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Session 72 PD, Organizational Barriers to Product Innovation
Moderator:
Kelly J. Rabin, FSA, MAAA
Presenters: Jay M. Jaffe, FSA, MAAA
Steve Leigh Philip R. Murphy, FLMI, MBA
THE PERSONAL SIDE OF ORGANIZATIONAL BARRIERS TO PRODUCT INNOVATION
Jay M. Jaffe, FSA, MAAAActuarial Enterprises, Ltd.
Chicago, IL [email protected]
312-397-0099SOA, May 17, 2016, Nashville, TN
Session #72
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DISCUSSION AREAS
• Invention v. Innovation• Types of innovation projects• Personal r/t organizational barriers to
product innovation• Common to all areas: Actuarial related
innovation projects
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INVENTION V. INNOVATION
• Invention:– Involves working on something really new– Maybe more of a legal concept
• Patenting• Proprietary information
• Innovation: making the invention actually work
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THE INVENTION/INNOVATIONTIMELINE
“ . . . our lives improve not at the moment of invention but when society
creates the conditions to allow new ideas to become integrated into our
daily lives.”(Davidson, NY Times Magazine, 2/21/16, p. 18)
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ACTUARIES AND INNOVATION/INVENTION
• Actuaries mainly involved with innovation• Example: Rx data in underwriting was an
innovation r/t an invention for most of us– Invention: creating the Rx analytic system– Innovation: actuaries, underwriters, agents and
applicants
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MIT Sloan Management Review.
Cognitive Technologies: The Next Step Up for Data and Analytics
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5 INNOVATION GOALS
1. Eliminate tedious work2. Reduce labor costs3. Utilize the explosion of available data4. Make more accurate decisions5. Embrace powerful new technologies
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WE MAKE IT REDDER
WE DON’T MAKE THE DRESS
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INNOVATION CATEGORIES
1. Analytics and big data2. Machine learning3. Neural networks / deep learning4. Rules engines5. Complex event processing6. “Cognitive computing” such as IBM’s Watson7. Robotic process automation8. Custom integrations and combinations of the
above in a “cognitive cloud”
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CHANGING UNDERWRITING WORK ENVIRONMENT
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IMPORTANCE OF HUMANS TO INNOVATION --- THE 5 STEPS
• Step In• Step Up• Step Aside• Step Narrowly• Step Forward
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IMPORTANCE OF HUMANS TO INNOVATION --- STEP #1
STEP INMaster the details of the
system to know when it needs modification
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IMPORTANCE OF HUMANS TO INNOVATION --- STEP #2
STEP UPTake a big picture view and
help make the decisions about automating new areas
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IMPORTANCE OF HUMANS TO INNOVATION --- STEP #3
STEP ASIDEFocus on areas where humans still do the work better than
new technologies
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IMPORTANCE OF HUMANS TO INNOVATION --- STEP #4
STEP NARROWLYWork in areas that are too
narrow to be worth automating
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IMPORTANCE OF HUMANS TO INNOVATION --- STEP #5
STEP FORWARDRemember, humans build
the new systems
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IMPORTANCE OF HUMANS TO INNOVATION --- THE 5 STEPS
• Step In• Step Up• Step Aside• Step Narrowly• Step Forward
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BECOMING A BETTER INNOVATOR
• Think HOW TO• Become TIME SENSITIVE• TAKE RISK• Remember the BASF PERSPECTIVE• Become a LICENSED AGENT• READ, READ, READ• Attend NON-ACTUARIAL MEETINGS• VOLUNTEER
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© 2016 NEOS and Milliman
Organizational Barriers to Product Innovation
Steve Leigh, NEOS LLCKelly Rabin, Milliman
May 2016
© 2016 NEOS and Milliman
“We know what is needed to become product leaders, but the way is blocked.”
1
• Modern, flexible technology
• Strong, clear decision-making with clear roles
and responsibilities
• Clear focus on the customer and target market
• Collection and leveraging of innovative ideas
• Skilled use of data
• Broad IT and operational capabilities
• Dedicated resources for priority tasks
• Understanding of regulatory and pricing
constraints
Requirements for successful innovation:
© 2016 NEOS and Milliman
Three categories on the product innovation spectrum.
2
Traditional – Not a product innovator (but may be innovative in the way they sell, service, or engage with consumers).
True Innovator – Invent new products and assemble new products in new ways.
