Insurance CFOs call for investment in finance function to help business grow through 2020 and beyond
Thursday 19th February 2015 - While CFOs are aiming to place greater focus on data management and analytics capabilities to help insurers grow through 2020 and beyond, they must balance this with meeting new regulatory reporting requirements and managing the relative cost of finance, according to EY’s Global Insurance CFO Survey.
- 44% of insurers globally have launched finance change programs with a further 41% in the planning stage
- 66% rank “data” among their top three challenges to achieving their 2020 objectives
- Insurers will look to more “right sourcing” to manage the cost of finance through shared service centers, outsourcing or off-shore centers
Among senior executives at global insurers, 66% said achieving growth, expanding into new markets or expanding through M&A activity was one of the top three priorities for their business for the foreseeable future. At the same time, 54% said managing costs and improving profit was among the top three priorities, and 51% said responding to regulatory change was a top concern.
EY Oceania Insurance Leader, Grant Peters said, “The global insurance industry has shifted toward growth, even while the market has remained soft and highly competitive. To meet new competitive pressures and regulatory challenges over the next decade, CFOs increasingly will be called upon to become better business partners and provide more strategic insight and advice, using efficient reporting, enhanced analytics, and the right people and processes in the right locations to help their organisations grow and succeed.”
For them to become better business partners and deliver more value, all CFOs said investments must be made in the finance and actuarial departments, including improving data management and analytical capabilities and enhancing their teams to advance decision support and performance management capabilities.
“These global themes are equally relevant in the Australian insurance market,” Peters said. “Locally we are seeing increasing numbers of insurers identifying improvements in data and analytics as the key to unlocking greater value from their business, across both front and back office functions. The finance function is no exception to this trend – indeed they must rise to the challenge of supporting and enabling the broader business in this task.”
“In this environment, identifying and tapping into a different kind of talent pool will be critical. CFO’s should also consider how they might leverage some of the lessons learnt in other markets, in order to deliver market-leading finance capability here in Australia.”
Data and technology require the most improvement
Two-thirds of respondents ranked data and technology issues among the top three challenges facing finance and actuarial departments, with 21% saying the quality of their data was the top obstacle to success. Technology infrastructure was ranked as the top challenge by 27% of respondents, with inadequacies often resulting from a lack of investment in recent years and multiple legacy systems due to historic acquisitions.
Current reporting processes among global insurers are typically inflexible and time-consuming, with significant manual intervention required. On average, 64% of finance and actuarial resources are spent on transactional and reporting processes, compared to an average of only 20% spent on activities related to decision support.
With 35% of respondents saying that meeting new regulatory and reporting requirements is their top priority, insurers are seeking to significantly improve the quality of their data and the efficiency of their underlying processes by 2020.
“Issues around the quality of data have been and continue to be an area of focus for insurers. With new regulatory reporting requirements impacting a number of organisations, accurate, reliable data is even more important. CFOs recognise this is an issue and are focusing their spend in this area as well as improving the overall infrastructure to support the business for the future,” Peters said.
Change programs are underway
Eighty-five percent of survey respondents have started change programs or are planning initiatives, with better reporting being a main focus. Only 6% believe they have the right capabilities in place to meet their top priorities.
By 2020, the finance and actuarial operations model will need to be properly aligned with strategic priorities, according to the survey. Processes will be simplified to eliminate the most manually intensive activities and allow more centralisation, with only key business-partnering aspects of finance needing to remain close to the business and historically higher-cost locations.
According to the survey, transaction processing is expected to see the largest shift to lower-cost servicing options, with on-shore shared services the most popular option. Revenue accounting and internal and external reporting show the largest move toward off-shore shared services by 2020, while payroll and internal audit were two areas with the largest expected shift toward outsourcing.
“The competitive market will not become any easier by 2020. For finance and actuarial departments to provide strategic decision support that will help insurers grow, operating models and processes will need to undergo improvement.”
To read the full report, visit ey.com/insurance.
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