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product development methodology. III. Istanbul Insurance Conference – 25th May 2011 Jürgen Brucker. Agenda. Introduction of Munich RE Framework for product development methodology General methodology for product development Product development process in the insurance industry Example.

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product development methodology

product development methodology

III. Istanbul Insurance Conference – 25th May 2011

Jürgen Brucker

agenda
Agenda

Introduction of Munich RE

Framework for product development methodology

General methodology for product development

Product development process in the insurance industry

Example

executive summary
Executive Summary

The Turkish insurance market is and will be experiencing substantial change over the next years. From today's perspective, this change will take place in an evolutionary manner with a multitude of smaller changes rather than few "big bang" events. It should be the aim of any INSURANCE COMPANY not only to participate in this development but aspire to actively shape it in selected and profitable fields by stepping up its innovation efforts.

Product development can be a costly and time-consuming task with a high risk of failure. Whilst success is not guaranteed, the risk of failure is reduced considerably if an appropriate and efficient new product development (NPD) process is used.

This presentation outlines key product development process issues which will lead to a greater likelihood of success.

added value within the group diversified structure more security
25th May 2011

Belgium

Added value within the groupDiversified structure – more security

Munich Re (Group)*

Reinsurance

Munich Health

Primary insurance

Asset management

*This listing is incomplete and provides no precise indication of shareholdings.

strategy best business model for each risk segment
Strategy Best business model for each risk segment

Munich Re Group

RISK MANAGEMENT

Strong integrated risk management with proven track record in financial crisis

1

INVESTMENTS

Well-diversified portfolio based on strictly limited risk appetite

2

3

CAPITAL MANAGEMENT

Sound capitalisation

provides strategic flexibility

Munich Re’s business model [Illustrative]

Specialtycommercialsolutions

Personal

specialtysolutions

Traditional reinsurance solutions

Large individual risks solutions

Standard retailsolutions

Risk

capacity

Distribution

power

Risk

know-how

Source: Group Development

slide7

New products in this context means products new to an Ins. company

FRAMEWORKGENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE

Definition of new products

  • Products new to the world (e.g. cyber insurance cover)
  • Products new to the Turkish market (transfer of products from other markets)
  • Products new to an Ins. Company (already available in Turkish market)
slide8

The “right” product development methodology strongly depends on five major factors

FRAMEWORKGENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE

Local Regulations

3

Customer Needs

Region and Market

4

2

Type of Industry

1

Company Strategy

5

INFLUENCE

Product Development Methodology

slide9

Product life cycles in the insurance industry follow an atypical pattern

FRAMEWORKGENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE

Type of Industry

1

Typical life-cycle of a consumer product

Typical life-cycle of an insurance product

Product AFirst generation

Sales volume

Sales volume

Product BSecond generation

Time

Time

A typical consumer product has a limited life and is replaced by the next product generation.

An insurance product has not necessarily a limited life. Modifications of the product usually prolong the product life.

slide10

The Turkish market has huge potential – effective product development is essential to fulfill future needs

FRAMEWORKGENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE

Region and Market

2

GERMANY

TURKEY

Stage of economic development - income level

  • Fast growing market
  • GDP per capita: USD 10,0791)
  • Regional disparities
  • Mature market, low growth
  • GDP per capita: USD 41,000
  • Reform of health insurance and pension system needed
  • Reduction of government welfare spending needed
  • Highly competitive Non-Life market

Major economictrends affecting ins. industry

  • Increase of wealth in western TR
  • Large infrastructure projects
  • Change of social security in mid term
  • Low public awareness of insurance
  • Historic need to self-insure / family back-up
  • Low savings ratio
  • High awareness of insurance products
  • High uncertainty avoidance

Culture

  • Insurance penetration2): ~ 1%
  • L+NL Ins. density3): USD 110
  • Motor Insurance dominates Non-Life (55%)4)
  • Growth of Health & Life business

