Big Insurers Drive Innovation in Product Configuration: SMA

Insurers are increasingly looking to product development excellence as a key to competitive differentiation, and as a result many plan to increase their spending on the capability, according to research from advisory firm SMA.

Companies are taking two approaches to software selection, according to SMA partner Karen Furtado. "One is what I call end-to-end product configuration: the policy admin system does more of the work. There might be a wizard to help you build a product that tries to be very intuitive: You can reuse content or other elements of products you've already created.

"The other is a core product configurator, where the policy admin system makes a call out" to a system for coverage, rate, rule, and forms triggering information, she adds. "It gives you the holistic view of the product."

Both approaches are defined by a desire to make life easier on business end-users, who are on the front lines for pressures around speed to market and product innovation, Furtado says. The idea is to get programmers out of the product development process and centralize it for generalists due to frustration with the length of time and amount of IT resources required to make changes, she adds. Results from SMA's survey of 157 insurance executives found the biggest pain points in product development were in these areas, regardless of the size of the company:

• "Changes are required that impact multiple systems" was the top challenge identified by Tier 1 (greater than $5 billion in revenue, 67%), Tier 3 ($250 million to $1 billion in revenue, 73%), and Tier 4 insurers (less than $250 million in revenue, 55%); and was second among Tier 2 insurers ($1 billion to $5 billion in revenue, 67%).

• "Lack of IT resources to support implementation of the changes" was identified as the second-biggest challenge faced by Tier 1 and Tier 4 insurers, and was third-biggest for Tiers 2 and 3.

• "Timeliness of implementation changes in the IT system" was the biggest Tier 2 complaint, second for Tier 3 and third for Tier 4.

"The definite feeling is that these capabilities should be in the hands of the users. Right now it's so decentralized that if you want to make a change, there's so many people involved because it has a lot of tentacles within the system," Furtado explains. "Both approaches do get the point where the ultimate outcome is business users making configurations themselves."

This product focus is relatively new to P&C insurers, Furtado notes. The largest companies, looking for ways to stand out in a heavily advertised, ultra-competitive environment, are continuously looking for an edge to stand out. This leads to another pain point that is unique to the top lists of the upper-tier insurers: regulatory sluggishness. It also impacts the vendor market as product development engines that include ISO content becomes increasingly valuable so as to speed up regulatory compliance with new products.

"It's the big companies that are driving the bus, but take things like 'vanishing deductible:' That's not easy to program," she says. "And at the same time regulatory content is more of a nuisance. When you have ISO content available in a readily consumable type of format, you have a jumpstart and can go ahead with implementations much faster."

In this way, SAP's acquisition of the product engine Camilion and Insurity's buy of AQS this year illustrate the zeitgeist around product development well: Core insurance system providers identify the need in the upper-tier market for robust product capabilities that incorporate ISO content at a high level.

"And even then, the complexity of the business could drive more of the need than the tier of the customer," Furtado says. "In the $1 billion to $5 billion range you find a lot of specialty companies that are pumping out a ton of product. Having some sort of product configurator is important."

At this year's SMA Summit, P&C and life insurers will join Furtado to discuss how technology allows insurance companies to push the envelope with new product options that were not even conceivable just a short time ago. Register today for the event Monday, Sept. 16, at the Mandarin Oriental Boston.

Nathan Golia is senior editor of Insurance & Technology. He joined the publication in 2010 as associate editor and covers all aspects of the nexus between insurance and information technology, including mobility, distribution, core systems, customer interaction, and risk ... View Full Bio