Winning moves: successful life insurers have market agility--the ability to drive products to market faster and ahead of the competition.In 2000, Allianz Life Insurance Company of North America's variable annuity Variable Annuity An insurance contract in which, at the end of the accumulation stage, the insurance company guarantees a minimum payment. The remaining income payments can vary depending on the performance of the managed portfolio. business was barely notable, reporting sales of just $200 million. By the end of 2005, Allianz Life is projected to sell more than $4 billion of variable annuities Variable annuities Investment contracts whose issuer pays a periodic amount linked to the investment performance of an underlying portfolio. . Allianz Life is one of a few insurers to exhibit impressive growth over the past few years despite the overall contraction contraction, in physics contraction, in physics: see expansion. contraction, in grammar contraction, in writing: see abbreviation. contraction - reduction in the life insurance market that followed the boom of 2000. In an industry confronting splintering demographics The attributes of people in a particular geographic area. Used for marketing purposes, population, ethnic origins, religion, spoken language, income and age range are examples of demographic data. , evolving consumer needs, and increased commodification Commodification (or commoditization) is the transformation of what is normally a non-commodity into a commodity, or, in other words, to assign value. As the word commodity has distinct meanings in business and in Marxist theory, commodification , how have companies such as Allianz excelled over the past four years, while others have struggled? DiamondCluster International, the global management consulting Noun 1. management consulting - a service industry that provides advice to those in charge of running a business service industry - an industry that provides services rather than tangible objects firm, performed a quantitative and qualitative data analysis of 20 leading life insurance companies to reveal the management processes and operational assets that enable companies to succeed despite these rapidly changing market dynamics. This study proved that one of the underlying drivers behind the success of these leading life insurers is market agility--the ability to drive relevant products to the marketplace ahead of competitors, at speed and with volume. What characterizes a market-agile firm? These life companies generate a higher proportion of new business sales from new products than do other companies. Rapidly refreshing product lines and discontinuing stagnant stagnant /stag·nant/ (stag´nant) 1. motionless; not flowing or moving. 2. inactive; not developing or progressing. offerings allows them to garner better margins on their product portfolio due to the lack of direct competition. Additionally, the market agility innovators innovators people who will try new things. early innovators important figures in the farming or client community because they are the leaders in the introduction of new techniques and management systems. show an above-average market penetration Noun 1. market penetration - the extent to which a product is recognized and bought by customers in a particular market penetration - the act of entering into or through something; "the penetration of upper management by women" of their new products. The difference between market-agile performers and life companies with inferior results is a direct result of operational capabilities. Those life companies that show the highest performance can identify, design, develop and launch new products, and enhance existing products, more rapidly than their competitors. This is primarily because they have a strong culture of innovation and top-down commitment to new product development, they have well developed management processes to bring new products to market quickly and efficiently and they have an information systems environment that enables flexibility and speed. Market Agility's Benefits Three distinct groups emerged from the research--innovators, followers followers see dairy herd. and laggards. The most market-agile firms have been rewarded with superior performance in terms of three key metrics metrics Managed care A popular term for standards by which the quality of a product, service, or outcome of a particular form of Pt management is evaluated. See TQM. : market share, growth, and return on equity. * Innovators grew market share by 25% contrasted with the followers who remained flat and the laggards that lost almost 20%; * Innovators showed an average three-year sales compound annual growth rate of 5.9% while the industry contracted by 2% on average; * Innovators generated a supernormal su·per·nor·mal adj. 1. Greatly exceeding the normal or average but still obeying natural laws. 2. Paranormal. Adj. 1. operating return on equity 75 basis points higher than the average operating return on equity for the top 80 life insurers. The Path to Market Agility DiamondCluster contends that to win in the increasingly competitive life insurance sector, market agility must form a central part of a company's capabilities. By not taking an aggressive approach to improve market agility, life companies resign themselves to below-average returns as the changes in the market are intractable intractable /in·trac·ta·ble/ (in-trak´tah-b'l) resistant to cure, relief, or control. in·trac·ta·ble adj. 1. Difficult to manage or govern; stubborn. 2. . The key questions that life company executives must address are: * What role does market agility play in overall strategy? Is it sufficiently high on senior management's agenda? * How do you compare with those companies that are innovators in terms of: Results--new product introductions, product development cycle time, first-to-market track record, and comprehensiveness of product offerings. Capabilities--process, technology, customer insights, culture? * Where should your improvement efforts be focused and what actions are needed to improve performance? Market Agility Analysis DiamondCluster's insurance industry practice analyzed an·a·lyze tr.v. an·a·lyzed, an·a·lyz·ing, an·a·lyz·es 1. To examine methodically by separating into parts and studying their interrelations. 