Airline Industry Innovation Landscape

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Airline Industry Innovation Landscape Powered By Docstoc
					               COM-3
PRODUCT DEVELOPMENT
 CAS Ratemaking Seminar, San Antonio
          March 27, 2003


    Dave McLaughry, FCAS, MAAA
  Senior Actuary and Product Manager
       Farmers Insurance Group
 Product Development - more
   relevant now than ever

• New technologies and exposures
• Active regulatory and judicial
  environments
• Converging industries
Larry Keeley -- Doblin Group



      www.doblin.com
               10 types of innovation
Finance             Process.              Offering             Delivery

1. Business         3. Core process       5. Product           8. Channel
model               How you add value     performance          How you get your
How you get paid    to what you offer     How you design       offering to market
                                          your core offering
2. Networking       4. Enabling                                9. Brand
How you structure   process               6. Product           How you
ownership           How you support the   system               communicate the
.                   core processes        How you enhance      offering
                                          your core offering
                                                               10. Customer
                                          7. Service           experience
                                          How you stay         How you integrate
                                          connected with       the entire
                                          customers after      customer
                                          purchase             relationship
                                          .




                                                                                    4
Computers &                                                                                                                                                                                                               Technology-driven
                                                                                                                                                                                                                          multimedia enhancements
                                                                                                                                                                                                                          e.g. Intel 486, Windows 3.0,

 peripherals                                                                                                                                                                                                              Adobe Postscript




                                                                                                                                                                                                                          Low-cost home PC’s
                                                                                                                                                                                                                          e.g. Windows 95, Intel Celeron

Emerging standards, specialization
e.g. PowerPC (IBM, Motorola, Apple),
Zero inventory assembly




                                                                                                                                                                                                                          Networked organizations
                               1988                                                                                                                                                                                       e.g. Dell paperless purchasing,
                                 1989
                                                                                                                                                                                                                          Intra/Extranets

                                      1990

                                        1991                                                                                                                                                                              Going direct e.g. Dell,
                                                                                                                                                                                                                          Gateway Country Stores
                                             1992

                                                1993




                                                                                                                                                                                                                     Customer Experience
                                                    1994
     Flexible financing e.g.




                                                                                                                                                                                                             Brand
                                                                                                                                                                                                   Channel
     FreePC, Gateway Your: )ware,                      1995




                                                                                                                                                                                         Service
     Compaq leasing



                                                                                                                                                                       Product Systems
                                                           1996
                                                                                                                                                 Product Performance
                                                                                                                                Core Processes




                                                              1997
                                                                                                           Enabling Processes
                                                                                              Networking
                                                                            Business Models




                                                                     1998




                                                                                                                                                                                                                                                     5
         Innovation landscape: Non-life
IT systems speed
                  insurance                                                                                                                                             New channels reinvent the industry
service and lower costs
                                                                                                                                                                        and make it more efficient
- Progressive's immediate
                                                                                                                                                                        - Direct Line bypasses the
  response system
                                                                                                                                                                          agent and sells by telephone
- CT Mutual One Image
  paperless electronic forms
              1988

                     1989

                            1990

   First wave of         1991
   consolidation for          1992
   efficiencies of scale
   and global scope                1993




                                                                                                                                                                                                                         Customer Experience
                                                                                                                                                                                                                 Brand
                                          1994




                                                                                                                                                                                                       Channel
                                                                                                                                                                                             Service
                                                 1995




                                                                                                                                                                          Product Systems
                                                                                                                                                  Product Performance
                                                        1996
                                                                                                                                                                                            Alliances open new




                                                                                                                                 Core Processes
IT integration allows
                                                                                                                                                                                            markets and channels
bundled services
                                                                                                            Enabling Processes
                                                               1997
                                                                                                                                                                                            - car insurance through
                                                                                               Networking



- Zurich Technology Risk Services
                                                                                                                                                                                              Thailand 7-11
                                                                             Business Models




- Cigna solutions and                                                 1998                                                                                                                  Technology increasing direct
  XL Risk solutions                                                                                                                                                                         channels



                                                                                                                                                                                                                                6
                                                                                                                                                                                                                                            1988

                                                                                                                                                                                                                                     1989

                                                                                                                                                                                                                              1990

                                                                                                                                                                                                                       1991

                                                                                                                                                                                                             1992

                                                                                                                                                                                               1993

                                                                                                                                                                                 1994
                                                                                                                                                                                                                                                   Non-life




