How does integrated business planning impact insurers decision-making

Why are robust business planning and integrated finance models vital for insurers now?

We see three primary reasons.

1. Insurers need to consider more scenarios and a broader range of outcomes – and in real time

When it comes to projecting future performance, carriers must now consider a much wider range of scenarios and do so more quickly than before. Macroeconomic volatility has put a premium on real-time modelling capabilities. Due to the increasing frequency and severity of natural disasters and cyber-attacks during the last decade, outcomes that once seemed extreme are now commonplace. The impact of variable macroeconomic conditions – across regions and even within individual markets – and the emergence of new tech further complicate business planning, which means insurers need more sophisticated modelling tools and access to a broader range of data.

2. IFRS 17 and Solvency II have raised the stakes on accurate communications

The goal of IFRS 17 (pdf) was to increase the transparency and comparability of results. But investors, analysts and other stakeholders are still adjusting to the new standards. The new accounting standards have also made it more difficult to develop tools and methodologies that support top management in steering the new KPIs. Still, insurers that miss their numbers or fail to provide appropriate guidance are likely to face harsher – and immediate – penalties in terms of lower valuations and restricted access to capital.

That’s true even for firms that have proactively engaged capital markets to provide visibility into the current state of their business, key profit drivers and long-term prospects. Despite the goal of increased transparency, the complex nature of the insurance business, with its lengthy capital commitments and broad risk horizons, poses huge challenges in understanding the full range of outcomes. Collectively, these forces are leading finance organizations to invest more in the tools and capabilities to more effectively steer the business.

3. Syncing short-term and long-term goals offers significant benefits to the business

Keeping control of the budget for a given fiscal year requires accuracy in the process and in the data being used for that purpose and being produced. This requires insurers to have the capacity for a continuous control of potential deviation and to assess the impact of remediations.

Firms that don’t integrate their business planning capabilities or try to keep up with outdated technology risk being stuck in a reactive mode as the market changes around them. And they are unlikely to achieve the strategic nimbleness or agility to seize emerging market opportunities or navigate increasing competition from non-traditional market participants.

Three ways to enhance business planning capabilities

Insurers seeking to enhance their business planning capabilities can consider specific actions to develop a fully integrated finance model.

1. Adopt both bottom-up and top-down approaches 

Long-term planning requires a different process and approach. Looking from the top down allows finance teams to translate strategic business plans (e.g., where does the business need to be in five years) into quantitative parameters and identify scenarios that need to be tested and assessed with more details.

However, top-down perspectives typically lack sufficient granularity – and, therefore, accuracy – to fully model all potential risk and market scenarios. Bottom-up views start with existing financial and operational data and take quantitative parameters and translate them into project-level P&L and balance sheets. That enables the creation of drivers and KPIs to be followed in the execution of business planning.

2. Instill the planning methodology with both discipline and flexibility 

A disciplined, evidence-based process for anticipating, assessing, tracking, projecting and forecasting future business performance is key to effective business planning. A disciplined methodology also helps ensure that planning takes a full view of the business, incorporating risk and actuarial insights, covering all critical portfolios, geographies and product lines, as well as costs, assets and liabilities, in projecting future financials. Again, the goal is to facilitate the shift from tracking the financial numbers to strengthening performance management by improving the ability of the finance team to generate insights.

But business planning processes must also be designed for efficiency and flexibility so finance teams can run many different types of scenarios, including the most extreme outcomes, major and minor variations, and a range of contingencies. Gaining visibility across a broader range of potential outcomes makes it easier to identify contingencies where CFOs can make adjustments to help achieve financial objectives. The ability for planning teams to generate models quickly in response to shifting market conditions is critical.

3. Adopt the right tools and technology 

Despite the uniquely complex considerations and many inputs that insurers must account for in their forecasts and strategic plans, most carriers still rely on basic toolsets and mostly manual processes. That makes it much more difficult to expand testing and modelling to cover a large number of diverse scenarios. And it’s impossible to run real-time assessments in case of unexpected events.

There is good news, however, in that today’s technology – including machine learning, generative AI and other forms of artificial intelligence – provides what insurers need to adopt leading practices for business planning. Currently available tools and real-time processing enable insurers to go faster in assessing financial impacts. AI can help finance teams take advantage of all the data available to expand their scenario modelling. Specifically, GenAI tools and agents can:

• Define and modify scenario parameters
• Use synthetic data to create more confidence about predictions from generative AI
• Track forecasted vs. actual performance across multiple metrics
• Monitor and model the impact of different economic variables (e.g., tariffs, exchange rates)

By automating these steps, finance teams can save time and work more efficiently. They can also focus their time on high-value analytical tasks rather than manually gathering and inputting data.

When supported by integrated finance models, timely risk data and actuarial insights, even the most complex calculation processes can be automated – no more manually cutting and pasting data across complex spreadsheets. Intuitive front-end interfaces mean users can probe deeper into scenarios, combining data sets and refining their model, without the need for frequent (and expensive) IT support.