Last week, Gareth Stokes of FAnews ran an interesting article on product development. The article, entitled Distribution* is make or break for life insurers, addressed the issue of product development.
A few quotes sets the background to the article. One section caught my eye:
“…Michael Porter, an actuary at RGA, posed a series of questions to key personnel at local insurers. He wanted to identify those factors contributing to the success or failure of new life product.”
“How many actuaries does it take to bring product to market? The survey showed that the distribution, in terms of actuarial resource, is quite wide from one company to the next. Some companies reported 12 actuaries in their product development area and others only one or two, though not all of these employees were full time on a single project. On average there were four actuaries per respondent… But the bulk of product development human resource remains in the IT & Systems and Administrative and Operations categories. Ironically it is in these heavily resourced departments where things go wrong. Porter noted that most companies singled out IT & System issues as the number one obstacle to get product to market on time. Difficulties centred on legacy rather than staff issues!”
“While his presentation was “all about product”, Porter concluded that the fundamental truth in life insurance is that it is “sold and not bought”. In his view Distribution (and that means brokers) is more important than Process & Service, which in turn is more important than Product. We cannot forget about product – but distribution is the make or break of industry success.”
There were some interesting responses to this article.
Ayanda reacted as follows:
“SA has always enjoyed international renown for its insurance contract innovations and advancements. Dread disease, terminal illness and retrenchment benefit developments were all South African. SA also played a major role in the 1960’s development of investment liked business, leading the world out of the old ‘with profit’ cul de sac. Subsequently it played a significant role in progressing the development of ‘universal life’ type contracts. This is to mention but a few. However, all of this is about to come to a sudden and tragic end. In the new draft Financial Services Laws General Amendment Bill. The FSB wants legislation to give it the sole right to dictate the content of all insurance contracts. Can you imagine inexperienced and untrained civil servants risking their hides by approving untested innovations? They’d much rather secure that year-end 13th cheque and next year’s promotion than risk approving an insurer’s innovation, the ultimate import of which they don’t understand and that just may go wrong! Heaven help us now!”
I contributed the following comments:
“Very topical article, again, Gareth. I subscribe to Ayanda’s perspective above, but must ask the question: if it takes four actuaries on average to design a product, how on earth can your every day advisor ever hope to perform a proper due diligence on it? Everyone is bleating about miss-selling, but what is being sold? Products, in the main, from Providers who are licensed with the FSB. I would far rather see the FSB taking responsibility (and accountability!) for product validation and approval, than someone who does not boast an actuarial degree.
And who is only informed about the product to the extent that he is able to sell it – not to the extent that he can help his client make an informed decision.”
We often hear from readers that “they” want to get rid of us small guys. When I read the article mentioned above, I could not really find a counter-argument.
*To read Gareth’s article please click here