably meet market demands for different categories of vehicles (sedans, SUVs and crossovers). On the price front, they can meet needs on both ends of the spectrum, delivering simpler, less expensive vehicles as well as higher-end, more luxurious ones. For insurers, this “platforming” approach would entail building different classes of products from the same core set of coverage components.

Robust PLM programs are another hallmark of world-class manufacturing organizations, and here too insurers could copy a best practice or two. PLM refers to the entire life span of individual products, from initial inspiration and conception; to design, testing and launch; to ongoing support, refinements and extensions; to replacement, retirement and phase-out. Given the increasingly complex engineering challenges faced by global manufacturers, PLM has become a critical capability. Therefore, PLM programs are supported by robust systems, processes and teams within the enterprise, and they typically reach across functional areas and organizational boundaries.

Insurers today must bring to market a wider range of commercial products tailored to specific market needs. That is why forward-looking carriers have begun to embrace PLM concepts and practices to ensure they identify and maintain all the components necessary to all products, as well as the specific options and elements that can be tailored and the necessary steps to place products in various distribution channels. Perhaps most importantly, insurers must embrace the standardized and integrated common data models that underlie cross-functional, product-related processes.

There can be no doubt that manufacturing has been transformed by the use of high-powered computer-aided design (CAD) systems, leveraging precise data to automate and optimize many phases of product design, including personalization. For insurers the use of advanced analytics tool sets and high-quality data sets can have a similarly transformative effect.

The bottom line is that when it comes to product development, the commercial insurance sector has a great deal to learn – and many best practices to emulate – from the manufacturing industry.

About the Author: Gail McGiffin is a principal within Ernst & Young's insurance practice.

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