Fast Follower – Wait for others to prove new product ideas are viable and in demand, then develop similar products.
How do we move from the left to the right?
© 2016 NEOS and Milliman
To break through the wall, it is critical to deal with the obstacles one by one.
3
Barriers to innovation:
1) Ineffective decision-making
2) Poor knowledge of systems capabilities
3) Slow and inflexible pricing process
4) Inertia/entrenched methods
5) Failure to pursue specific target markets
6) No innovation owner or culture
© 2016 NEOS and Milliman 4
Barrier #1:Ineffective decision-making
© 2016 NEOS and Milliman
Symptoms of poor decision-making.
5
Decision Health Symptoms
MeetingsToo many meetingsToo many attendeesLeaving the meeting without a decision
Products to MarketToo few productsProducts are generic and not innovativeSlow design and implementation, with lots of spin
Staff/OrganizationUnclear on rolesLack of dedicated resources for key tasksDecisions are made only at the top
DataIT capabilities are not knownCompliance limitations are not knownWhat is easy and what is hard is not known
New meeting, same conversation
Staff doesn’t know what decisions they can makeDecisions are unmade and remadeUnwilling to change organization and process
Pricing guidelines are not developed early
Insurers should evaluate their organizations to see if decision-making is a major obstacle to product innovation.
© 2016 NEOS and Milliman
Critical information in a consistent format is needed to support decision-making.
6
Show interdependencies between products Document the entire flow of product growth Identify where system infrastructure is needed
Product Roadmap
Innovation Inventory
Good decisions need to be based on good information. At a minimum, you need to have the following information available and accurate for decision makers.
Compliance Guidelines
Target Market
Know what is legal and what is a company position Quantify the risk Know alternative approaches
System Capabilities
Document what is easy and hard and why Identify areas that need further strategic investment Make visible those systems that consistently block innovation
Gather and store ideas Link ideas to market goals Document dependencies
Know who you are selling to Know who is selling Know where you want to go Understand the motivations of the target group
© 2016 NEOS and Milliman
Breaking the barriers to facilitate good decision-making.
7
Strategies:• Provide the right amount of critical information at the right time for each decision.• Meeting agendas must identify what decisions are scheduled to be made and roles for
attendees. • Create a safe environment for decision-makers that fosters risk-taking.• Document the why and share all decisions.• Build a framework for information collection and maintenance.
Objective: Make decisions quickly and accurately.
Decisions are rarely changed and changes are well justified.
Decisions are fact-based. Excellent documentation around
decisions so that everyone is on the same page.
© 2016 NEOS and Milliman 8
Barrier #2:Poor knowledge of systems
capabilities
© 2016 NEOS and Milliman
Symptoms of poor systems knowledge.
9
Systems knowledge is an obstacle if: There is a lack of understanding of who
has the right information.
It is not clear where systems are inflexible.
The same question(s) are asked multiple
times with “different answers” given.
Time delays, cost overruns, and surprises
around new products are typical.
There seems to be no single source of the
truth.
© 2016 NEOS and Milliman
Failure to create understanding undermines decisions, elongates timelines, and leads to cost overruns.
10
I don’t know who to ask… I don’t know what to ask… I think I understand the answer… I think I understand the implications… I think this person really knows…
Product Development Representative IT Representative I wonder if they know what they’re asking… I better clarify that I only cover one system… I tried to put it into context… I said that really clearly… I answered just what they asked…
Despite best intentions, there is confusion and misinformation that undermines product innovation because there is not common understanding. Teams are talking, yet not understanding.
© 2016 NEOS and Milliman
Strategies to facilitate good system knowledge.
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Strategies:• Document capabilities against business functions and product characteristics.• Maintain capabilities over time for new products and product ideas.• Document where systems are flexible and adaptable, and where they are not.• Have system capabilities well documented, so that what is easy, difficult or
impossible with new products can be known up front.• Separate system features into those that are strategic and those that are tactical.
Objective: To capture and maintain IT capability data to eliminate rework, confusion, and spin in product development.
Create a comprehensive capability assessment across the entire platform.
Identify areas for strategic investment. Identify those areas that are likely to be
problematic and delay implementation.
© 2016 NEOS and Milliman 12
Barrier #3:Slow and inflexible pricing
process
© 2016 NEOS and Milliman
Symptoms of poor pricing flexibility.
