Finance transformation in insurance: Four areas driving new thinking and new technologies

Insurance is one of the industries with the deepest historical roots. But like every other industry, it’s undergoing profound change. Companies are discovering that proven, time-worn processes and business models aren’t helping them keep up with the pace of change and deliver the financial performance and customer experiences to stay competitive. So, what are some of the pressures the industry is confronting, and how are they transforming the finance function to keep pace? Let’s take a closer look.

A volatile regulatory environment

Regulatory mandates continue to increase complexity and costs for insurers. By one estimate, the average program costs for IFRS 17 compliance are expected to be in the range of $175 million to $200 million for 24 of the largest multinationals surveyed. Another analysis estimates the industry’s cost for LDTI compliance to top $2 billion. Compliance with these mandates translates into some of the most sweeping accounting policy changes for the insurance industry in the last 30 years. Insurance companies are rethinking everything from the policy level down to the chart of accounts. They’re also discovering that the legacy systems they’ve relied on for years don’t provide the cross-enterprise workflows and agility they need for smooth compliance. And this pressure to adapt to the latest regulatory mandates—and be ready for new mandates as they emerge—is leading many organizations to embrace cloud-based alternatives rather than attempting to squeeze higher performance out of their siloed legacy platforms.

The push toward sustainability

Insurance companies already have some of the biggest asset management books of any business in the world. But with increasing pressure to prioritize environmental, social, and governance issues, many insurers are rethinking their asset management strategies. According to one survey, 6 in 10 U.S. insurance companies believe that the demand from stakeholders to consider ESG factors in their decision-making is increasing. But making those wholesale changes isn’t easy. It requires on-demand visibility into the most granular financial details to determine where an organization has invested in less favorable industries—and to identify suitable, sustainable alternatives that provide an adequate return.

Standardizing finance to control costs

Despite decades of investment in legacy technologies, insurance companies are still struggling to standardize finance practices and control costs. The data shows virtually no improvement over the last decade on key KPIs such as expense ratios. However, during the same period, IT spend as a percent of revenue has been on the rise—even outpacing the manufacturing industry.

More insurers are recognizing that continuing to spend on legacy and home-grown systems is inhibiting both their ability to innovate and grow. The systems can’t support the end-to-end processes  that deliver better customer and employee experiences, and they don’t provide the single version of the truth that’s essential to rapid innovation and synchronized action across the enterprise. The need for greater agility, flexibility, and speed is driving companies across the industry to modernize those key systems and transition to the cloud.

Improving P&L visibility and analysis

Another area where insurance companies don’t have the agility they need is in the analysis of profit and loss. Batch-oriented legacy systems keep these organizations from achieving the real-time data management they need to shift investment strategy and capitalize on shrinking windows of opportunity. Analysts need the visibility to assess risk and opportunities sooner, especially in a “new normal” where disruption is expected. Also, the inability to close the books on a timely basis sends a poor message to investors. The industry leaders are those who equip their finance teams with solutions that provide the real-time visibility  needed to act and react based on daily—even hourly—market developments.

The insurance industry is at a critical point. The combination of low interest rates, an aging workforce, and outdated technology is driving fundamental change in how companies are addressing new challenges. The era when the finance, accounting, actuarial, and risk functions all operated as loosely confederated, standalone disciplines is nearing its end. Instead, we’re seeing organizations adopt a single data platform which supports  consistent, cross-departmental processes.

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