Development of the insurance market

  • Insurance penetration: ~ 7%
  • L+NL Ins. density: USD 2,900
  • Market saturation in Non-Life

1) Data source: IMF(2009); 2)Insurance penetration: percentage of insurance expenses of net income; 3) Insurance density: annually insurance expenses per capita; 2) 3) 4) Data source: 2010 TRSB

slide11

Liberalization of insurance markets impacts the product development of primary insurers

FRAMEWORKGENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE

Local Regulations

3

GERMANY

TURKEY

Products (Contract Wording and Tariffs) need to be approved by the regulator

Since 2007 (Revised Insurance Law)

Liberalisation of product development (exception: “concerning public interests”, e.g. compulsory insurance, newly-developed life products)

Until 1994

Products developed by German Insurance Association (GDV)

Approved by the German Insurance Control by releasing the Business Plan (former BAV – now BAFin)

Therefore nearly uniform products for all insureds

Since 1994

According to the 3rd EU Directive for the Non-Life insurance industry no necessity of approval prior to the release

slide12

Client needs substantially differ between China and Germany

FRAMEWORKGENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE

CustomerNeeds

4

GERMANY

TURKEY

  • Property insurance due to increasing accumulation of personal assets (buildings, household etc.)
  • Insurance protection of infrastructure and power projects to attract investors
  • Channelling of savings, offer attractive investment returns to customers
  • Mainly demand for basic mass products
  • Most Non-Life insurance needs are covered due to relatively high insurance penetration
  • Growth potential for pension funds, Life insurance products (accumulation of capital, retirement provisions)
  • Increasing need for old age protection (demographic changes)
  • Mainly demand for sophisticated products (liability, D&O, etc.)
slide13

First mover and innovator need strong product development skills

FRAMEWORKGENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE

CompanyStrategy

5

Follower

First Mover

Innovator

  • No attempt to improve / focus on ‘me too’
  • Concentrates on price of
  • offer
  • Capitalise on perceived high
  • prices of innovative products
  • Revenue through high
  • volume at low margins
  • Offer of low price alternative
  • Establish low cost delivery systems
  • ?
  • Learn from first movers
  • Build a better solution
  • Free ride on customer
  • awareness
  • Lower R&D costs
  • Less new product failures
  • Easy to improve existing
  • concepts
  • Analytical skills
  • Adapt and improve
  • Microsoft
  • Identify new customer needs
  • Invent new solutions
  • Invest in new approaches
  • Market leadership
  • Early high profits
  • Set industry standards
  • Creates entry barriers
  • Shape consumer preferences
  • Focus on customer needs
  • Original research
  • Probably heavy R&D and launch costs
  • 3 M

Definition

Achievement

Requirements

Best PracticeExamples

slide15

In transparent product development processes potentiallylead to sub-optimal outcomes

FRAMEWORKGENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE

Often-seen new product development issues …

  • No clear process
  • Many interest groups try to influence the outcome (political issues), uncoordinated
  • No clear responsibility for the process
  • Promising ideas are not developed
  • Outcome is sub-optimal
  • Inefficiency in the product development process (time & resources)

Source: Wheelwright, S. / Clark, K. (1992): Revolutionizing Product Development.

slide16

Product development processes in the consumer industry follow stringent rules

FRAMEWORKGENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE

General new product development process from Cooper

Pre-Commercialisation Business Analysis

Post- Implementation Review

Second Screen

Initial Screen

Decision on Business Case

Post- Development Review

Stage 1

Stage 2

Stage 3

Stage 4

Stage 5

Gate 1

Gate 2

Gate 3

Gate 4

Gate 5

Detailed Investigation (Build Business Case)

Testing & Validation

Full Production & Market Launch

Preliminary Investigation

Development

Idea Generation

  • Clear process
  • Clear decision points and responsibilities

Source: Cooper (2000): Product Leadership - Stage-Gate™ is a trademark of RG Cooper & Associates Consultants, Inc.

