Most CFOs Find Financial Models Wanting
Survey of life insurance CFOs finds few satisfied with speed, reliability; run-time requirements are highest priority.
Insurance Networking News, February 6, 2013
Nearly two-thirds of CFOs from large and midsize life insurers recognize the need to improve their financial modeling, according to “Life Insurance CFO Survey,” conducted by Towers Watson.
The survey explored financial modeling issues for life insurers, including model governance, business priorities and how insurers use financial models, Towers Watson said. Asked how satisfied they are with the timeliness of their models’ results, 13 percent said “extremely satisfied,” 17 percent said “not at all,” and 91 percent “expressed uneasiness” regarding the amount of time required to interpret model results before they could act on the information, Towers Watson said. Half said they get results back within one week, 41 percent said within a month, and 9 percent said more than a month.
“Our survey revealed that despite advances made in financial modeling at many life insurance companies, there are ever-increasing demands placed on companies by their stakeholders to improve the speed and usefulness of their financial models,” said Cheryl Tibbits, director and life insurance consultant at Towers Watson. “However, new technologies are available, allowing for more improved and efficient approaches to financial modeling.”
The survey assessed CFOs level of satisfaction with their financial modeling capabilities by line of business, and 50 percent said long-term care and life reinsurance products need the most work. Half were “not at all satisfied” with their modeling capabilities for long-term care products, and 36 percent said they were dissatisfied with their financial modeling capabilities for life reinsurance products.
The three biggest challenges CFOs confront are: managing competing priorities (70 percent), run-time requirements (44 percent), and model features/functionality (39 percent). Asked to prioritize these challenges, 22 percent ranked run-time requirements (22 percent) as their “most pressing priority.”
“The feedback from insurers on prioritizing day-to-day challenges reflects the importance they’re placing on finding solutions to reduce run time, which in turn allows them to create an environment that yields a faster and more confident decision-making process,” said Jack Gibson, managing director, life insurance consulting, Towers Watson.
CFOs have mixed views about governing their financial models and minimizing the possibility for the models’ output to incorrectly inform management decisions. Most have dedicated resources to build and run models and specialized modeling expertise, such as corporate modeling teams (70 percent), business units (61 percent), and outside vendors (13 percent).
More than half (52 percent) said a model governance process “somewhat developed,” and 22 percent said their governance process was “very developed.” And yet 65 percent said they plan to make changes to their governance process; 26 percent did not anticipate making modifications.
“A firm grasp on an organization’s financial modeling process allows a CFO to gain confidence. Strong audit controls and good governance practices are essential to this step,” said Steve Verhagen, senior life insurance consultant, Towers Watson.
Two-thirds said their organizations “aim to extract the full value of their financial modeling tools.” Asked to prioritize areas for future investment, 39 percent ranked information technology infrastructure as a high priority, yet only 4 percent considered investment in financial modeling a high priority; 57 percent said they would weigh future investments in financial modeling against other considerations.
“CFOs are dealing with opposing business priorities when it comes to investing in their infrastructure. While they recognize the importance of financial modeling tools, they’re more inclined to procure the latest and greatest in information technology infrastructure,” Gibson said.
CFOs also reported slower growth compared to last year’s “Life Insurance CFO Survey,” and a majority said their new life and annuity premiums, GAAP net revenue and GAAP net income remained flat or declined in Q2 2012 compared to the same quarter last year.
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