Presentation on theme: "product development methodology"— Presentation transcript:
1 product development methodology III. Istanbul Insurance Conference – 25th May 2011Jürgen Brucker
2 Agenda Introduction of Munich RE Framework for product development methodologyGeneral methodology for product developmentProduct development process in the insurance industryExample
3 Executive SummaryThe 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.
4 Added value within the group Diversified structure – more security Munich Re (Group)*ReinsuranceMunich HealthPrimary insuranceBelgiumAsset management*This listing is incomplete and provides no precise indication of shareholdings.25th May 2011
5 Strategy Best business model for each risk segment 14. April 2017Strategy Best business model for each risk segmentMunich Re GroupRISK MANAGEMENTStrong integrated risk management with proven track record in financial crisis1INVESTMENTSWell-diversified portfolio based on strictly limited risk appetite23CAPITAL MANAGEMENTSound capitalisationprovides strategic flexibilityMunich Re’s business model [Illustrative]Specialty commercial solutionsPersonalspecialty solutionsTraditional reinsurance solutionsLarge individual risks solutionsStandard retail solutionsRiskcapacityDistributionpowerRiskknow-howSource: Group Development
6 2. Framework for product development methodology 14. April 20172. Framework for product development methodology
7 Definition of new products 14/04/2017New products in this context means products new to an Ins. companyFRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLEDefinition of new productsProducts 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)
8 Product Development Methodology 14/04/2017The “right” product development methodology strongly depends on five major factorsFRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE3Local Regulations2Region and MarketCustomer Needs41Type of IndustryCompany Strategy5INFLUENCEProduct Development Methodology
9 14/04/2017Product life cycles in the insurance industry follow an atypical patternFRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLEType of Industry1Typical life-cycle of a consumer productTypical life-cycle of an insurance productProduct A First generationSales volumeSales volumeProduct B Second generationTimeTimeA 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.
10 14/04/2017The Turkish market has huge potential – effective product development is essential to fulfill future needsFRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLERegion and Market2TURKEYGERMANYStage of economic development - income levelFast growing marketGDP per capita: USD 10,0791)Regional disparitiesMature market, low growthGDP per capita: USD 41,000Major economic trends affecting ins. industryReform of health insurance and pension system neededReduction of government welfare spending neededHighly competitive Non-Life marketIncrease of wealth in western TRLarge infrastructure projectsChange of social security in mid termLow public awareness of insuranceHistoric need to self-insure / family back-upLow savings ratioHigh awareness of insurance productsHigh uncertainty avoidanceCultureInsurance penetration2): ~ 1%L+NL Ins. density3): USD 110Motor Insurance dominates Non-Life (55%)4)Growth of Health & Life businessDevelopment of the insurance marketInsurance penetration: ~ 7%L+NL Ins. density: USD 2,900Market saturation in Non-Life1) 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
11 14/04/2017Liberalization of insurance markets impacts the product development of primary insurersFRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLELocal Regulations3TURKEYGERMANYProducts (Contract Wording and Tariffs) need to be approved by the regulatorSince 2007 (Revised Insurance Law)Liberalisation of product development (exception: “concerning public interests”, e.g. compulsory insurance, newly-developed life products)Until 1994Products 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 insuredsSince 1994According to the 3rd EU Directive for the Non-Life insurance industry no necessity of approval prior to the release
12 Client needs substantially differ between China and Germany 14/04/2017Client needs substantially differ between China and GermanyFRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLECustomer Needs4TURKEYGERMANYProperty insurance due to increasing accumulation of personal assets (buildings, household etc.)Insurance protection of infrastructure and power projects to attract investorsChannelling of savings, offer attractive investment returns to customersMainly demand for basic mass productsMost Non-Life insurance needs are covered due to relatively high insurance penetrationGrowth 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.)
13 Best Practice Examples 14/04/2017First mover and innovator need strong product development skillsFRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLECompany Strategy5First MoverInnovatorFollowerIdentify new customer needsInvent new solutionsInvest in new approachesMarket leadershipEarly high profitsSet industry standardsCreates entry barriersShape consumer preferencesFocus on customer needsOriginal researchProbably heavy R&D and launch costs3 MLearn from first moversBuild a better solutionFree ride on customerawarenessLower R&D costsLess new product failuresEasy to improve existingconceptsAnalytical skillsAdapt and improveMicrosoftNo attempt to improve / focus on ‘me too’Concentrates on price ofofferCapitalise on perceived highprices of innovative productsRevenue through highvolume at low marginsOffer of low price alternativeEstablish low cost delivery systems?DefinitionAchievementRequirementsBest Practice Examples
15 In transparent product development processes potentially lead to sub-optimal outcomes FRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLEOften-seen new product development issues …No clear processMany interest groups try to influence the outcome (political issues), uncoordinatedNo clear responsibility for the processPromising ideas are not developedOutcome is sub-optimalInefficiency in the product development process (time & resources)Source: Wheelwright, S. / Clark, K. (1992): Revolutionizing Product Development.
