The New Product Notebook

Introduction:

One major actuarial activity is the development of new insurance products. Actuaries are often the leaders of this process and are always integral to the selection of the premiums to be charged.

All too often it is heard at industry conferences or internal company meetings that new products are terribly expensive to develop. The cost of new product development is often the excuse for not creating more new products.

But a good part of the reason that new products are expensive to develop is that they are created in an efficient atmosphere. Sometimes the inefficiency can be traced to lack of corporate focus, internal territorial battles at companies or to one or more other reasons. It really doesn't matter why the problem exists but rather that there is a need for a more programmed process for building new products.

One way to introduce more discipline into the product development process is to create a New Product Notebook (NPN) for each new product. This article will explain why the NPN is helpful and present an outline of the contents of the NPN.

Why Create a NPN:

There are two main reasons for creating a NPN. (By the way, the NPN can be an old fashioned paper document or assembled in any one of many electronic formats.) A NPN can help with the following:

• Controlling the product development process
• Knowing where you've been and where you are going

As mentioned before, many companies can benefit from a more disciplined product development process. The NPN definitely helps to make clear what needs to be done and who needs to do it.

Assembling the NPN needs a project leader. This leadership can come from the actuarial department, the marketing department or somewhere else in the company but it needs to be clearly assigned. This person should be responsible not only for getting the NPN developed but updating and distributing it to all parties who are working on the new product.

The contents of the NPN provide a single source for the history of the new product. Since it is often the case that a new product needs to be modified or otherwise adjusted before it is successful, knowing what has been the basis for the new product is fundamental to making the necessary adjustments.

Moreover, having an historical source for all information connected to the new product is just good business. This document automatically becomes part of a company's control and management processes.

The NPN Contents:

There is no single set of sections for the NPN. The responsibility for creating each section must be assigned to an individual.

What follows is an outline of the basic sections for a typical NPN:

• Product description
• Marketing plan
• Sample marketing materials
• Actuarial assumptions
• Premiums
• Sample application
• Sample policy
• Acquisition cost matrix
• Underwriting process and guidelines
• Reinsurance (if used)
• Financial projections
• Implementation (systems) flow
• Project timetable
• State approval list
• Experience

The sections of the NPN are somewhat oriented to their position in the product development process. For example, having a product description is an upfront activity and should correspond to an earlier section in the NPN whereas product experience can't be included until after the product has been launched and can be placed later in the NPN.

The contents of the "acquisition cost matrix" section of the NPN might not be obvious. It is in this section that actuaries should explain to marketers the impact on profits of different acquisition costs. For example, this matrix could show the needed break-even response rate for a direct mail campaign where the average annual premium or cost per mailing vary from the expected levels.

As more information becomes available, the sections of the NPN should be revised. It is also recommended that all pages be dated to show the date prepared.

Not Rocket Science:

Nothing about the NPN that has been presented is remarkable or new. The concept of a NPN is neither complex nor rocket science but it is an effective tool.

Each situation demands a customized NPN. Sometimes new sections need to be added to fit the particular situation. For example, a product with a savings element might want a section in the NPN dealing the product's proposed investment strategy whereas a pure protection product would not need such a section.

The next time you're working on a new product, it is suggested that you think about creating a NPN. Even if you don't actually build the notebook, going through the thought process should be helpful.

Note: This article is derived from the author's September, 2006 presentation at The Insurance Direct Marketing Forum 2006: Database Delivers!