Transformational Thinking in Insurance Finance and Accounting
Insurance Experts' Forum, May 1, 2014
There are significant trends putting pressure on insurers to undertake major transformation programs. The recovering (yet still weak) economies and poor investment returns have intensified competition in the developed countries, and have led to insurers increasing their focus and presence in emerging markets. New players are entering the industry and the lines of demarcation among insurers, reinsurers, capital markets and banking are blurring. Regulatory compliance requirements are more strict and intrusive. New and more powerful technology solutions are now available and leading insurers are starting to use them.
These trends are putting pressure on all insurers to transform their business. But what lies ahead for insurance Finance and Accounting (F&A) organizations? Can they shift from being viewed as a “bean counting” unit to being one that provides competitive advantage? How can forward thinking CFOs take the lead in transformational thinking? (For a good definition of transformational thinking vs. legacy thinking, see my first blog.)
Challenges in Insurance Finance and Accounting (F&A)
For decades insurance F&A units had to deal with dated processes and financial systems that required significant manual workarounds. F&A organizations grew because of the lack of automation, multiple versions of information or ‘truths’ and business acquisitions, which in the insurance industry hardly ever include true back-office integration. As a result, many F&A leaders find themselves running inwardly-facing finance organizations across a wide array of systems and geographies. Unfortunately, these days CEOs are looking to CFOs and their organizations to help solve business challenges and not just run a smooth F&A operation. They are looking to CFOs and their direct reports to transform their unit into a competitive advantage. Those CFOs who are open to championing transformation will want their efforts to achieve a maximum impact to the organization’s bottom line. In order to be most effective, the CFO will consider these transformational thoughts.
Here are several steps to begin an effective approach.
Reject these ideas.
First, reject the notions that once new financial systems are implemented, with smooth financial closings, smooth reporting (statutory, budget, management, etc.), then Finance’s job is done. These are the necessary efforts that should certainly be improved and become more efficient. But they represent the “must-haves” that any organization should pursue. They are not differentiators. Also, be careful not to subscribe to the idea that your decade’s old processes simply need automating or that it is acceptable for 80% of the F&A organization to spend its time doing data entry and data gathering using hundreds of spreadsheets and manual workarounds.
Accept these ideas:
Accept that F&A organizations must attain the level where they are considered as trusted advisors and partners to business unit leaders and those leaders’ organizations because they are addressing business challenges before they become problems. CFOs and their teams are responsible for preparing a business case to launch a F&A transformation and to gain the buy-in of the other C-level executives. This business case should be benefits-focused, taking the time to fully-explain the capabilities that will support departments outside of F&A and their attempts to foster and grow the business. (See examples of these below.)
Lead with these ideas:
CFOs can take charge by leading the effort to launch a F&A transformation program, which includes the following target benefits and best practices to gain a competitive advantage:
• Ability to create revenue and expense forecasting on-demand & ongoing.
• Ability to apply predictive and prescriptive analytics especially in revenue forecasting, budgeting and in making major financial investments.
• Ability to provide division-level P&L and balance sheet reports and analyses.
• Ability to deliver F&A services at the corporate, regional and local levels, and the ability to scale up or scale down Finance operations (a differentiating capability that leading insurers leverage in their global locations).
• Ability to embed Finance professionals in business units to assist the business leaders in financial forecasting, analyses, taxes, expense management, make CAPEX vs. OPEX trade-offs and avoid disruptions caused by new accounting rules.
• Possess the skills and competencies to analyze the impact of country risks (e.g. the Eurozone crisis), deal with both M&A and divestitures, anticipate FX risks and effect money transfers, and successfully meet regulatory requirements.
• Ability to control sourcing and procurement across all geographical locations.
• Ability to utilize data visualization for investor relations and Board presentations.
Business-savvy CFO’s will consider engaging a third party to develop a target operating model that includes:
Services - A catalog that identifies all the services the F&A unit provides, categorized by stakeholder to whom the services are rendered, service centers or individuals responsible, and the service level performance targets.
Sourcing Model – That leverages “right shoring” third party resources to deliver “commodity” finance services.
People – Create a F&A organization that has a balanced set of skills and includes financial information analysts who are adept at data modeling, analytics, and visualization. Leverage third parties so that no more than 25% of the F&A headcount is focused on day-to-day operations.
Digital and Information Strategy – Become a key stakeholder in the formulation of a company-wide Digital and Information strategy.
Information, Processes and Systems – Leverage new technologies including Big data/analytics, virtual trainers, rules extractors, self-service and mobile tools. Leverage knowledge sharing and collaboration, and social media tools.
Operational Targets – Align rewards, incentives and compensation to business outcomes.
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