6 minute read 3 Dec 2021
Milky way and stars in sky

Why insurers must reimagine their finance service delivery model

By Victoria Lampitt

EY UK Insurance Finance Transformation Leader

Passionate about leading transformation across Insurance for a better tomorrow. Committed to building an inclusive culture. Sports enthusiast. Travel photographer. Lives with her family in Bristol.

6 minute read 3 Dec 2021

Learn how insurers can evolve their finance function and design next-generation service delivery.

In brief
  • Now is the right time for insurers to rethink, redefine and transform what their finance teams deliver and how this is delivered.
  • Transforming service delivery models will improve insight-led decision-making so insurers can exploit market opportunities in a strategic, safe and informed way.
  • The goal is to enable the business to compete more effectively and therefore contribute more meaningfully to bottom-line performance.

Today, most insurance finance teams are inward-looking, focusing mainly on performance reporting and controls. There is a great opportunity to enhance capabilities to generate predictive insights and serve as a strategic business advisor. Given the dynamic market conditions reshaping the industry landscape, a few leaders have undertaken finance transformation programs toward a forward- and outward-looking perspective. The goal is to enhance overall financial management and improve business outcomes, not just increase efficiency in control and reporting.

To make this vision a reality, senior leaders must redefine the services they offer to strengthen financial management for the entire company. On a practical basis, this involves:

  • More time and resources invested in providing analytical services to guide the business
  • Automation of nearly all transactional activities, using rules-based processing and standard, “right-first-time” data sets that eliminate the need for manual workarounds and adjustments
  • Sharing insights and intelligence across the enterprise to enable fast action
  • Expanding beyond purely financial planning and metrics to broader enterprise views, focused on business drivers and strategic planning

The latest report (pdf) in our Future of Finance Reimagined series explores the opportunity to evolve the finance organization and how finance can optimize the services it delivers.

In the future, the finance service delivery model will balance the CFO organization’s various roles – from protecting the enterprise through strong financial controls and optimizing enterprise resources, to creating commercial and customer value and leading strategic transformation.

In refocusing their efforts, insurers are encountering challenges. Growing new capabilities (e.g., delivering actionable and value-adding insights quickly and at scale) requires a clear definition of what finance teams do on a day-to-day basis, adjustments to the structure of the finance organization and a significant expansion of capacity. That’s true both in terms of allocating budget for necessary investments (e.g., in talent and technology) and finding time to focus on the new priorities.

For every task or activity they commit to, leaders should ask:

  • What is the overall value to the business?
  • How does it relate to core strategic objectives?
  • What skills are necessary to deliver it?

Collectively, these simple questions reflect the need to strike the right balance of quality and cost-efficiency. Most insurers will design future service delivery models that emphasize different core services with unique combinations of internal centers of excellence (CoEs), offshore operations, and outsourcing and managed services arrangements – who does what and why will vary for insurers.

1.  Strategy and alignment: setting strategic priorities and building the operating model

It’s natural to want to be best-in-class in everything, but time, cost and resource constraints make that an impossible goal. Unlocking the true value of finance requires high degrees of efficiency and effectiveness in different ways for different functions. Thus, it is important to identify where to strive for excellence and where to engage outside support. For example, common activities across all services (e.g., actuarial modeling, data sourcing, routine calculation and recording) are generally good candidates for outsourcing, because outside firms can deliver quality outcomes cost-effectively.

In contrast, it pays to deliver top-quality performance when the focus is on value creation and strategic transformation. Success in those roles can differentiate the enterprise from competitors. 

Some services are best kept close to the business, while others can – and likely should – be centralized. The most complex services may be best delivered via CoEs, which typically take advantage of economies of specialized skills, technical expertise and standardization to optimize specific processes or functions. Some insurers use CoEs to establish new communities of skill (e.g., data science). Other carriers pool their resources in specific areas, such as technical accounting, reserving, complex asset valuation and tax. 

2.  Sourcing and service models: engaging alternative resource solutions

Expanding or modifying shared service and offshore capabilities is another common tactic. Forward-looking insurers no longer turn to third parties solely for cost arbitrage. The business case for managed services now includes access to industry-specific insights, deep technical knowledge and advanced technology. It also applies to more than fundamental tasks; the outsourcing of tax, statutory reporting and actuarial capabilities has become an appealing option for many insurers. Entire processes, and even forecasting and planning activities, are being outsourced.

While we expect outsourcing to be common among top-performing finance groups in the future, not all service providers will have the unique industry expertise necessary to, for instance, design end-to-end and cross-functional processes. The top providers will also have specific functional expertise (e.g., actuarial, risk) and a deep understanding of the industry’s unique tax challenges. In the strongest and most productive outsourcing relationships, insurers will view their providers as extensions of their own operations with shared risks, aligned incentives and high degrees of collaboration.

3.  Talent and culture: establishing the right skills and right working environment  

As finance teams shift their focus, finance leaders will need to evolve the organizational skill set and knowledge base – even amid intense competition for scarce talent. Beyond recruitment and retention efforts, many insurers are seeking to retrain and reskill their existing workers to find the capabilities they need.

In the finance teams of the future, technologists, data scientists and business analysts will complement core accounting and actuarial skills. Insurers will also need to foster collaboration among diverse types of talent. Along with the right talent, diversity of thinking and inclusive work environments can help drive commercial advantage. 

A good question for many insurers to ask is whether their actuaries are their best-kept secret. They typically have a wealth of business knowledge and strong analytical capabilities. Deploying this expertise can improve finance’s ability to produce intelligence – and, ultimately, value – for customers and the business. 

4.  Data, technology, processes and controls: optimizing, democratizing and modernizing

Future service delivery models must be underpinned by technology and data to facilitate seamless sharing of information across the organization and with third-party service providers. To boost user confidence, data quality should be embedded, from the original source to report. 

To support objectives around continuous improvement, some insurers embrace tools that put the power to generate analytics, different reporting cuts and data visualization into the hands of more users. With the right skill sets to leverage these tools, teams can be more agile in responding to business needs.

Changes to the service delivery model will also necessitate process adjustments, especially for new activities that finance adopts. Control frameworks will also need to evolve with the implementation of new processes. Specifically, controls should be simpler, more automated and designed to be predictive and preventive so they can support the expansion of capacity to focus on new services. 

Thank you to Nick Smith, EY UK CFO Consulting Senior Manager, for his contributions to this article.

Summary

By transforming the finance service delivery model, CFO organizations can generate more value for the business. Specifically, by changing what they do and how they do it, finance teams can help the business take advantage of market opportunities in a strategic, safe and informed way, enabling insurers to compete more effectively in a time of great change.

About this article

By Victoria Lampitt

EY UK Insurance Finance Transformation Leader

Passionate about leading transformation across Insurance for a better tomorrow. Committed to building an inclusive culture. Sports enthusiast. Travel photographer. Lives with her family in Bristol.