slide17

Only two out of one hundred ideas are launched

FRAMEWORKGENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE

New product development funnel

Stage 1

Stage 2

Stage 3

Stage 4

Stage 5

Gate 1

Gate 2

Gate 3

Gate 4

Gate 5

Detailed Investigation

Testing & Validation

Full Production & Market Launch

Preliminary Investigation

Development

Idea Generation

slide18

Beginning with the development stage, product development costs grow rapidly

FRAMEWORKGENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE

Typical curve for product development costs

Product Development Costs

Time

Gate 1

Gate 2

Gate 3

Gate 5

Stage 4

Gate 4

Stage 3

Stage 5

Stage 1

Stage 2

Testing & Validation

Full Production & Market Launch

Detailed Investigation

Preliminary Investigation

Development

Idea Generation

slide20

A typical product development process in the insurance industry can be split into four phases

FRAMEWORKGENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE

Concept Phase

Design Phase

Internal Ideas

Idea

Generation

In-depth

Investigation

Product

Development

Screening/

Prioritisation

External Ideas

Launch Phase

Monitor Phase

Post

Implementation

Review

Final

Market Testing

Maintenance

Commercialisation

most of the initial ideas are sorted out in the concept phase
Most of the initial ideas are sorted out in the concept phase

FRAMEWORKGENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE

Concept Phase

Design Phase

Internal Ideas

Idea

Generation

In-depth

Investigation

Product

Development

Screening/

Prioritisation

External Ideas

100

100%

100

10

10%

30%

70%

3

Launch Phase

Monitor Phase

Post

Implementation

Review

Final

Market Testing

Maintenance

Commercialisation

70%

2

2

70%

>90%

2

X %

Carry-on rate

Number of ideas

X

Source: Munich Re, McKinsey

slide22

Product Development Unit

Marketing

Business Unit (BU)

Sales

IT

Other Departments (Legal, Tax, Accounting, Claims etc.)

The product development department is in charge of managing interdisciplinary teams

FRAMEWORKGENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE

Concept Phase

Design Phase

Internal Ideas

Idea

Generation

In-depth

Investigation

Product

Development

Screening/

Prioritisation

External Ideas

Launch Phase

Monitor Phase

Post

Implementation

Review

Final

Market Testing

Maintenance

Commercialisation

slide23

1. Stage: Idea generation

FRAMEWORKGENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE

Internal Ideas

Concept Phase

Design Phase

Launch Phase

Monitor Phase

Post Implement.

Review

Final

Market Testing

In-Depth

Investigation

Product

Development

Idea

Generation

Screening/

Prioritisation

Commercialisation

Maintenance

External Ideas

Description of Process Step:

Key Success Factors:

  • Set incentives for new ideas
  • Company culture
  • Make use of external idea market
  • Accept and allow failures
  • Set filters for selection/prioritization
  • Clear company strategy
  • Internally create awareness for new activities/products within BUs and distribution channels
  • Analysis of developments changing/threatening the core business
  • Continuous assembly of promising ideas/products from various sources
  • Professional administrative handling of opportunity flow. Proactive screening of all incoming ideas
  • Challenging of ideas together with business units and distribution channels
  • Outcome:
  • Long list of ideas (internal and external)
slide24

2. Stage: Screening/prioritisation

FRAMEWORKGENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE

Internal Ideas

Concept Phase

Design Phase

Launch Phase

Monitor Phase

Post Implement.

