Conseco takes fresh look at product development: New strategy emphasizes shared resources, efficiency

Conseco Inc. rolled out a fresh blueprint for product development earlier this year, and it was high time the insurer did so, say analysts who follow the company.

The Carmel-based holding company is combining the resources of its subsidiaries and developing a corporate-wide system to pump out products more efficiently for its two main operating segments, Conseco Insurance Group and Chicago-based Bankers Life. It hopes to see results soon.

Conseco Insurance Group launched only four new products in 2004 and eight in 2005. It should introduce 11 or 12 this year and a higher total in 2007, according to Chris Nickele, the company’s executive vice president for new product development.

“We have significantly ramped up product development efforts in the organization, and we haven’t added resources,” he said.

The company emerged from Chapter 11 bankruptcy in September 2003 and had been preoccupied with that as well as other priorities, said Jon Reichert, of New York-based Standard & Poor’s.

“[Product development] was an area that really didn’t get a whole lot of attention from the company over the past several years,” he said. “I think the company has been playing a bit of catch-up in refreshing the products, getting them more up to date.”

This game of catch-up starts with a bigpicture shift in the way Conseco operates.

The holding company traditionally allowed its many business units to operate “almost as independent organizations, although they had common corporate management and financials,” Nickele said.

Under a plan Nickele unveiled in February, the company began developing services to be shared across the corporation. It created management positions to oversee all health product development and all life or annuity development, regardless of subsidiary.

It also shifted responsibility for setting interest rates and researching regulations from the business units to corporate product development.

But Nickele said this corporate-wide focus involves “more than just throwing resources in a bucket.”

He also instituted a product development methodology, essentially a map that tells employees what steps to take as the development of a product unfolds.

This consolidation push mirrors similar Conseco efforts in areas like information technology and back-office support.

Nickele came to Conseco in October from Philadelphia-based Lincoln Financial Group, where he served as a vice president. He spent his first few months in Carmel learning about company resources and people before he drew up the new product development plans.

He called the new approach an evolutionary, not revolutionary, process. He said he’s still explaining it to employees, and it’s way too early to gauge the impact.

Eventually, the new process might save up to 30 percent on the development costs of some products. Company officials also say the new process will make Conseco more efficient and able to react quicker to changing market demands.

That could grab the attention of independent insurance agents, which would help Conseco Insurance Group, Reichert noted.

“[Agents are] truly comparing different company products,” Reichert said. “If there’s a new feature or new benefit, some kind of new twist or bell or whistle that they think will make a product more sellable, they’ll be attracted to that.”

These agents-especially those who sell life insurance and annuities-compete in a fickle market where the importance consumers assign to certain product features can change quickly, noted Jukka Lipponen, who covers Conseco for New York-based Keefe Bruyette & Woods.

“It’s so important to always have your products refreshed,” he said.

New Conseco leadership brought in by former CEO William Kirsch understands this, while other executives might not have placed enough focus on it, Lipponen said. New leaders include Conseco Insurance Group President Michael Dubes and the company’s interim CEO, James Hohmann.

Lipponen also noted that ratings agencies like New Jersey-based A.M. Best Co. want to see profitable sales growth before they deliver their next upgrade. Best currently rates the financial strength of Conseco’s companies at a B++ level, and the insurer has made reaching the A-level a top priority.

A rating like that represents the true key to sales growth, according to John Schaeffer of San Francisco-based Hahn Capital Management. He said refining product development will help Conseco only up to a point.

“What really drives profit margins in new products is your rating,” he said.

Lipponen said Conseco’s companies could receive that coveted upgrade as soon as next month.