The Need for Speed
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Insurance Networking Magazine - September 2002
by: Therese Rutkowski
Bringing new insurance products to market can take two years
or more. New technology and regulatory reform aim to shorten that
cycle time.
At a June hearing before a subcommittee of the U.S. House of Representatives,
Joseph J. Gasper, president and COO of Nationwide Financial Services
Inc., gave a telling example of the regulatory hurdles insurers
face when trying to launch new products.
It went like this: Nationwide had developed a new annuity last
year for contract owners interested in market timing. The Columbus,
Ohio-based insurer filed countrywide for product approval, but
seven months later, approval was still pending in five states—four
of which were major markets for the new product.
"You may be saying to yourself, approval in over 40 states
in seven months is not that bad," Gasper told the subcommittee.
But "the truth is, to sell this product on a national basis
and still comply with individual state requirements, Nationwide
had to create 35 separate, state-specific contracts," he
said.
Nationwide's example typifies the regulatory environment insurance
companies face when launching new products, while their competitors—namely
banks—are able to obtain regulatory approval in a few months.
With insurers facing stiffer competition from banks and brokerage
firms in the deregulated financial services industry, state regulators,
legislatures and Congress are under pressure to reform insurance
regulation (see article, page 16).
Technology Barrier
Yet, as frustrating as the state regulatory process is to carriers,
it isn't the only obstacle they face in bringing products to market
quickly. Insurers also must overcome internal technology barriers
to product development.
"I know of examples where the difficulty and cost of changing
a legacy system (to develop new insurance products) have put carriers
literally decades behind," says Neil Betteridge, director
of product marketing at Toronto-based Castek Inc.
Castek is one of several insurance software providers that have
developed "product configuration" tools—which
usually reside in their policy administration systems.
These tools enable carriers to develop new products in days or
weeks rather than many months or even years. According to Castek,
these tools accomplish this by "taking IT off the critical
path."
Typically, product configuration tools use component-based technology
and a graphical user interface, which make it easy for a business
analyst to select from various parameters to define a new product—parameters
such as policy type, coverages, limits, loss valuation bases,
peril inclusions and exclusions, usage rules, and rating requirements.
"The ability for the business user to define what products
they want to take to market is in stark contrast to the typical
legacy environment where most of the definitions about the products—and
rules about how they're being sold—are buried in the old
COBOL code," Betteridge says.
"The downside to having rules buried in COBOL code is that
as soon as you want to change them, it's time to start writing
IT service requests and count the number of months—if not
years—it will take for the changes to be made," he
says.
If an insurer wants to offer a new line of business without using
a state-of-the-art product configuration tool, the process is
long and arduous, says Berney Bradley, underwriting product director
for Sirius Financial Systems Inc., Englewood, Colo., which offers
a tool called Product Builder.
After a business analyst determines what data to capture, typically
a programmer develops that capability along with a database, screens
and logic, he explains. Then, the program is packaged, compiled
and released to the customer.
"The problem with that scenario is that every time the customer
notices something's not quite right—which is typical in
the early stages—they have to go back through that same
development process," he says. "So there are delays."
Using Sirius' Product Builder, on the other hand, a "power
user" (someone who knows Microsoft?s Visual Basic) can create
the data model, screens, and rating rules, as well as test and
tweak the application dynamically, Bradley says.
Rapid Modification
Sherwood International claims an insurer can enter a new market
in 100 days using its recently released Amarta LIFE FastStart—a
product aimed at small to medium-sized insurers, which is based
on the company?s business process management technology called
Amarta.
After the initial product is developed, the next one can be released
in three days using Sherwood's technology, says Steven Bessellieu,
president, North America, of the London-based firm.
Such rapid deployment is possible because once a business analyst
has populated a model with data, that same model can be copied—and
easily modified—to develop a secondary product comprising
different parameters, he explains. In addition, business users
don?t have to wait for code to be generated or tested. "The
solution generates the code for you," Bessellieu says.
The flexibility of product configurators is helping carriers
respond quickly to business needs and market changes.
For example, South Africa?s largest life insurer used the Amarta
development tool to create a set of new products, but found that
the distribution channel it had planned to use—a large bank—disappeared
at the last minute when the bank found an unexpected merger partner.
Within a few weeks, the product components were rearranged—including
the commission, premium collection and distribution aspects, enabling
the new products to be launched through a broker channel.
Similarly, LifeHelp Insurance Administrative Services, a Redding,
Calif.-based third-party administrator of group life and health
products, recently implemented a new policy administration system
from AdminServer Inc., Malvern, Pa. The system includes a product
configuration tool.
