PRODUCT DEVELOPMENT
METHODOLOGY
III. Istanbul Insurance Conference – 25th May 2011
Jürgen Brucker
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
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.
3
Added value within the group
Diversified structure – more security
Munich Re (Group)*
Reinsurance
Munich Health
Primary insurance
Belgium
Asset management
*This listing is incomplete and provides no precise indication of shareholdings.
25th May 2011
4
Strategy
Best business model for each risk segment
Munich Re Group
RISK MANAGEMENT
1 Strong integrated risk management
with proven track record in financial
crisis
INVESTMENTS
2 Well-diversified portfolio based on
strictly limited risk appetite
CAPITAL MANAGEMENT
3 Sound capitalisation
provides strategic flexibility
Munich Re’s business model [Illustrative]
Traditional
reinsurance solutions
Large individual
risks solutions
Specialty
commercial
solutions
Personal
specialty
solutions
Standard retail
solutions
Risk
capacity
Distribution
power
Risk
know-how
Source: Group Development
5
2. FRAMEWORK FOR PRODUCT DEVELOPMENT METHODOLOGY
New products in this context means products
new to an Ins. company
FRAMEWORK
GENERAL 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)
7
The “right” product development methodology
strongly depends on five major factors
FRAMEWORK
GENERAL METHODOLOGY
PRODUCT DEVELOPMENT PROCESS
EXAMPLE
3 Local Regulations
Customer Needs 4
2 Region and Market
1 Type of Industry
Company Strategy 5
INFLUENCE
Product Development Methodology
8
Product life cycles in the insurance industry
follow an atypical pattern
FRAMEWORK
GENERAL METHODOLOGY
PRODUCT DEVELOPMENT PROCESS
EXAMPLE
1 Type of Industry
Typical life-cycle of a consumer product
Sales volume
Product A
First generation
Typical life-cycle of an insurance product
Sales volume
Product B
Second generation
Time
A typical consumer product has a
limited life and is replaced by the
next product generation.
Time
An insurance product has not
necessarily a limited life.
Modifications of the product usually
prolong the product life.
9
The Turkish market has huge potential – effective product
development is essential to fulfill future needs
FRAMEWORK
GENERAL METHODOLOGY
PRODUCT DEVELOPMENT PROCESS
EXAMPLE
2 Region and Market
TURKEY
1)
3)
GERMANY
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
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
Culture
 Low public awareness of insurance
 Historic need to self-insure / family
back-up
 Low savings ratio
 High awareness of insurance
products
 High uncertainty avoidance
Development
of the
insurance
market
 Insurance penetration2): ~ 1%
 L+NL Ins. density3): 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
Data source: IMF(2009); 2)Insurance penetration: percentage of insurance expenses of net income;
Insurance density: annually insurance expenses per capita; 2) 3) 4) Data source: 2010 TRSB
10
Liberalization of insurance markets impacts the product
development of primary insurers
FRAMEWORK
GENERAL METHODOLOGY
PRODUCT DEVELOPMENT PROCESS
EXAMPLE
3 Local Regulations
GERMANY
TURKEY
Until 1994
Products (Contract Wording and Tariffs)
need to be approved by the regulator
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 2007 (Revised Insurance Law)
Liberalisation of product development
(exception: “concerning public interests”,
e.g. compulsory insurance, newlydeveloped life products)
Since 1994
According to the 3rd EU Directive for the
Non-Life insurance industry no necessity
of approval prior to the release
11
Client needs substantially differ between China and Germany
FRAMEWORK
4
GENERAL METHODOLOGY
PRODUCT DEVELOPMENT PROCESS
EXAMPLE
Customer Needs
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.)
12
First mover and innovator need strong
product development skills
FRAMEWORK
GENERAL METHODOLOGY
PRODUCT DEVELOPMENT PROCESS
EXAMPLE
5 Company Strategy
First Mover
Follower
Innovator
Definition
• Identify new customer needs
• Invent new solutions
• Invest in new approaches
• Learn from first movers
• Build a better solution
• Free ride on customer
awareness
• No attempt to improve /
focus on ‘me too’
• Concentrates on price of
offer
Achievement
• Market leadership
• Early high profits
• Set industry standards
• Creates entry barriers
• Shape consumer preferences
• Lower R&D costs
• Less new product failures
• Easy to improve existing
concepts
• Capitalise on perceived high
prices of innovative products
• Revenue through high
volume at low margins
Requirements
• Focus on customer needs
• Original research
• Probably heavy R&D and
launch costs
• Analytical skills
• Adapt and improve
• Offer of low price alternative
• Establish low cost delivery
systems
•3M
• Microsoft
•?
Best Practice
Examples
13
3. GENERAL METHODOLOGY FOR PRODUCT DEVELOPMENT
In transparent product development processes potentially
lead to sub-optimal outcomes
FRAMEWORK
GENERAL 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.
