A culture of creativity

Published November 19, 2007

American International Group Inc. has long been known for introducing new products. Ty R. Sagalow, president of AIG Product Development, General Insurance, in New York, recently spoke with Business Insurance about how this division has helped AIG become much faster and more efficient in launching innovative property and casualty products.

Q: What defines AIG's approach to product development?

A: AIG is, we believe, one of the most successful organizations in the insurance industry. That success, built over 85 years, arises out of many things, but none are more important than our creativity and our innovation. They are in many ways the hallmarks of our organization. That creativity and innovation are manifested in many ways on a day-to-day basis, most prominently in new product development. Over the decades, AIG has been first to market with many exciting products. That is because we are committed to talking to clients, brokers, colleagues, and others about the risks they face or could face. It is a passion. For me it's almost fanaticism. The approach used by AIG in developing new products is methodical; it is both creative and systematic. It is both an art and a science. It starts off with the premise, which is seemingly unique in the insurance industry, that product development is a discipline that can only occur where there is a group of individuals dedicated 100% to that function.

Martin Sullivan, our president and CEO, said it best in our 2006 annual report letter to shareholders in describing AIG Product Development. He said it is a "unit without peer in the insurance industry." It's certainly a very pleasing thing to hear your boss say, but I also think it's accurate.

The approach by AIG was to create Product Development as a center of excellence, using an end-to-end consulting paradigm, looking at all the services and disciplines that you'd need for successful product development, from finding the product idea to vetting it to final development and launch. In each step there are three fundamental questions: is there demand, is there a way to underwrite profitably, and is there a distribution channel and method of communicating our solution to the people and the companies that need it?

What we've done at AIG is put together a center of excellence, which we call AIG Product Development, comprising 18 individuals, including myself, representing every discipline: underwriting, sales, marketing, actuarial, legal, technology, operations, and claims. All in one spot, with a single, focused mission: to seek out new risk, understand it, evaluate it and design unique solutions that address that risk. All of this is accomplished in partnership with business units in the general insurance segment of AIG throughout the world.

Q: When was AIG Product Development created?

A: You would think that AIG Product Development would be one of the oldest divisions within American International Group. That is not the case. Prior to 1999, we developed products the same way the rest of the industry did: that is to say, it was the sole responsibility of each business unit to develop its own products. This was at the same time as working on renewals, managing rates, getting new business, etc. I've helped run divisions over most of the 25 years I've been with AIG, so I understand that's a lot to do.

In '99, it was determined that that was fundamentally unfair to the business units and also ineffective to ask them to do all of this and create innovative, new products without assistance. Back then, products were rolling out the door on average every 18 months or so. It was simply too slow. So we created this idea of what was then called corporate product development. The model used back in 1999 was a classic "think tank," a research laboratory. It was part of corporate R&D. It was a logical approach, similar to how other companies in other industries went about product development. However, it didn't work for AIG. After a number of years, it was determined we needed a different type of paradigm. That happened in 2004, when we switched to an end-to-end consulting model. This change has resulted in a new product being launched, with the assistance of AIG Product Development, every 14.7 days in 2007. In fact, by the end of this year, more than 50 products will have been launched in the four years that I've been responsible for the division.

Q: How was AIG able to speed up the product development cycle?

A: There are three foundations to our value proposition to our clients: process, people, and expertise. First, you have to determine what are the essential services needed for product development. Then you have to find people who are creative and have expertise in those particular services, people who are committed professionally and emotionally to this notion of product development. If you have the right people and the right expertise, then you need a process. You can't just have a bunch of smart people staring at the ceiling, talking to each other. We've developed a formalized, six-stage process, ranging from trend identification, to preliminary analysis, to scoping out and defining the product, to designing the product, implementing the product, and finally post-launch evaluation. Because nothing you send to the marketplace works perfectly, you have to be prepared to have a post-launch analysis and revise, if necessary.

It's six stages, methodically executed. We have templates and processes. Recently, we rolled out technology that enables this, through innovative software which we call ITAM, Innovation Tracker and Manager. It's unique in the industry. We realized we needed a project management software package for product development. We looked and we looked, and we couldn't find one, so finally we had to build one ourselves. Today, ITAM gets nearly 600 new product ideas a year from everywhere around the world. All employees of AIG have access to it, and we get in excess of one new product idea every day. In addition to housing those ideas, ITAM also enables us to create additional efficiencies that you have whenever you have technological support of the process, which allows us to go more quickly.

Today we have more products in active development than we've ever had before and yet we are getting products out the door faster than we ever did before. Our average time to market is now seven months, which is a lot better than 18 months from years ago. We have been able to deliver a new product in as little as six weeks. That can only happen with increased efficiencies and the proper use of technology. However, none of this would happen if you weren't doing it in a company with a deep culture of creativity and innovation. Yet, as well as we've been doing, we can still do better and we will.

Q: What would your goal be?

A: When I went to my bosses after 2006, when we launched 12 products in 12 months that was impressive enough for Mr. Sullivan to say the kind statement he did, I said, "We can't go any faster." In the first half of 2007, when we launched 12 products in six months--double our 2006 efforts--I was sure we couldn't go any faster. In the third quarter of 2007, when we launched a product every 10 days, I was positive we couldn't go any faster. So, I don't really know how "fast" is fast. But I can tell you that no matter what the goal, we will always be careful not to sacrifice quality. That's the key. One of the three foundations of new product success is underwriting profitability. That is a cornerstone of AIG. You can come up with ideas and solutions that clients will like, and you might have a distribution channel, but unless you believe you will have an underwriting profit, a solid foundation of AIG, you don't have a product.