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PRODUCT DEVELOPMENT METHODOLOGY III. Istanbul Insurance Conference – 25th May 2011 Jürgen Brucker.

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Presentation on theme: "PRODUCT DEVELOPMENT METHODOLOGY III. Istanbul Insurance Conference – 25th May 2011 Jürgen Brucker."— Presentation transcript:

1 PRODUCT DEVELOPMENT METHODOLOGY III. Istanbul Insurance Conference – 25th May 2011 Jürgen Brucker

2 Agenda 1.Introduction of Munich RE 2.Framework for product development methodology 3.General methodology for product development 4.Product development process in the insurance industry 5.Example 1.Introduction of Munich RE 2.Framework for product development methodology 3.General methodology for product development 4.Product development process in the insurance industry 5.Example

3 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.  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. 3

4 Added value within the group Diversified structure – more security Munich Re (Group)* Asset management *This listing is incomplete and provides no precise indication of shareholdings. ReinsurancePrimary insuranceMunich Health Belgium 4 25th May 2011

5 Traditional reinsurance solutions Large individual risks solutions Specialty commercial solutions Personal specialty solutions Standard retail solutions Risk capacity Distribution power Risk know-how Munich Re’s business model [Illustrative] Strategy Best business model for each risk segment Source: Group Development Munich Re Group RISK MANAGEMENT Strong integrated risk management with proven track record in financial crisis RISK MANAGEMENT Strong integrated risk management with proven track record in financial crisis INVESTMENTS Well-diversified portfolio based on strictly limited risk appetite INVESTMENTS Well-diversified portfolio based on strictly limited risk appetite CAPITAL MANAGEMENT Sound capitalisation provides strategic flexibility CAPITAL MANAGEMENT Sound capitalisation provides strategic flexibility 123 5

6 2. FRAMEWORK FOR PRODUCT DEVELOPMENT METHODOLOGY

7 New products in this context means products new to an Ins. company 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) 7 FRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE

8 The “right” product development methodology strongly depends on five major factors Product Development Methodology Type of Industry Company Strategy Customer Needs Region and Market Local Regulations INFLUENCE FRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE

9 Typical life-cycle of a consumer product Typical life-cycle of an insurance product Sales volume A typical consumer product has a limited life and is replaced by the next product generation. Product A First generation Product B Second generation An insurance product has not necessarily a limited life. Modifications of the product usually prolong the product life. Product life cycles in the insurance industry follow an atypical pattern 9 FRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE Sales volume Time Type of Industry 1

10 Stage of economic development - income level Culture TURKEY  Fast growing market  GDP per capita: USD 10,079 1)  Regional disparities GERMANY  Mature market, low growth  GDP per capita: USD 41,000  Low public awareness of insurance  Historic need to self-insure / family back-up  Low savings ratio  High awareness of insurance products  High uncertainty avoidance The Turkish market has huge potential – effective product development is essential to fulfill future needs Major economic trends affecting ins. industry  Increase of wealth in western TR  Large infrastructure projects  Change of social security in mid term  Reform of health insurance and pension system needed  Reduction of government welfare spending needed  Highly competitive Non-Life market Development of the insurance market  Insurance penetration 2) : ~ 1%  L+NL Ins. density 3) : USD 110  Motor Insurance dominates Non-Life (55%) 4)  Growth of Health & Life business  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 10 FRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE Region and Market 2

11 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 Liberalization of insurance markets impacts the product development of primary insurers 11 FRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE TURKEY GERMANY Local Regulations 3

12  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.)  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 Client needs substantially differ between China and Germany 12 FRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE Customer Needs 4 TURKEY GERMANY

13 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 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 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 ? First mover and innovator need strong product development skills First Mover 13 FRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE Company Strategy 5 Innovator Follower Definition Achievement Requirements Best Practice Examples

14 3. GENERAL METHODOLOGY FOR PRODUCT DEVELOPMENT

15 Source: Wheelwright, S. / Clark, K. (1992): Revolutionizing Product Development. In transparent product development processes potentially lead to sub-optimal outcomes 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) Often-seen new product development issues … FRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE

16 Product development processes in the consumer industry follow stringent rules Preliminary Investigation Gate 1 Gate 2 Gate 3 Gate 4 Gate 5 Stage 1 Detailed Investigation (Build Business Case) Testing & Validation Development Full Production & Market Launch Pre- Commercialisation Business Analysis Post- Development Review Decision on Business Case Second Screen Initial Screen Post- Implementation Review Idea Generation Source: Cooper (2000): Product Leadership - Stage-Gate™ is a trademark of RG Cooper & Associates Consultants, Inc. -Clear process -Clear decision points and responsibilities 16 FRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE General new product development process from Cooper Stage 2 Stage 3 Stage 4 Stage 5

17 Only two out of one hundred ideas are launched New product development funnel 17 FRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE Preliminary Investigation Gate 1 Gate 2 Gate 3 Gate 4 Gate 5 Stage 1 Detailed Investigation Testing & Validation Development Full Production & Market Launch Idea Generation Stage 2 Stage 3 Stage 4 Stage 5

18 Beginning with the development stage, product development costs grow rapidly Product Development Costs Typical curve for product development costs Time 18 FRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE Preliminary Investigation Gate 1 Gate 2 Gate 3 Gate 4 Gate 5 Stage 1 Detailed Investigation Testing & Validation Development Full Production & Market Launch Idea Generation Stage 2 Stage 3 Stage 4 Stage 5