13
The pricing process is an obstacle if:
Assumptions must be fully baked and blown out
before any pricing can occur.
Rates are not benchmarked against market
conditions.
The process is not dynamic and iterative.
The focus is solely on risk aversion.
Innovative products that are not yet to scale must
meet the same pricing hurdles as industrialized
products.
Pricing actuaries are siloed and dictate product
development outcomes, vs. being collaborative
members of a team.
© 2016 NEOS and Milliman
Strategies to facilitate pricing that supports innovation.
14
Objective: Price incrementally to avoid putting significant time and cost into pricing the full product when only price validation is needed.
Determine minimum viability prior to investing substantial resources across the entire organization.
Established expected profitability to support development of a business case.
Build an iterative, interactive pricing capability.
Strategies:• Create a stripped-down model office (a few cells) for which distribution has
provided indicative premiums.• Develop rough, ballpark assumptions.• Use modeling tools that allow you to tweak product design easily.• Share results early and often to facilitate decision-making.• Strive to have actuaries be treated as team members vs. barriers.
© 2016 NEOS and Milliman 15
Barrier #4:Inertia/entrenched methods
© 2016 NEOS and Milliman
Symptoms of entrenched methods undermining innovation.
16
Entrenched methods are an obstacle for your organization if:
The team focuses on all the ways that something is too difficult or impossible.
Too many “nos” come up too soon in the process.
There is a lack of collaboration and focusing on how obstacles could be overcome.
A lack of confidence in the decision-makers causes staff to think, “our current way
is safer than following you.”
© 2016 NEOS and Milliman
Strategies to improve willingness to change.
17
Strategies:• Exercise change management from early on in the process.• Connect beneficiaries to their dreams.• Leverage a separate team to test and analyze innovation.• Build confidence in the new methods by selling the benefits.• Create new processes to help staff feel confident that innovation is not inviting
chaos.
Objective: To move the organization away from traditional ways of doing things without adding significant risk or undermining positive cultural elements.
Help people become willing to sacrifice some comfort for change.
© 2016 NEOS and Milliman 18
Barrier #5:Failure to pursue specific target
markets
© 2016 NEOS and Milliman
Symptoms of not knowing the target market and sticking to it.
19
Target market understanding is an obstacle if:
It is assumed that distribution will market
whatever the insurance company creates.
There is little understanding about why
customers are buying.
It is common to have products fail to sell.
The strengths and weaknesses of distribution partners are poorly understood.
The right data and the skills to analyze it are not available.
Research is used instead of actual market testing.
© 2016 NEOS and Milliman
Strategies to facilitate clear direction based on specific target market objectives.
20
Strategies:• Develop skills to access and analyze data to understand why customers buy.• Develop skills to access and analyze data to understand distribution behavior.• Create products that are known to drive sales to identified market segments.• Market test products for specific segments and evaluate the data.• Do your own segment analysis instead of relying solely on the success of
competitors.• Make sure there is alignment between distribution partners and defined
markets.
Objective: To use defined market segments to guide product innovation.
Define market segments aligned to distribution.
Understand the segment. Allow knowledge of the segment to shape
new product innovation.
© 2016 NEOS and Milliman 21
Barrier #6:No innovation owner or culture
© 2016 NEOS and Milliman
Symptoms of no single innovation owner.
22
Failure to designate a single innovation owner is an obstacle if:
Innovative ideas are only generated from top leaders.
Innovations are either not linked or poorly linked to specific market objectives.
There is a fear of Google, Amazon, and others entering the life insurance
market, but little to no action.
You are unprepared for innovation in the following areas: organizational
structure, customer service, new business, underwriting, and other areas of
the company.
There are no viable plans to reach increasing numbers of under- and uninsured
consumers.
© 2016 NEOS and Milliman
Strategies to facilitate an innovation owner.
23
Strategies:• Create a process to vet new innovation ideas and reward idea generators.• Establish outside sources for innovative ideas.• Create innovation inventory to capture and maintain innovative ideas.• Link innovation ideas to sales objectives, service improvements, customer
demands or other business value.• Test before broad deployment: design a test plan, define success, perform test,
and analyze the results.
Objective: Develop a single owner for product innovation that will drive new ideas, competitive analysis, and the innovation process.
Keep innovation tied to the target market, service, or other business objective.
Leverage ideas from internal, external, and non-industry sources.
