1. 2004 CAS RATEMAKING SEMINAR PRODUCT DEVELOPMENT (COM - 4) BETH FITZGERALD, FCAS, MAAA

2. Product Development n What is the Process? n Examples of new lines of insurance:  Employment-Related Practices Liability  Executive Liability (D&O) n Viewpoint of Actuary n Product Development Complexities

3. Outline of Process n Product Need n Business Case Proposal n Policy Form Development n Rule/Loss Cost Development n Filing Preparation n Statistical Impact n Marketing/Sales Plans n Future

4. Product Need n Customer Survey n Monitoring of Market

5. Business Case Proposal n Product Description n Business Risks n Financial Analysis

6. Business Case Proposal n Revenue Projections  estimate number of customers  how product is to be priced n Expense Projections  initial R&D of product  maintenance of product  IST costs  include expenses from all departments (Finance, Marketing, Sales, Legal, Government)

7. Policy Form Development n Research Coverages n Discuss Potential Coverages for Inclusion in Product n Draft Policy Forms & Endorsements n Discuss with Insurer Panels, Agents, Brokers, Risk Managers n Legal Approval

8. Rule Development - Premium Determination n Decide on Rating Structure for Basic Coverage Premium  practicality vs. accuracy  exposure base  classification plan  vary rates by state, territory? n Decide on Rating Structure for Optional Coverages  ILF’s, deductible/co-payment relativities n Manual Rules Reviewed by Insurer Panels

9. Pricing of Loss Costs/Relativities n Understand Coverages - inclusions, exclusions, endorsements n Data Needs n Data Availability n Decide on Methodology n Discuss Methodology with Insurer Panels

10. Filing Preparation n Loss Cost Filing n Conform to State Regulations/Statutes n Respond to Regulatory Concerns

11. Statistical Impact n Determine Future Ratemaking Statistical Needs n Balance Data Needs with Practicality/Cost of Data Collection n May Collect More Detail Than Used in Rating (e.g. territory, individual class) n Discuss with IST & Insurer Panels

12. Marketing/Sales Plan n Decide on Target Customers n Decide if Provide any Additional Services n Prepare Announcement Material for Customers n Coordinate with Internal Staff  Sales, Marketing, Finance n Follow-up/Feedback

13. Future Ratemaking n Develop/Modify Report Systems n Monitor Statistical Data n Determine Ratemaking Methodology for Updating Pricing  short - term  long – term n Modify Pricing for Coverage Enhancements

14. Product Development Complexities n Product uses information from a third-party vendor n Product requires development of unique software n Product is accessible to customers electronically

15. Third Party Vendor n Define business relationship – customer or partner n Document business relationship and all details of business arrangements  Involve legal staff n Evaluate responsiveness to concerns & questions in deciding on long-term commitment

16. Software Issues n Build software in-house? n Purchase existing software? n Evaluate different software products  Flexibility/options  Customer support/Reputation of firm  History of software  Allow for trial period

17. Technology Issues n Education on new technology  Web-based interface  API, EDI, SOAP n Set up beta testing prior to product launch