2. Chemistry To make a chemical analysis of. 3. the life insurance businesses of 20 companies that accounted for more than 40% of total life industry premiums in 2003. The companies selected represent a full range of size, offerings and primary lines of business to ensure that the effects of market agility are not limited to a single tier or company type in the life insurance sector. DiamondCluster performed a quantitative and qualitative analysis Qualitative Analysis Securities analysis that uses subjective judgment based on nonquantifiable information, such as management expertise, industry cycles, strength of research and development, and labor relations. across the following five market agility dimensions to rank the insurers. Market Agility Dimensions [1.] Quantity and frequency of significant product launches [2.] Implementation of market- and product-focused technology [3.] Product management team and processes [4.] Reputation for innovation [5.] Product breadth and depth These five dimensions were scored and weighted to yield a "composite market agility score" for the 20 companies. The scores were then compared to operating return on equity, premium growth, and market share. Group Characteristics Innovators * Strategy well-executed across the value chain * Comprehensive set of product offerings * Frequent product introductions and enhancements * First to market in product areas * Reputation in industry as a new product developer * Differentiate through IT and information analytics Followers * Recently expanded category depth and breadth * Competitive parity parity or space parity, in physics, quantity that refers to the relationship between an object or process and the image that it can produce in a mirror. in marketplace and manufacturing * Ability to follow competitors' innovations to market * Sound and improving technology platform Laggards * Strategy not well executed across the value chain * Less frequent product launches or enhancements * Lack differentiation, including technology and information analytics * Less strategic approach to product management organization Implications for Life Insurers It is clear that the market-agile innovators who are responding to the intractable shifts in the market for life products are reaping substantial rewards for their efforts. But the future for firms that are not focused on increasing their market agility also is clear. How well life insurers can generate unique insights around the customers' needs and bring new products to market will spell the difference between those that compete and win and those companies that become obsolete and a target for takeover. It's up to leadership to focus on the issues that really matter--ensuring a culture of innovation and product leadership, having well developed and robust product management processes, and investing in IT that makes possible deep customer insights and enables speed, flexibility and efficiency in bringing new products to market. Key Points * Companies that excel in market agility generate a higher proportion of new business sales from new products than do other companies. * Market-agile companies can identify, design, develop and launch new products more rapidly than competitors. * The innovators in market agility designed their systems and/or eliminated all of their legacy system hard-coded product information. Learn More Allianz Life Insurance Company Of North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. A.M. Best Company # 06830 Distribution: Independent agents For ratings and other financial strength information about this company, visit www.ambest.com. IT Underpinning--How the Innovators Do It while the architecture, packages and technology standards of market-agile innovators can differ quite significantly, there are four important information-technology developments that enable life companies to be more successful than their competitors. 1. Product Code Externalization--Innovators tend to have designed their systems and/or undertaken an exercise to remove all of the legacy system hard-coded product information. In so doing, they bring together all of the product related information into a single place that is reference-able by other systems 2. Product Architecture and Codification--Innovators often have gone through a process to better represent and codify codify to arrange and label a system of laws. their products. This often involves defining component architecture for products including identifying a core, the discrete features and potential configurations. A common observation is that innovators have developed "taxonomy taxonomy: see classification. taxonomy In biology, the classification of organisms into a hierarchy of groupings, from the general to the particular, that reflect evolutionary and usually morphological relationships: kingdom, phylum, class, order, " to describe their product architecture around these dimensions, which enables more effective codification The collection and systematic arrangement, usually by subject, of the laws of a state or country, or the statutory provisions, rules, and regulations that govern a specific area or subject of law or practice. and rules expression of the products. 3. Product Book of Record--As innovators externalize externalize see exteriorize. product code and develop a robust product architecture, they are able to establish a Product Book of Record--a single, consistent source of product information which enables product modifications in one application, and ensures that modifications are available to all dependent systems. 4. Service Oriented o·ri·ent n. 1. Orient The countries of Asia, especially of eastern Asia. 2. a. The luster characteristic of a pearl of high quality. b. A pearl having exceptional luster. 3. Architecture--While this aspect of architecture is still in its infancy infancy, stage of human development lasting from birth to approximately two years of age. The hallmarks of infancy are physical growth, motor development, vocal development, and cognitive and social development. or not characteristic of innovators' entire IT estate, the isolation of product information and the rules that govern product configurations, etc. provide a major step towards a service-oriented approach. As a result, innovators are increasingly aligning applications/engines to business activities and creating a communication exchange among these engines so that modifications can be repeatable and rapid. As part of the move towards service-oriented architecture See SOA. , there is also a noticeable improvement towards making systems more process aware (just-in-time information) which improves flexibility vs. enterprise aware (just-in-case information). These changes often entail entail, in law, restriction of inheritance to a limited class of descendants for at least several generations. The object of entail is to preserve large estates in land from the disintegration that is caused by equal inheritance by all the heirs and by the ordinary multimillion-dollar, multiyear initiatives--so those who have invested and/or are currently investing in this technology will have a sustainable advantage for some time to come. Market Agility Results Market Share by Group While "Innovators" showed considerable growth, the "Followers" generally held share and "Laggards" yielded share. 2000 Innovators 18.7% Followers 8.2% Laggards 11.1% Not in Sample 62.0% 2003 Innovators 23.9% Followers 7.7% Laggards 9.1% Not in Sample 59.2% Note: Table made from pie chart. Agile ag·ile adj. 1. Characterized by quickness, lightness, and ease of movement; nimble. 2. Mentally quick or alert: an agile mind. Companies Grow Faster (2000-2003) With a 5.9% sales compound annual growth rate, the sample's "Innovators" significantly outperformed "Followers" (-4.5%), "Laggards" (6.9%), and the industry as a whole (-2%).
Agility Score 3-Year Sales CAGR
Innovators 7.3 5.9%
Followers 3.2 (-4.5%)
Laggards 2.3 (-6.9%)
Note: Table made from bar graph.
Agile Companies Realize Better Returns The "Innovators" outpaced the weighted average operating return on equity for the top 80 life insurers by more than 75 basis points.
Agility Score 2003 Operating ROE
Innovators 4.3 14.1%
Followers 3.2 11.3%
Laggards 2.3 10.6%
Top 80 Weighted Average
Operating RoE = 13.3%
Note: Table made from bar graph.
Contributor Andrew Robinson is a managing partner, Global Insurance Practice, at DiamondCluster International, Chicago. |
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