16 14/04/2017Product development processes in the consumer industry follow stringent rulesFRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLEGeneral new product development process from CooperSecond ScreenPre-Commercialisation Business AnalysisPost- Implementation ReviewInitial ScreenDecision on Business CasePost- Development ReviewGate 1Stage 1Gate 2Stage 2Gate 3Stage 3Gate 4Stage 4Gate 5Stage 5Detailed Investigation (Build Business Case)Testing & ValidationFull Production & Market LaunchIdea GenerationPreliminary InvestigationDevelopmentClear processClear decision points and responsibilitiesSource: Cooper (2000): Product Leadership - Stage-Gate™ is a trademark of RG Cooper & Associates Consultants, Inc.
17 Only two out of one hundred ideas are launched 14/04/2017Only two out of one hundred ideas are launchedFRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLENew product development funnelPreliminary InvestigationGate 1Gate 2Gate 3Gate 4Gate 5Stage 1Detailed InvestigationTesting & ValidationDevelopmentFull Production & Market LaunchIdea GenerationStage 2Stage 3Stage 4Stage 5
18 14/04/2017Beginning with the development stage, product development costs grow rapidlyFRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLETypical curve for product development costsProduct Development CostsTimeGate 1Stage 1Gate 2Stage 2Gate 3Stage 3Gate 4Stage 4Gate 5Stage 5Testing & ValidationFull Production & Market LaunchIdea GenerationPreliminary InvestigationDetailed InvestigationDevelopment
19 4. Product development process in the insurance industry
20 14/04/2017A typical product development process in the insurance industry can be split into four phasesFRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLEConcept PhaseDesign PhaseInternal IdeasIdeaGenerationScreening/PrioritisationIn-depthInvestigationProductDevelopmentExternal IdeasLaunch PhaseMonitor PhaseFinalMarket TestingPostImplementationReviewCommercialisationMaintenance
21 Most of the initial ideas are sorted out in the concept phase FRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLEConcept PhaseDesign PhaseInternal IdeasIdeaGenerationScreening/PrioritisationIn-depthInvestigationProductDevelopmentExternal Ideas100100%10010%1030%370%Launch PhaseMonitor PhaseFinalMarket TestingPostImplementationReviewCommercialisationMaintenance70%270%2>90%2XNumber of ideasX %Carry-on rateSource: Munich Re, McKinsey
22 The product development department is in charge of managing interdisciplinary teams FRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLEConcept PhaseDesign PhaseInternal IdeasIdeaGenerationScreening/PrioritisationIn-depthInvestigationProductDevelopmentExternal IdeasLaunch PhaseMonitor PhaseFinalMarket TestingPostImplementationReviewCommercialisationMaintenanceProduct Development UnitBusiness Unit (BU)ITMarketingSalesOther Departments (Legal, Tax, Accounting, Claims etc.)
23 1. Stage: Idea generation 14/04/20171. Stage: Idea generationFRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLEInternal IdeasConcept PhaseDesign PhaseLaunch PhaseMonitor PhaseIdeaGenerationScreening/PrioritisationIn-DepthInvestigationProductDevelopmentFinalMarket TestingPost Implement.ReviewCommercialisationMaintenanceExternal IdeasDescription of Process Step:Key Success Factors:Set incentives for new ideasCompany cultureMake use of external idea marketAccept and allow failuresSet filters for selection/prioritizationClear company strategyInternally create awareness for new activities/products within BUs and distribution channelsAnalysis of developments changing/threatening the core businessContinuous assembly of promising ideas/products from various sourcesProfessional administrative handling of opportunity flow. Proactive screening of all incoming ideasChallenging of ideas together with business units and distribution channelsOutcome:Long list of ideas (internal and external)
24 2. Stage: Screening/prioritisation 14/04/20172. Stage: Screening/prioritisationFRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLEInternal IdeasConcept PhaseDesign PhaseLaunch PhaseMonitor PhaseIdeaGenerationScreening/PrioritisationIn-DepthInvestigationProductDevelopmentFinalMarket TestingPost Implement.ReviewCommercialisationMaintenanceExternal IdeasDescription of Process Step:Key Success Factors:Screening of business idea/product and involve affected BU for general information and early feedbackFirst evaluation and assessment of proposal along key criteria, e.g.:- Strategic relevance - Market potential and readiness - FeasibilityOutcome:Short list of most promising ideas with involvement of BUs and Sales.Identified sponsorIdentify sponsorProcess 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)
25 3. Stage: In depth investigation 14/04/20173. Stage: In depth investigationFRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLEInternal IdeasConcept PhaseDesign PhaseLaunch PhaseMonitor PhaseIdeaGenerationScreening/PrioritisationIn-DepthInvestigationProductDevelopmentFinalMarket TestingPost Implement.ReviewCommercialisationMaintenanceExternal IdeasDescription 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 AnalysisOutcome:Business Case (incl. opportunity assessment)Proposal for the Management (Committee)Top Management commitment and supportClear end product responsibilityAllocation 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