19 4. PRODUCT DEVELOPMENT PROCESS IN THE INSURANCE INDUSTRY

20 A typical product development process in the insurance industry can be split into four phases Screening/ Prioritisation Concept Phase In-depth Investigation Product Development Idea Generation Design Phase Final Market Testing Launch Phase Commercialisation Post Implementation Review Maintenance Monitor Phase Internal Ideas External Ideas 20 FRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE

21 Most of the initial ideas are sorted out in the concept phase 21 Screening/ Prioritisation Concept Phase In-depth Investigation Product Development Idea Generation Design Phase Final Market Testing Launch Phase Commercialisation Post Implementation Review Maintenance Monitor Phase % 30%10% 70% >90%70% X X % Number of ideas Carry-on rate Source: Munich Re, McKinsey Internal Ideas External Ideas FRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE

22 22 Screening/ Prioritisation Concept Phase In-depth Investigation Product Development Idea Generation Design Phase Final Market Testing Launch Phase Commercialisation Post Implementation Review Maintenance Monitor Phase Internal Ideas External Ideas Product Development Unit Business Unit (BU) IT Marketing Sales Other Departments (Legal, Tax, Accounting, Claims etc.) The product development department is in charge of managing interdisciplinary teams FRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE

23 Screening/ Prioritisation In-Depth Investigation Product Development Idea Generation Final Market Testing Commercialisation Post Implement. Review Maintenance  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)  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 1. Stage: Idea generation Description of Process Step:Key Success Factors: 23 FRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE Concept Phase Design Phase Launch Phase Monitor Phase Internal Ideas External Ideas

24  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 of BUs 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) 2. Stage: Screening/prioritisation Description of Process Step:Key Success Factors: 24 FRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE Screening/ Prioritisation In-Depth Investigation Product Development Idea Generation Final Market Testing Commercialisation Post Implement. Review Maintenance Concept Phase Design Phase Launch Phase Monitor Phase Internal Ideas External Ideas

25  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 Description of Process Step:Key Success Factors: 3. Stage: In depth investigation 25 FRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE Screening/ Prioritisation In-Depth Investigation Product Development Idea Generation Final Market Testing Commercialisation Post Implement. Review Maintenance Concept Phase Design Phase Launch Phase Monitor Phase Internal Ideas External Ideas

26  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 Description of Process Step:Key Success Factors: 4. Stage: Project development 26 FRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE Screening/ Prioritisation In-Depth Investigation Product Development Idea Generation Final Market Testing Commercialisation Post Implement. Review Maintenance Concept Phase Design Phase Launch Phase Monitor Phase Internal Ideas External Ideas

27 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) Description of Process Step:Key Success Factors: 5./6. Stage: Final market testing / Commercialisation FRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE Screening/ Prioritisation In-Depth Investigation Product Development Idea Generation Final Market Testing Commercialisation Post Implement. Review Maintenance Concept Phase Design Phase Launch Phase Monitor Phase Internal Ideas External Ideas

28 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 Description of Process Step:Key Success Factors: 7./8. Stage: Post implementation review / Maintenance 28 FRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE Screening/ Prioritisation In-Depth Investigation Product Development Idea Generation Final Market Testing Commercialisation Post Implement. Review Maintenance Concept Phase Design Phase Launch Phase Monitor Phase Internal Ideas External Ideas

29 Conclusion 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 29 FRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE

30 5. EXAMPLE

31 Analysis of Actual State (Status Quo) Ins. Comp. Decision Understand strategy Understand customer needs Analyse NPD 1) process and organisational set-up Screen past products Screen market regulations Joint Insurance company and Munich Re project team (approx. 3~5 staff Ins. Comp. and approx. 3~5 staff Munich Re) approx. 3~5 months SWOT Analysis Current NPD process overview Comparison with best practices Define key criteria for NPD Define key success factors Implementation plan for “new” NPD process Presentation to Ins. Comp.’s Board of Management Adjust implementation plan if necessary Adopted implementation plan 1) NPD – new product development Develop Implementation Plan Recommendation how to fulfill objectives: Project Roadmap 31 FRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE PRODEM Process Duration To Do’s Outcome Resources

32 Ins. Comp. New Product Development Ins. Comp./Munich Re project team approx. 2~3 months approx. 3~4 months Realise implementation plan Establish and fine-tune core process Establish co-operations and interfaces Implemented “new” NPD methodology Identify Ins. Comp.’s innovation focus and currently most promising opportunities Practice newly implemented process and develop one~two new products New products launched 1 NPD – new product development Joint review of NPD process implementation Report to Ins. company Board of Management Implementation Review Process Duration To Do’s Outcome Finalized “new” NPD methodology Joint team ~ 1 month Recommendation how to fulfill objectives: Project Roadmap 32 FRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE PRODEM Resources

33 PRODEM 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 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 MR project team members MR project team members Proposal for team member profiles China Life project team members 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 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 PRODEM 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 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 Team members corresponding to objective; adjusted for additional experts depending on the product scope 33 FRAMEWORK GENERAL METHODOLOGY PRODUCT DEVELOPMENT PROCESS EXAMPLE

34 THANK YOU


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