© 2016 NEOS and Milliman 24
Where do we go from here?
© 2016 NEOS and Milliman
Recommendations for success.
25
Work with your internal IT group to help you identify what is easy, difficult, and/or a strategic investment.
Document reasons behind the decisions you make.
Align product innovation to markets you are trying to reach.
Define a repeatable product development process.
Create a plan that will help you separate strategic IT investments from tactical investments in your infrastructure.
Obstacles to product innovation alignment and stakeholders2016 Life and Annuity Symposium
Philip R. MurphyMay 16, 2016
Quelle: Verwendung unter Lizenz von Shutterstock.com
Goals
Reinforce key considerations Underscore non-actuarial perspectives Share lessons learned
21 April 20162
Challenge Profitable in respective markets,
but sales are flat and core demographic is shrinking
Targeted future customers are not receptive/accessible through traditional channels
Mission Develop a new sales process geared
to new chosen market Introduce competitively priced
product that offers both streamlined and fully underwritten processes
Leverage technology, including automated underwriting
Stakeholders Executive – strategic initiative,
dedicated executive sponsor Marketing & Distribution Product Pricing New Business/Underwriting IT
The Scenarios – similar issues, different carriers
21 April 2016 3P. Murphy | © 2016 Munich Re, U.S. (Life)
Brokerage market
Strong brand recognition
Product chosen for new market - Term
Similarities
21 April 2016 4P. Murphy | © 2016 Munich Re, U.S. (Life)
Brokerage market
Strong brand recognition
Product chosen for new market - Term
Newly chosen target markets –degree of separation from core business
Current core product emphasis –term versus perm
Existing distribution versus access to new “non-life” distribution
Differences
21 April 2016 5P. Murphy | © 2016 Munich Re, U.S. (Life)
Brokerage market
Strong brand recognition
Product chosen for new market - Term
Outcome and status
21 April 2016 6P. Murphy | © 2016 Munich Re, U.S. (Life)
Launched late
Three years in production inaugural product selling very well
Very low sales of second perm product
Reconsidering next product, but focused on updating current program - product limits, distribution, applicant experience, looking for specialty plays
Expanding underwriting platform across entire business
Launched on time
Just under one year into product and selling “fair” (adoption rates are low)
Working to increase straight through processing rates
Company A Company B
Outcome and status
21 April 2016 7P. Murphy | © 2016 Munich Re, U.S. (Life)
Requirements
Process
Mortality
Ability to account for new underwriting paradigm Lack of fluids & value of proxies (e.g., data)
Impact of Sentinel Effect
Company AUnderwriting well represented day 1
Company BSet process to pricing target
Filing considerations Impact of customization versus “black-box” on mortality assumptions
Lessons Learned – Marketing/Distribution
21 April 2016 8P. Murphy | © 2016 Munich Re, U.S. (Life)
Marketing helped drive vision day 1
New market niche one degree of separation from core
Built an entirely new online sales process, including marketing support
Onto phase 2 and other initiatives by the time the product was built
Access to “middle market”
2+ degrees of separation from core market niche
Company A Company B
Lessons learned – IT
21 April 2016 9P. Murphy | © 2016 Munich Re, U.S. (Life)
An “enterprise project” - Underwriting and Pricing were well represented
An “IT project” – Little underwriting representation – no timeline to build automated rules
Company A Company B
Integration with new vendors and data sources Technical specs Impact on underwriting rules and workflow
Controls and reporting capabilities to key stakeholders Executive Marketing Underwriting Pricing
Organizational readiness Executive sponsorship & regular connection go
project manager (no misinterpretation)
Enterprise/strategic buy-in
Deadlines can’t be set in a vacuum
Account for consumer experience and rules development
Lessons learned – Project Management
21 April 2016 10P. Murphy | © 2016 Munich Re, U.S. (Life)
Conclusions – increasing chances for success Ensure strategic initiative and executive sponsorship Strategic vision versus reaction to competition
Don’t stray too far - leverage core competencies
Marketing - design, advise, apprise Upfront development
Back-end reporting and accountability (sales and mortality)
Full-time, multi-discipline project team, no silos, run by the business Project Management
Pricing
Underwriting
IT
Commit to post-launch refinements STP rates and rules enhancements
Sales & agent behavior
New underwriting tools and pricing adjustment 21 April 2016 11P. Murphy | © 2016 Munich Re, U.S. (Life)