26 4. Stage: Project development 14/04/20174. Stage: Project developmentFRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLEInternal IdeasConcept PhaseDesign PhaseLaunch PhaseMonitor PhaseIdeaGenerationScreening/PrioritisationIn-DepthInvestigationProductDevelopmentFinalMarket TestingPost Implement.ReviewCommercialisationMaintenanceExternal IdeasDescription 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 accountingDefine 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 budgetFinalize marketing planOutcome:Fully developed Business Plan incl. marketing plan, financial model, assessment documentation and terms and conditionsClear process, guidelines and responsibilities (sub-projects)Central depositoryGo / No Go decision (final commitment) by the Board of Management
27 5./6. Stage: Final market testing / Commercialisation 14/04/20175./6. Stage: Final market testing / CommercialisationFRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLEInternal IdeasConcept PhaseDesign PhaseLaunch PhaseMonitor PhaseIdeaGenerationScreening/PrioritisationIn-DepthInvestigationProductDevelopmentFinalMarket TestingPost Implement.ReviewCommercialisationMaintenanceExternal IdeasDescription 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 deliveryTrainingCommunication (internal and external)Product replacement strategy (in case of product substitution)Contingency plans for disengagement or expansionDefine time for product reviewOutcome:Launched productFinal critical “Casting” under fair and true conditionsStick to given timeframeInform all relevant parties in case of unforeseen changes (up to Top Management, if necessary)
28 7./8. Stage: Post implementation review / Maintenance 14/04/20177./8. Stage: Post implementation review / MaintenanceFRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLEInternal IdeasConcept PhaseDesign PhaseLaunch PhaseMonitor PhaseIdeaGenerationScreening/PrioritisationIn-DepthInvestigationProductDevelopmentFinalMarket TestingPost Implement.ReviewCommercialisationMaintenanceExternal IdeasDescription 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 figuresSatisfaction research, e.g. UW, claims, agents/brokers, clientsMarket research: How do competitors react?Outcome:Summary and report about finalized project whichincludes performance measurement against projectgoals and targets. Take action if necessaryUse standardised questionnaires and establish “Best Practice Manual”Examine project processes (not product!) to learn for future projectsMaintenance is a revolving process, review at least once a year
29 Methodologies are available, but have to be adjusted individually 14/04/2017ConclusionFRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLEIn conclusionProduct development in the insurance industry is complex and challengingNeed to establish and maintain comprehensive and rigorous processes for Product DevelopmentMethodologies are available, but have to be adjusted individually
31 Recommendation how to fulfill objectives: Project Roadmap 14/04/2017Recommendation how to fulfill objectives: Project RoadmapFRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLEPRODEMProcessAnalysis ofActual State(Status Quo)DevelopImplementationPlanIns. Comp.DecisionResourcesJoint Insurance company and Munich Re project team(approx. 3~5 staff Ins. Comp. and approx. 3~5 staff Munich Re)Durationapprox. 3~5 monthsTo Do’sUnderstand strategyUnderstand customer needsAnalyse NPD1) process and organisational set-upScreen past productsScreen market regulationsComparison with best practicesDefine key criteria for NPDDefine key success factorsPresentation to Ins. Comp.’s Board of ManagementAdjust implementation plan if necessaryOutcomeSWOT AnalysisImplementation plan for “new” NPD processAdopted implementation planCurrentNPD process overview1) NPD – new product development
32 Recommendation how to fulfill objectives: Project Roadmap 14/04/2017Recommendation how to fulfill objectives: Project RoadmapFRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLEPRODEMPRODEMProcessImplementationNew ProductDevelopmentReviewIns. Comp.Ins. Comp./Munich Re project teamResourcesJoint teamDurationapprox. 2~3 months~ 1 monthapprox. 3~4 monthsTo Do’sRealise implementation planEstablish and fine-tune core processEstablish co-operations andinterfacesJoint review of NPD process implementationReport to Ins. company Board of ManagementIdentify Ins. Comp.’s innovation focus and currently most promising opportunitiesPractice newly implemented process and develop one~two new productsOutcomeImplemented “new” NPDmethodologyFinalized “new” NPD methodologyNew productslaunched1 NPD – new product development
33 Proposal for team member profiles 14/04/2017Proposal for team member profilesFRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLEPRODEMPRODEMChina Lifeprojectteammembers1 Project Manager:Experienced in coordinating international teamsExcellent Turkish company in-house “networker”Languages: English and Turkish2 ~ 4 Experts:1~2 Product Developers1 Sales expert1 Marketing expert1 IT expertAll experts should have been involved in recent new product developments and should speak EnglishTeam members corresponding to objective; adjusted for additional experts depending on the product scopeMR projectteammembers1 Project Manager:Experienced in coordinating international teamsResponsibility for client liaisonLanguages: English and Turkish2 ~ 4 Consultants:Experience in conducting fact-based analyses in a business process contextAble to manage a range of complex auditsLanguages: English, Turkish desirableExperts:Experience in evaluating/building new business ideas and developing these into actionable business proposalsKnow-how about the Turkish market and customer needsIn-depth property insurance know-howSpecific insurance know-how depending on product scopeLanguages: English, Turkish desirable
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