The tool will enable LifeHelp to add a carrier or product in
one to three months—depending upon the complexity of the
product, says Rob Hickman, LifeHelp vice president of marketing
and sales. Without this tool, it would take LifeHelp, at best,
six to 12 months to develop a new product—assuming the old
system could have handled it at all, he says.
More Data
Beyond improving product design cycle time, product configuration
tools enable carriers to manage their businesses with more agility,
software suppliers say.
"Let's say you write homeowners insurance, and a hurricane
is coming along the Carolina coast," Sirius' Bradley says.
"You can very easily determine at 11 a.m. that it's time
to shut down new homeowners' policies on the Carolina coast, and
you can bring up the rule set, add the modification to decline
anything in these territories, hit 'save,' and by noon, it's in
your system," he explains.
Similarly, carriers can quickly and easily change referral rules,
as well as capture data for statistical analysis to make better
underwriting decisions, Bradley adds.
"When I was an IT manager, a lot of times we'd say, 'Gee,
if we just had this one piece of data about our policies, we might
find there's a link to loss ratio.' But it"s always been
too expensive for a company to go through the lengthy system modifications
to explore those possibilities. 'Before, we'd say, 'Is it worth
$90,000 to see if this one (factor) makes a difference? No. It's
not,'" Bradley says. With a product configuration tool, a
carrier can ask: Is it worth a half hour of somebody's time to
add the data field? "Sure it is," he says.
Policy-makers address insurers' speed-to-market concerns
Ever since Gramm-Leach-Bliley passed in November 1999, momentum
has been building to reform the state-based insurance regulatory
system. The landmark legislation, which allows banks, insurers
and brokerages to merge and compete with one another, also ordered
the states to enact uniform producer licensing laws and protect
consumer privacy.
Yet, other than addressing these two issues, the law essentially
left insurance regulation alone—under state jurisdiction.
And, according to many in the industry, the patchwork, state-based
system of insurance regulation puts insurers at a disadvantage—especially
when they're trying to compete nationally with banks and brokerages.
Nationwide Financial Services Inc., for example, offers a modified
guaranteed annuity, which is registered with the U.S. Securities
and Exchange Commission. The product is designed to compete with
bond funds offered by mutual fund companies, according to Joseph
J. Gasper, president and COO of the Columbus, Ohio-based company.
Speaking in June before a subcommittee of the U.S. House of Representatives,
Gasper said Nationwide cannot sell this particular product nationally—although
it has been approved in 45 states—because some states prohibit
the contract design or require such costly system changes that
Nationwide cannot justify making them.
The States Respond
"The issue that seems to be at the front of all the debate
is the speed-to-market issue—product regulation," says
Wesley Bissett, vice president of state government affairs, at
the Independent Insurance Agents and Brokers of America (IIABA),
Alexandria, Va.
Since the passage of GLBA, the National Association of Insurance
Commissioners (NAIC) has been aggressively working to modernize
the state-based system. Addressing speed-to-market concerns is
high on its agenda.
For example, the Kansas City, Mo.-based association implemented
an electronic product-approval filing system called the System
for Electronic Rate and Form Filings (SERFF). All 50 states and
the District of Columbia have SERFF licenses, and 500 companies
are now filing with the states using SERFF, according Terri Vaughn,
Iowa's Commissioner of Insurance.
According to the NAIC, its initiatives are working to reduce
costs and approval time for carriers. "One company told us
that with SERFF, its cost per filing has dropped from $38 down
to less than $10 per filing," Vaughn told the subcommittee.
And the average turnaround time for a filing submitted through
SERFF is 16 days, she claimed.
The NAIC also is focused on developing an interstate compact
that would define uniform standards for annuities, life insurance,
disability, and long-term care product lines. The compact would
also establish a central clearinghouse for insurers seeking to
introduce these products on a national scale.
In those states that adopt the compact, insurers would file with
the new entity, instead of filing with each state and waiting
for review and approval. It's possible the NAIC would also establish
a compact for property/casualty lines, sources say.
The problem with addressing speed to market through an interstate
compact or any other state-based initiative is the process is
inherently time-consuming, IIABA's Bissett notes. Each state will
have to review the compact and adopt it, whereas Congressional
action would be faster. As a result, Congress may take action
by using its preemptive authority over state's prior approval
laws, he says.
"It's very clear that leaders on Capitol Hill view the current
system as inefficient, paper-intensive, arbitrary, time-consuming,
and they want to see change," he says. "If the states
can do it, great. But we certainly got the impression (at the
subcommittee hearings in June) that Congress is ready to take
some action itself."
This article orginally appeared in the September 2002
issue of Insurance
Networking Magazine. Reprinted by Permission.