Review

Final

Market Testing

In-Depth

Investigation

Product

Development

Idea

Generation

Screening/

Prioritisation

Commercialisation

Maintenance

External Ideas

Description of Process Step:

Key Success Factors:

  • Screening of business idea/product and involve affected BU for general information and early feedback
  • First evaluation and assessment of proposal along key criteria, e.g.:

- Strategic relevance - Market potential and readiness- Feasibility

Outcome:

  • Short list of most promising ideas with involvement ofBUs and Sales.
  • Identified sponsor
  • Identify sponsor
  • Process owner: Product development department to guarantee an efficient use of resources (minimization of redundancies)
  • Use strategic goals as filter (i.e. do not follow ideas that do not meet the strategic objectives)
slide25

3. Stage: In depth investigation

FRAMEWORKGENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE

Internal Ideas

Concept Phase

Design Phase

Launch Phase

Monitor Phase

Post Implement.

Review

Final

Market Testing

In-Depth

Investigation

Product

Development

Idea

Generation

Screening/

Prioritisation

Commercialisation

Maintenance

External Ideas

Description of Process Step:

Key Success Factors:

  • Detailed concept development and opportunity assessment regarding:- Strategic impact- First testing of product idea- Market analysis (structure/size, competitive landscape, acceptance) - Key factors of success, e.g. Like/Dislike, price acceptability, buying intention, IT-implications- Estimates of sales, costs and profit, incl. - Break-Even-Analysis and Sensitivity Analysis

Outcome:

  • Business Case (incl. opportunity assessment)
  • Proposal for the Management (Committee)
  • Top Management commitment and support
  • Clear end product responsibility
  • Allocation of relevant project staff for design phase (e.g. Marketing, IT, Accounting, BUs, Sales and Product Development Department)
  • Allowing views of customers and intermediaries to enter product development at an early stage
slide26

4. Stage: Project development

FRAMEWORKGENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE

Internal Ideas

Concept Phase

Design Phase

Launch Phase

Monitor Phase

Post Implement.

Review

Final

Market Testing

In-Depth

Investigation

Product

Development

Idea

Generation

Screening/

Prioritisation

Commercialisation

Maintenance

External Ideas

Description of Process Step:

Key Success Factors:

  • Establish multi-disciplinary team (Product Develop- ment, BUs, Sales, Marketing, IT)
  • Develop product specification (wording, policy, UW- and claims guidelines, renewal, commission, licensing, statistics and reinsurance)
  • Check IT-systems and accounting
  • Define communication strategy (internal communication, product and sales brochures for agents/brokers and clients, advertising, PR)
  • Develop training (targeted audiences, contents, persons)
  • Update and/or fine-tune project plan and budget
  • Finalize marketing plan

Outcome:

  • Fully developed Business Plan incl. marketing plan, financial model, assessment documentation and terms and conditions
  • Clear process, guidelines and responsibilities (sub-projects)
  • Central depository
  • Go / No Go decision (final commitment) by the Board of Management
slide27

5./6. Stage: Final market testing / Commercialisation

FRAMEWORKGENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE

Internal Ideas

Concept Phase

Design Phase

Launch Phase

Monitor Phase

Post Implement.

Review

Final

Market Testing

In-Depth

Investigation

Product

Development

Idea

Generation

Screening/

Prioritisation

Commercialisation

Maintenance

External Ideas

Description of Process Step:

Key Success Factors:

  • Final Market Testing:
  • Test marketing in at least one geographical area
  • (chosen to be representative of intended market)
  • Commercialisation:
  • Product delivery
  • Training
  • Communication (internal and external)
  • Product replacement strategy (in case of product substitution)
  • Contingency plans for disengagement or expansion
  • Define time for product review
  • Outcome:
  • Launched product
  • Final critical “Casting” under fair and true conditions
  • Stick to given timeframe
  • Inform all relevant parties in case of unforeseen changes (up to Top Management, if necessary)
slide28

7./8. Stage: Post implementation review / Maintenance

FRAMEWORKGENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE

Internal Ideas

Concept Phase

Design Phase

Launch Phase

Monitor Phase

Post Implement.