Product development processes in the consumer
industry follow stringent rules
FRAMEWORK
GENERAL METHODOLOGY
PRODUCT DEVELOPMENT PROCESS
EXAMPLE
General new product development process from Cooper
Second
Screen
Initial
Screen
Gate
1
Idea
Generation
Stage
1
Preliminary
Investigation
Gate
2
Decision on
Business Case
Stage
2
Gate
3
Detailed
Investigation
(Build Business
Case)
Post- Development
Review
Stage
3
Development
Gate
4
PreCommercialisation
Business Analysis
Stage
4
Testing &
Validation
Gate
5
PostImplementation
Review
Stage
5
Full Production &
Market Launch
- Clear process
- Clear decision points and responsibilities
Source: Cooper (2000): Product Leadership - Stage-Gate™ is a trademark of RG Cooper & Associates Consultants, Inc.
16
Only two out of one hundred ideas are launched
FRAMEWORK
GENERAL METHODOLOGY
PRODUCT DEVELOPMENT PROCESS
EXAMPLE
New product development funnel
Gate
1
Idea
Generation
Stage
1
Preliminary
Investigation
Gate
2
Stage
2
Detailed
Investigation
Gate
3
Stage
3
Development
Gate
4
Stage
4
Testing &
Validation
Gate
5
Stage
5
Full Production &
Market Launch
17
Beginning with the development stage,
product development costs grow rapidly
FRAMEWORK
GENERAL METHODOLOGY
PRODUCT DEVELOPMENT PROCESS
EXAMPLE
Product Development Costs
Typical curve for product development costs
Gate
1
Idea
Generation
Stage 1
Preliminary
Investigation
Gate
2
Stage 2
Detailed
Investigation
Gate
3
Stage 3
Development
Gate
4
Stage 4
Testing &
Validation
Gate
5
Stage 5
Full Production
& Market
Launch
18
4. PRODUCT DEVELOPMENT PROCESS IN THE INSURANCE INDUSTRY
A typical product development process in the insurance
industry can be split into four phases
FRAMEWORK
GENERAL METHODOLOGY
PRODUCT DEVELOPMENT PROCESS
Concept Phase
EXAMPLE
Design Phase
Internal Ideas
Idea
Generation
Screening/
Prioritisation
In-depth
Investigation
Product
Development
External Ideas
Launch Phase
Final
Market Testing
Commercialisation
Monitor Phase
Post
Implementation
Review
Maintenance
20
Most of the initial ideas are sorted out in the concept phase
FRAMEWORK
GENERAL METHODOLOGY
PRODUCT DEVELOPMENT PROCESS
Concept Phase
EXAMPLE
Design Phase
Internal Ideas
Idea
Generation
Screening/
Prioritisation
100
100
In-depth
Investigation
Product
Development
External Ideas
100%
10%
10
Launch Phase
Final
Market Testing
70%
2
70%
Post
Implementation
Review
>90%
Maintenance
2
X
Source: Munich Re, McKinsey
70%
3
Monitor Phase
Commercialisation
2
30%
Number of ideas
X%
Carry-on rate
21
The product development department is in charge
of managing interdisciplinary teams
FRAMEWORK
GENERAL METHODOLOGY
PRODUCT DEVELOPMENT PROCESS
Concept Phase
EXAMPLE
Design Phase
Internal Ideas
Idea
Generation
Screening/
Prioritisation
In-depth
Investigation
Product
Development
External Ideas
Launch Phase
Final
Market Testing
Commercialisation
Monitor Phase
Post
Implementation
Review
Product Development Unit
Business Unit (BU)
IT
Maintenance
Marketing
Sales
Other Departments (Legal, Tax,
Accounting, Claims etc.)
22
1. Stage: Idea generation
FRAMEWORK
Internal
Ideas
GENERAL METHODOLOGY
Concept Phase
Idea
Generation
Screening/
Prioritisation
PRODUCT DEVELOPMENT PROCESS
Design Phase
In-Depth
Investigation
Product
Development
Launch Phase
Final
Market Testing
Commercialisation
EXAMPLE
Monitor Phase
Post Implement.
Review
Maintenance
External
Ideas
Description of Process Step:
 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
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
Outcome:
 Long list of ideas (internal and external)
23
2. Stage: Screening/prioritisation
FRAMEWORK
Internal
Ideas
GENERAL METHODOLOGY
Concept Phase
Idea
Generation
Screening/
Prioritisation
PRODUCT DEVELOPMENT PROCESS
Design Phase
In-Depth
Investigation
Product
Development
Launch Phase
Final
Market Testing
Commercialisation
EXAMPLE
Monitor Phase
Post Implement.
