Critical Factors in Life and Annuity Retirement Product Development

Recent research about the development of annuity products and certain life insurance products used for retirement purposes provided food for thought at a May 6 session of LIMRA’s 2016 Retirement Industry conference.

Elaine Tumicki, Corporate Vice President, Insurance Research – Product, LIMRA, and Donna Megregian, Vice President and Actuary, RGA, presented the results of a Society of Actuaries study of 39 companies about development of annuity and retirement-related life insurance products, and what it may mean for the industry and the companies that are part of it.

Strategies

Tumicki and Megregian reported that the study did not show any standout among primary product development strategies. The four most often employed include:

• focused differentiation: 32% of respondents

• differentiation fast follower: 29%

• strategy not universally defined: 25%

• differentiation market leader: 11%

As for pricing strategy, a cost-driven strategy is the favorite in the development of fixed, indexed and variable annuities (88%, 64% and 89%, respectively). Companies developing indexed annuities showed more interest in competition-driven pricing (29% of respondents). Less than 10% were interested in a customer-driven pricing strategy for all three kinds of annuities.

Relevant Factors

A variety of factors affect the development of annuity and retirement-related life insurance products, according to the study.

Regulation: The top factors that have a high impact include consumer protection (27%), own risk and solvency assessment (25%) and financial oversight (23%). Megregian noted, however, that the low number listing federal regulation as a major factor (9%) reflects the fact that the study was conducted before the Department of Labor release its fiduciary rule in final form.

Who Performs Product Development: Product development has its own department (65%), product development performed by some other department (25%) and no product development team (10%).

Authority to De-prioritize or Abandon a Project: Ranked responses were: steering committee (89%), product development leaders (49%), marketing or distribution departments (16%), legal/compliance department (6%) and IT department (2%). Megregian said that as a company increases in size, it “may be harder to have the right people making decisions” regarding whether to cut a project.

Budget Allocation: Hiring staff and building or buying technology were the largest expenses in product development by a wide margin; research and outsourcing were cited, but by far fewer.

Who Is Involved: There are many parties at the product development table. They include:

• actuarial staff: 100% of respondents

• project managers: 78%

• marketing: 69%

• information technology: 67%

• compliance/legal department: 67%

• distribution: 53%

• operations: 53%

• research: 41%

The key questions that a company should ask itself when it is considering whom to involve in product development, said Megregian, are whether you are involving the right people at the right stage, and if the right people are at the kick-off meeting. “A project can be killed if you are not involving the right people at the right time,” she remarked.

Cycle Times: The median times for product development varies slightly by annuity type. For fixed annuities, 37 weeks; indexed, 40; and variable, 47. Megregian said that if a company wants to shorten product development, the “key question is the point at which there is overlap in stages of development. That’s where you can shorten the time spent in the process and make the process more efficient.”

Strengths and Weaknesses

What are the common weaknesses and strengths in product development? Tumicki and Megregian said they include:

Weaknesses: test marketing, consumer engagement, technology, innovation and cost-effective manufacturing.

Strengths: managed process, engagement of senior management, documentation, internal communication and staff training.

Measuring Success

So how can a company determine how well it does in development new products? Tumicki and Megregian list these as the relevant factors a company can use to measure its success:

• new premiums;

• net profit;

• number of contracts;

• time it takes to launch;

• how smooth rollout is;

• cost-benefit analysis; and

• whether delivery is on time and in budget.