                                                                                                                                                                   1995
                                                                                                                                                                                                                                                   insurance




                                                                                                                                                     1996


                                                                                                                                       1997


                                                                                                                        1998
                                                                                                          Business Models



                                                                                                                    Networking



                                                                                                                 Enabling Processes




                                                                                              1988
                                                                                       1989
                                                                                                                               Core Processes




                                                                                1990

                                                                         1991
                                                                                                                               Product Performance




                   financials
                                                                  1992




                   Diversified
                                                           1993
                                                                                                                                         Product Systems




                                                    1994
                                                                                                                                                             Service




                                            1995
                                                                                                                                                                    Channel




                                  1996


                          1997
                                                                                                                                                                             Brand




                1998
                                                                                                                                                            Customer Experience




    Business Models


             Networking
                                                                                                                                                                                                                                         1988




          Enabling Processes
                                                                                                                                                                                                                                  1989
                                                                                                                                                                                                                           1990




                 Core Processes
                                                                                                                                                                                                                    1991

                                                                                                                                                                                                      1992




                 Product Performance
                                                                                                                                                                                        1993

                                                                                                                                                                          1994




                          Product Systems
                                                                                                                                                            1995




                                         Service
                                                                                                                                              1996




                                            Channel
                                                                                                                                1997


                                                                                                                 1998




                                                   Brand

                                    Customer Experience

                                                                                                     Business Models


                                                                                                              Networking


                                                                                                           Enabling Processes


                                                                                                                  Core Processes


                                                                                                                  Product Performance
                                                                                                                                                                                                                                                                  Comparing three sectors...




                                                                                                                                Product Systems


                                                                                                                                                     Service


                                                                                                                                                            Channel
                                                                                                                                                                                                                                                     Securities




                                                                                                                                                                     Brand
7




                                                                                                                                                Customer Experience
 Larry Keeley -- Doblin Group
  Observations on Innovation

• Target the White Space
• Innovate across multiple dimensions
• Systematize the innovation process
Types of Product Development

 •   Coverage changes
 •   Product combinations
 •   Unbundling coverage/service
 •   New pricing approach
 •   Additional services
 •   Entirely new product
Sources of Development Ideas
•   Competitors
•   Distributors
•   Customers
•   Exclusions in current policies
•   Alliance partners
•   Regulators
•   Claims personnel
     Multi-disciplinary process
•   Claims              •   Systems
•   Underwriting        •   Billing
•   Policy Processing   •   Accounting
•   Marketing           •   Legal
•   Distribution        •   Pricing
    What is the Actuary’s role?
• Could be anything, ranging from pricing
  expert to project leader
• Minimum:
  – Consider ALL costs in setting rates
  – Compare with pricing of similar products
    within and outside your company
  – Ensure data will be available to measure
    performance
  – Understand the full context of the product
        Claims Hot Issues

• Is special expertise needed to handle
  new kind of claims?
  – Does company have this expertise?
  – Should you outsource, specialize
    internally, or train everyone?
• Will adjusters have access to
  coverage information at time of loss?
    Distribution Hot Issues

• Any special licensing requirements?
• Are distributors already selling
  similar product? How does yours
  compare? What about
  compensation?
• How/when/who will train
  distributors on new product?
     Most new products fail


“I have not failed, I’ve just
 found 10,000 ways that won’t
 work.”

--Thomas Alva Edison
   How to minimize risk/cost?

• Depends on scope of the change
• For significant development projects:
  – Start with PILOT
  – Develop clear expectations
  – Measure everything
  – Evaluate and adjust based on results
             Pilot Program


•   Single state (preferably file and use!)
•   Short duration (90 days)
•   Limited distribution
•   Limited claims staff
•   Mocked-up system/manual processes
         Clear Expectations

•   Number of customer contacts
•   Number of quotes
•   Number of sales
•   Number of claims/utilizations

THIS IS THE BIGGEST CHALLENGE!
    Measure everything!

• Develop in advance method for
  tracking and reporting on all
  expectations
• Daily/weekly status reports
• Distributor feedback
• Customer feedback
     Evaluate and Adjust

• Scrap project
• Extend pilot
• Expand distribution to entire state
  or additional states
• Full rollout (commit to major system
  changes, training, etc.)
Questions??

				
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