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How CFOs plan to support growth in the insurance sector

Insurance Print

In 2016, EY conducted its largest ever survey of CFOs in the insurance sector. We spoke to finance leaders at almost 60 insurance companies of varying sizes from 15 countries across EMEIA, Asia-Pacific and the Americas. We asked the CFOs to rank a set of finance priorities for their organizations through to 2020. Here are their top five priorities.

1. Providing better insight

In order to enhance the insight that finance departments provide to the wider company, most CFOs (68%) see a major need to encourage their teams to enhance their business partnering capabilities through a better decision-making process. This is vital if insurance companies are to achieve the business and revenue growth they seek.

Other steps that insurance CFOs believe will improve insight are:

  • Invest in the integration of infrastructures and technology: 50%
  • Invest in people to develop their skills: 46%
  • Use market recognized metrics: 43%
  • Improve timing and quality of data produced: 41%
  • Promote standardization of processes across the firm: 38%

Regional overview

Insurers headquartered in the Americas and EMEIA are prioritizing the promotion of better decision-making in order to enhance business insight. Second on their list is investment in integrating infrastructures and technology. Using market-recognized metrics is the third priority in EMEIA, while improving the timing and quality of data is ranked third in the Americas.

In contrast, insurers headquartered in Asia-Pacific are placing a striking emphasis on investing in skills – far more than insurers based elsewhere. They then highlight the need to promote better decision-making, with improving the timing and quality of data ranked third.

2. Aligning finance, risk and actuarial information

With finance expected to own and manage an enterprise-wide performance management process, survey respondents, particularly in Europe, highlighted the need to further integrate finance, risk and actuarial data and processes.

For CFOs, a more integrated model is not just about improving efficiency and control, but also the analysis and insight provided to the business across all key performance indicators.

3. Efficiency

In the run up to 2020, finance organizations expect to make extensive use of shared services (onshore and offshore) and outsourcing for transaction processing in areas such as accounts payable, actuarial reserving and payroll. Smaller insurance companies, however, are more likely to keep such activities local.

For insurers of all sizes, higher value activities such as decision support (including budgeting, planning, forecasting and business performance analysis) and controls (including policy, procedures and controls and internal audit) are more likely to be retained locally.

As robotic process automation (RPA) becomes more widespread, we may see more activities returning to local sites. The ability to undertake more complex processes without human involvement – more efficiently, on demand and with a clear audit trail – could trigger a further evolution of what CFOs see as their desired finance operating model. Wider adoption of RPA also helps finance teams to fulfil a goal they highlighted as central – becoming better partners to business units within their organizations. Time previously spent on data processing or managing relationships with remote shared or outsourced service providers can instead be spent on analysis and interpretation.

4. Fast and secure reporting 

CFOs are chasing faster reporting timeframes for both annual and quarterly reporting periods. On average, they are aiming to cut the time taken to release annual financial results by 17% by 2020, and the time to produce quarterly results by 12%.

Insurers are still spending, on average, a whole month to close the quarter’s books and even longer to close last year’s results. This manually intensive effort fails to provide forward-looking business insight. The numbers are often produced too late in the quarter to be used as the base for real management information in the month.

Some companies also face the significant challenge of having to report under as many as 25 accounting bases, as well as reporting their group accounts under IFRS or US GAAP and their capital under different reporting bases, including Solvency II. This makes the reporting process cumbersome, full of reconciliation and manual activities, error prone and time consuming.

Insurers in the Americas already have relatively fast reporting capability, but still seek improvements. European insurers have also been speeding up their reporting as a result of new regulatory requirements under Solvency II, which have triggered significant investments in process reengineering and reporting systems. But Asia-Pacific is aiming for the greatest reduction of financial close time, to be achieved through investment in new technology and people.

5. Implementing regulatory and financial requirements

The majority of CFOs (more than 70%) expect the regulatory and accounting changes to insurance contract and financial-instrument accounting to be effective in their organization by 2021. CFOs may be viewing the interim period before the IFRS 17 and IFRS 9 requirements must be implemented in 2021 as a valuable window in which to focus on enhancing their business partnering capabilities.

However, over half of insurers have so far only performed a limited preliminary impact assessment for IFRS 17. Insurers that have begun detailed analysis, based on the latest draft of the standard, are starting to see the sheer scale of the challenge: from understanding and presenting their numbers to investors through to impacts on data, processes, systems and reporting timetables in the lead up to and beyond 2021.

When implementing IFRS 17, CFOs need to retain a business perspective, approaching the project with the overriding aim of achieving an efficient operating model. They need to be simultaneously striving for integrated data, systems and processes across finance, actuarial and risk.

CFOs know they have to keep on top of the evolving regulatory requirement, which they would like to become a ‘hygiene’ factor in their function. This is challenging, especially for European insurers that have still not fully embedded Solvency II. CFOs do not want continuous regulatory and accounting change to divert them from increasing their focus on driving business growth.

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Overall, CFOs are prioritising faster and more efficient processes, taking advantage of new technologies to share data and automate routine tasks. This is designed to meet regulatory changes and free up brainpower so that staff can focus on providing better insight, which supports the CFOs’ primary aim of increasing growth.