Review

Final

Market Testing

In-Depth

Investigation

Product

Development

Idea

Generation

Screening/

Prioritisation

Commercialisation

Maintenance

External Ideas

Description of Process Step:

Key Success Factors:

  • Post implementation review:
  • What went wrong and how can we avoid this in the future?
  • What went well and how can we improve it?
  • What went really well and is worth repeating in the future?

Maintenance:

  • Compare results with planning figures
  • Satisfaction research, e.g. UW, claims, agents/brokers, clients
  • Market research: How do competitors react?
  • Outcome:
  • Summary and report about finalized project which
  • includes performance measurement against project
  • goals and targets. Take action if necessary
  • Use standardised questionnaires and establish “Best Practice Manual”
  • Examine project processes (not product!) to learn for future projects
  • Maintenance is a revolving process, review at least once a year
conclusion
Conclusion

FRAMEWORKGENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE

In conclusion

Product development in the insurance industry is complex and challenging

Need to establish and maintain comprehensive and rigorous processes for Product Development

Methodologies are available, but have to be adjusted individually

recommendation how to fulfill objectives project roadmap
Recommendation how to fulfill objectives: Project Roadmap

FRAMEWORKGENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE

PRODEM

Analysis of

Actual State

(Status Quo)

Process

Develop

Implementation

Plan

Ins. Comp.

Decision

Joint Insurance company and Munich Re project team

(approx. 3~5 staff Ins. Comp. and approx. 3~5 staff Munich Re)

Resources

Duration

approx. 3~5 months

  • Understand strategy
  • Understand customer needs
  • Analyse NPD1) process and organisational set-up
  • Screen past products
  • Screen market regulations
  • Comparison with best practices
  • Define key criteria for NPD
  • Define key success factors

To Do’s

  • Presentation to Ins. Comp.’s Board of Management
  • Adjust implementation plan if necessary

Adopted implementationplan

Outcome

SWOT Analysis

Implementation plan for “new” NPD process

Current

NPD process overview

1) NPD – new product development

recommendation how to fulfill objectives project roadmap1
Recommendation how to fulfill objectives: Project Roadmap

FRAMEWORKGENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE

PRODEM

PRODEM

Implementation

Process

New Product

Development

Review

Ins. Comp.

Ins. Comp./Munich Re project team

Joint team

Resources

approx. 2~3 months

approx. 3~4 months

Duration

~ 1 month

  • Realise implementation plan
  • Establish and fine-tune core process
  • Establish co-operations and
  • interfaces

To Do’s

  • Identify Ins. Comp.’s innovation focus and currently most promising opportunities
  • Practice newly implemented process and develop one~two new products
  • Joint review of NPD process implementation
  • Report to Ins. company Board of Management

Outcome

Implemented “new” NPD

methodology

Finalized “new”NPD methodology

New products

launched

1 NPD – new product development

proposal for team member profiles
Proposal for team member profiles

FRAMEWORKGENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE

PRODEM

PRODEM

China Life

project

team

members

  • 1 Project Manager:
  • Experienced in coordinating international teams
  • Excellent Turkish company in-house “networker”
  • Languages: English and Turkish
  • 2 ~ 4 Experts:
  • 1~2 Product Developers
  • 1 Sales expert
  • 1 Marketing expert
  • 1 IT expert
  • All experts should have been involved in recent new product developments and should speak English

Team members corresponding to objective; adjusted for additional experts depending on the product scope

MRproject

team

members

  • Experts:
  • Experience in evaluating/building new business ideas and developing these into actionable business proposals
  • Know-how about the Turkish market and customer needs
  • In-depth property insurance know-how
  • Specific insurance know-how depending on product scope
  • Languages: English, Turkish desirable
  • 1 Project Manager:
  • Experienced in coordinating international teams
  • Responsibility for client liaison
  • Languages: English and Turkish
  • 2 ~ 4 Consultants:
  • Experience in conducting fact-based analyses in a business process context
  • Able to manage a range of complex audits
  • Languages: English, Turkish desirable