Making the Case for Product Rationalization:

By Simplifying Product Portfolios, Insurers can Reduce Operating Costs and Increase Underwriting and Selling Efficiency

Executive Summary
Business Benefits of Product Rationalization
Achieve enterprise product agility Increase underwriting and selling efficiencies Improve resource allocation and productivity per employee Free up high-value underwriting resources to focus on pricing and selling Reduce operational and product management costs Consolidate multiple policy administration systems and reduce IT maintenance costs Estimate losses and mitigate risks more effectively Reduce the complexities of state filing and regulatory compliance Bring the right products to market faster through product configuration and inheritance and re-use of common product components Gain a global view of the business across product lines Promote underwriter knowledge transfer and cross-training

To remain competitive, many insurers have steadily expanded their product portfolios with the goal of increasing sources of revenue and fulfilling broad customer needs. While mergers and acquisitions have enabled insurers to rapidly increase the breadth of their product offerings and accelerate entry into new markets, they have also led to complicated product portfolios. The recent economic downturn has led many insurers to rethink their product strategies. Faced with investment losses, increased claims due to catastrophes, and an overall volatile market, insurers are now focused on controlling expenses and increasing efficiencies. In an effort to streamline product development and reduce operating costs, many insurance CFOs, CIOs and CUOs have begun to push for product rationalization. Just as automakers can no longer afford to build almost identical models to be sold as separate brands, insurers must reduce product duplication and simplify product offerings to remain competitive. This paper will make the business case for product rationalization and look at the steps involved in implementing a successful product rationalization strategy.

The Costs of Complexity

The goal of the insurer is to sell as many products as possible, but many insurers face challenges and costs in managing a diverse product portfolio. For many companies that have grown through mergers and acquisitions, business units have been allowed to operate autonomously with little integration or standardization of systems or processes. This makes it difficult for decision-makers at the corporate level to understand exactly what products are being sold. Without visibility across lines of business, it is difficult or impossible to avoid product duplication and duplication of effort on the part of underwriters and IT. In some cases, the insurers underwriters compete against each other, selling virtually the same product under a different brand. In turn, the need to market multiple brands increases the cost of marketing and selling.

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Customer Complexity

Customer and producer confusion caused by multiple products that meet the same need Diminishment of overall company brand

Back-Office Complexity

Duplication of business processes, resources and effort Underwriters competing against one another Too many products, some of which may be unprofitable Lack of process automation

Duplication of functionality (e.g. policy admin systems) across lines of business Lack of standards Multiple interfaces High maintenance and operating costs

IT Complexity

Large product portfolios increase complexity which can have a direct impact on operational, marketing and selling efficiency.

Product Rationalization
The goal of product rationalization is to reach a maximum number of customers with a minimum number of marketable products in order to lower operating costs, increase efficiencies and maximize revenue potential for each product. It is a strategic initiative that requires insurers to take an objective look at their products and create a methodology to remove duplicate or unprofitable offerings from the portfolio. It also involves looking at the relationships and commonalities between products in order to establish core product baselines.

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When you break them down, all products are composed of a series of components, questionnaires and coverage objects which, when assembled together, represent the rules, rating and risk assumptions of a given insurance product. The core product baseline provides a common product foundation or chassis from which other products can be quickly and easily built through the re-use of product components. To optimize this process, the insurer will need a product development solution, possibly a component of their policy administration system, that provides a central product repository where individual products components can be easily re-used and configured through sophisticated inheritance capabilities. When the product portfolio is viewed in terms of its core product baseline, it is possible for insurers to reorganize, integrate and simplify product lines. This simplification brings new efficiencies to underwriting and selling processes, while at the same time providing clearer, simpler choices for producers and customers.

By deconstructing products into their core components and identifying the commonalities, insurers can simplify their product portfolios for each line of business. The number of marketable products can be reduced by a ratio of up to 10 to 1.

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Eight Steps to an Optimized Product Portfolio

In its work with clients, Camilion has developed a best-practice product rationalization methodology to help insurers simplify and optimize their product portfolios. This consultative process is divided into eight key steps.

1. 2.

Inventory

The first step is to understand what products the insurer has today. The product inventory process involves analyzing the insurers forms library, interviewing underwriters and compiling ratings worksheets for all lines of business.

Analyze

Once the product information has been gathered together, the insurer can begin to analyze the product portfolio and look at the various products at the component level to identify relationships and commonalities. Unbiased analysis also takes performance metrics such as product profitability and staffing needs into account.

3.