Review
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
 Identify sponsor
 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
 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)
24
3. Stage: In depth investigation
FRAMEWORK
Internal
Ideas
GENERAL METHODOLOGY
Concept Phase
Idea
Generation
Screening/
Prioritisation
PRODUCT DEVELOPMENT PROCESS
Design Phase
In-Depth
Investigation
Product
Development
Launch Phase
Final
Market Testing
Commercialisation
EXAMPLE
Monitor Phase
Post Implement.
Review
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
 Top Management commitment
and support
Outcome:
 Business Case (incl. opportunity assessment)
 Proposal for the Management (Committee)
 Allowing views of customers
and intermediaries to enter
product development at an early
stage
 Clear end product responsibility
 Allocation of relevant project
staff for design phase (e.g.
Marketing, IT, Accounting, BUs,
Sales and Product Development
Department)
25
4. Stage: Project development
FRAMEWORK
Internal
Ideas
GENERAL METHODOLOGY
Concept Phase
Idea
Generation
Screening/
Prioritisation
PRODUCT DEVELOPMENT PROCESS
Design Phase
In-Depth
Investigation
Product
Development
Launch Phase
Final
Market Testing
Commercialisation
EXAMPLE
Monitor Phase
Post Implement.
Review
Maintenance
External
Ideas
Description of Process Step:
 Establish multi-disciplinary team (Product Development, BUs, Sales, Marketing, IT)
 Develop product specification (wording, policy, UWand 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
Key Success Factors:
 Clear process, guidelines and
responsibilities (sub-projects)
 Central depository
 Go / No Go decision (final
commitment) by the Board of
Management
26
5./6. Stage: Final market testing / Commercialisation
FRAMEWORK
Internal
Ideas
GENERAL METHODOLOGY
Concept Phase
Idea
Generation
Screening/
Prioritisation
PRODUCT DEVELOPMENT PROCESS
Design Phase
In-Depth
Investigation
Product
Development
Launch Phase
Final
Market Testing
Commercialisation
EXAMPLE
Monitor Phase
Post Implement.
Review
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)
7./8. Stage: Post implementation review / Maintenance
FRAMEWORK
Internal
Ideas
GENERAL METHODOLOGY
Concept Phase
Idea
Generation
Screening/
Prioritisation
PRODUCT DEVELOPMENT PROCESS
Design Phase
In-Depth
Investigation
Product
Development
Launch Phase
Final
Market Testing
Commercialisation
EXAMPLE
Monitor Phase
Post Implement.
Review
Maintenance
External
Ideas
Description of Process Step:
Key Success Factors:
Post implementation review:
 Use standardised questionnaires
and establish “Best Practice
Manual”
 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
 Examine project processes (not
product!) to learn for future
projects
 Maintenance is a revolving
process, review at least once a
year
28
Conclusion
FRAMEWORK
GENERAL 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
29
5. EXAMPLE
Recommendation how to fulfill objectives: Project Roadmap
FRAMEWORK
GENERAL METHODOLOGY
PRODUCT DEVELOPMENT PROCESS
EXAMPLE
PRODEM
Process
Resources
Analysis of
Actual State
(Status Quo)
Develop
Implementation
Plan
Joint Insurance company and Munich Re project team
(approx. 3~5 staff Ins. Comp. and approx. 3~5 staff Munich Re)
Duration
approx. 3~5 months
To Do’s
• Understand strategy
• Comparison with best practices
• Understand customer needs
• Define key criteria for NPD
• Analyse NPD1) process and
organisational set-up
• Define key success factors
• Screen market regulations
SWOT Analysis
Current
NPD process overview
1) NPD
– new product development
• Presentation to
Ins. Comp.’s
Board of
Management
• Adjust
implementation
plan if
necessary
• Screen past products
Outcome
Ins. Comp.
Decision
Implementation plan
for “new”
NPD process
Adopted
implementation
plan
31
Recommendation how to fulfill objectives: Project Roadmap
FRAMEWORK
GENERAL METHODOLOGY
PRODUCT DEVELOPMENT PROCESS
PRODEM
EXAMPLE
PRODEM
Process
Implementation
Resources
Duration
To Do’s
Outcome
1
Review
New Product
Development
Ins. Comp.
Joint team
Ins. Comp./Munich Re project team
approx. 2~3 months
~ 1 month
approx. 3~4 months
• Realise implementation plan
• Establish and fine-tune core process
• Establish co-operations and
interfaces
Implemented
“new” NPD
methodology
NPD – new product development
• Joint review of
NPD process
implementation
• Report to Ins.
company Board
of Management
Finalized “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
32
Proposal for team member profiles
FRAMEWORK
GENERAL METHODOLOGY
PRODEM
China Life
project
team
members
MR
project
team
members
PRODUCT DEVELOPMENT PROCESS
EXAMPLE
PRODEM
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
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
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
33
THANK YOU
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product development methodology