Recommend Product Changes

Based on detailed analysis of the entire product portfolio, the insurer can identify and facilitate product changes to streamline and optimize the portfolio. At this stage, the insurer agrees on what products can be retired including unprofitable products, coverages or duplicate offerings.

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4.
Enterprise Product Agility is the ability to develop the right products for the right customer at the right time. Flexible product configuration is the foundation of enterprise product agility. It involves building a central product repository where you store complete product definitions. By shifting from coding to configuring products and by inheriting and re-using product components, insurers can launch new products and make product changes much faster and easier.

Leverage Product Commonalities

By deconstructing products to the component level, insurers can compare components and eliminate redundancies to develop a core product baseline. The product baseline allows insurers to re-use common components through inheritance across multiple products.

5.

Rationalize Products

Once analysis has been completed, skilled business analysts can begin to rationalize the product portfolio. Redundant and unprofitable products are retired, leaving a core group of robust products that will cater to the largest number of customers. Product rationalization will require business process changes that may also necessitate cultural shifts within the organization. For example, as a result of rationalization, underwriting resources may be reallocated to focus on other products as well as on developing more effective pricing and selling strategies.

6.

Build a Central Product Repository

Once the product portfolio has been rationalized, the insurer can begin to fully leverage product commonalities through configuration. Product configuration involves building a central product repository that contains the re-usable components that make up a product definition a single authoritative representation of product data and rules. With a centralized product repository, insurers have the ability to build new products or modify existing products much faster and easier through the inheritance and re-use of product components. This accelerates time to market as insurers no longer need to reinvent the wheel for each product they can build it once and use its components multiple times. Product data and rules stored in the central repository can be accessed by core insurance systems through Web services.

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7.

Create a Cross-Enterprise Product Architecture

Product commonalities may exist not only within product lines but across lines of business, creating opportunities for insurers to increase their product agility on an enterprise-wide basis. A cross-enterprise product architecture maps the relative relationship of product specifications required to represent a broad portfolio of products effectively and efficiently. This includes both commonalities and differences, how insurance coverages, riders, rates and rules, plus data structure, reference tables and rating logic all integrate with one another for a marketable insurance product. Developing a cross-enterprise product architecture puts insurers on the path to standardizing product data and unifying previously disparate lines of business for a more holistic view of all product offerings. It also facilitates product packaging and bundling should that strategy make sense for the insurer now or in the future.

8.

Implement

Product rationalization is a fundamental business transformation. However, the pain and risks involved with such an undertaking can be minimized by rolling it out in manageable phases with set milestones. This approach creates incremental benefits along the way and helps prove the necessity for, and benefits of, the rationalization strategy. While the cultural and business process changes required may seem daunting, a phased approach helps insurers minimize risk and better manage the impact of cultural change. Insurers typically start with rationalizing one line of business. Once the results have been proven, they have the buy-in to extend the initiative enterprise-wide.

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Summing Up
Insurers that have invested in product rationalization have seen improvements in product delivery times and a dramatic reduction in IT maintenance, product development and management costs. Underwriting, selling and marketing efficiency is also improved, making the insurer easier to do business with and helping to eliminate brand confusion in the market. When the product portfolio is simplified, virtually every task becomes faster and more streamlined from product development to underwriting to state filing. Insurers that successfully complete a product rationalization initiative will emerge as leaner, more product-agile organizations that are better prepared to meet the current and future needs of producers and customers.

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About Camilion Solutions Inc.

Camilion Solutions is a leading provider of product development and management solutions for insurance and other financial services organizations. Camilions innovative software solutions create enterprise product agility by allowing organizations to develop the right product for the right customer at the right time and enabling key strategic initiatives such as product lifecycle management, dynamic product bundling and product rationalization. Some of the worlds largest financial services organizations are currently in production with Camilions ProductAuthority, using it as a standalone enterprise product development and management solution, or as the innovative product agility platform on which Authority Suite, a P&C Policy Administration System, is built. ProductAuthority brings new levels of automation and efficiency to the product development process, enabling organizations to get quality products to market up to 30% faster. Built on a modern rules and tools-based technology platform, Authority Suite is the insurance industrys most product-agile P&C Policy Administration System. Founded in 2001, Camilion is a privately owned corporation with offices in Toronto and New York City.

2010 Camilion Solutions Inc. All rights reserved. ProductAuthority, Authority Suite and related names are trademarks of Camilion Solutions, Inc. All other products and services mentioned are trademarks of their respective companies. 02/10

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