To thrive in a dynamic marketplace, you must transform your finance department. In a nutshell, there has never been a better opportunity for finance departments to adapt and become active leaders and value creators for the whole organization.
• Technological and data advancements have reshaped what is possible in finance – extensive data makes it simpler to correlate performance throughout the organization.
The idea is to reimagine the services finance provides and how it might add value to the company, not only to automate for efficiency.
Changing client expectations, continual technical advancements, and the explosion in the availability of data give insurers with compelling performance improvement and growth potential if they can effectively alter critical elements of their operations, including finance. Another catalyst for considerable change is a fundamental new accounting methodology that will affect how the sector calculates success.
In light of this, we believe the moment has come for insurers to rethink, reinterpret, and, yes, alter the wider finance role. Everything should be taken into account, from the goal of finance and the services it delivers to operational models and business integration, as well as the tools and people required. Finance executives must adopt a wider – and more daring – approach to change. The objective must be to play a more active and strategic role in advising and producing value for the company.
In our new research, Insurance Finance Reimagined: The Why, What, and How of Transformation, we look at some of these concerns and possibilities (pdf).
Integrating the numerous groups and functions involved in calculating, predicting, and managing financials demands thinking broader and bolder about finance. To deliver accurate information and clear insight, actuarial, investment teams, and some risk disciplines must collaborate outside of the conventional finance section. To provide greater value to the company, EY’s vision for the future of finance involves all of these areas interacting smoothly and using the same timely data sets. Tax and treasury departments must also be more connected to the larger financial ecosystem than they have been in the past.
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2nd of December, 2020 Connolly, David
Change’s main drivers
Our analysis focuses on five key change drivers:
1. Changing business requirements: Customer expectations, the competitive environment, regulatory constraints, underwriting, technology, and data have all prompted insurers to spend heavily in new digital platforms, process automation, and enhanced customer service capabilities. However, if finance functions’ decision support, insight creation, capital planning, and enterprise security skills can’t keep up, half of the benefit from early investments would be lost. The entire financial organization must develop how it analyzes investments, distributes resources, monitors returns, and reports on performance as the firm evolves its operations.
2. Technology tipping points: For finance, actuarial, and risk management, technology has reinvented the art of the possible. The re-platforming and rebuilding of actuarial models, the migration of core ERP and enterprise performance management (EPM) solutions to the cloud, and the implementation of data-as-a-service solutions, which allow for massive scale, capability, speed, and operational cost savings, are all now within reach. More straight-through processing, faster access to consistent data (which is crucial for integrating with risk and actuarial), and increased scenario modeling and insight creation capabilities are just a few of the possibilities.
1. Regulatory standards are becoming more stringent, and the focus is shifting to long-term value: New accounting rules are having a big influence, such as IFRS 17, IFRS 9, and Long Duration Targeted Improvements (LDTI). Regulatory requirements for data accessibility and transparency are becoming more stringent, particularly in the context of ESG. The way life and P&C insurers assess and report profitability will be dramatically altered by new measurements. Finance executives may be required to assist senior management (as well as financial markets) in comprehending and interpreting these new statistics in certain circumstances. Insurance accounting has always been complicated, and these new rules will make it seem much more so in the near future.
2. The talent war is heating up: People will give difference and competitive advantage via better informed decision-making and greater risk intelligence as cloud capabilities, artificial intelligence, machine learning, and hyper-scale computers significantly revolutionize accounting, tax, and actuarial procedures. Finance will need more analytical, tech-savvy employees, requiring insurers to improve their ability to recruit and retain rare talent. In addition to access to innovative technology and professions that are more than a salary, the next generation of talent is searching for meaningful working experiences.
3. The enormous upside potential: The business’s upside potential is the last – and probably most persuasive – rationale for redesigning the finance department. Early adopters and first movers will get a long-term competitive edge in addition to immediate benefits. Insurers that digitize, integrate, and change their finance, actuarial, risk, and tax activities swiftly and boldly will experience greater operational efficiency as well as a strategically focused function that delivers value to the company.
Finance’s core plans for the future
Aside from these five change drivers, the paper identifies four essential techniques for developing the finance function of the future:
1. Establish a vision, describe the financial services available, and integrate with the company.
From process design and service portfolios to technology choices and organizational frameworks, high-performing financial operations have clearly defined visions that influence all they do. • What value do we truly offer? Developing such a vision requires addressing potentially uncomfortable questions, such as:
• What are the skills that are genuinely essential?
• Is it possible for others to deliver services more efficiently than we can?
Finding the appropriate answers is crucial to establishing the financial function’s goal and purpose. It’s also crucial to identify what finance isn’t capable of.
2. To develop value, strengthen the data management basis.
Strengthening data management skills is, without a doubt, the most critical investment in the future financial department. That’s because many businesses are struggling to handle massive amounts of data stored in legacy systems, a challenge that will only become worse as data volumes continue to skyrocket.
Finance departments may – and should – act as a portal to a deeper understanding of company performance. Finance must excel in data management so that it can give the company with forward-looking perspectives for improved decision making. It’s not simply about having a better understanding of current performance and quickly reporting historical outcomes.
3. Use enabling technology and the cloud to innovate, automate, and optimize.
Finance teams that have effectively converted automating end-to-end business processes in order to achieve service excellence. Straight-through processing is critical for reaching high levels of efficiency and effectiveness throughout end-to-end operations. Indeed, broad process automation allows for a move away from transaction processing and data manipulation and toward more strategic, analytical, and value-adding capabilities. The following are some of the advantages of a robust technology strategy:
• More scalable applications and broader adoption throughout the organization • Easier application integration • More flexible, on-demand access to processing power and capacity • Lower overall cost of IT ownership
4. Put the appropriate individuals and teams in the right places at the right time.
In order to implement their service, data, and technology plans, insurers need the proper people, culture, and organizational architecture. Furthermore, as financial departments become increasingly data-driven and tech-enabled, they are required to unleash innovation and sustain high performance levels. Finance must work more cooperatively with the company, but so must units inside the wider finance department.
Change design principles
At this size, transformation involves a combination of revolutionary thinking and an evolutionary change strategy, with an emphasis on cultural change and capacity development, as well as new sourcing and vendor management tactics.
Finance executives must combine bold, innovative ideas with established strategies that generate momentum via incremental benefits to avoid the frequent pitfalls of unsuccessful transformation programs. Taking a long-term perspective will aid in the development of realistic strategies that address the most urgent “fix-now” concerns and build capacity for change while keeping the need for continuing, continuous innovation in mind.
To operationalize vision and purpose and, more crucially, maintain change over time, cultural transformations are required. Setting ambitious objectives entails identifying what you want to do, devising a strategy to accomplish it, and allocating the required resources. Because more engaged teams contribute to more successful change initiatives, communication is crucial.
Aside from integrating data, using modern technologies, and empowering people, tomorrow’s top-performing finance divisions will excel at cultivating mutually beneficial partnerships with important suppliers and partners. Leaders must consider the many qualities they want in their partners and how to best arrange their relationships. Expertise compatibility and cultural fit are crucial characteristics.
The way into the future
Those finance organizations strengthen their skills, simplify and integrate their processes, and improve their technology and data in order to enable the company take advantage of market possibilities in a strategic, safe, and informed manner. They will help the company compete more successfully and, as a result, contribute more substantially to its bottom line.
Finance is in a unique position to correctly assess performance, discover opportunities throughout the organization, and forecast what will happen next since it is the primary repository for all performance data. It may give strategic advising services that assist foster innovation and development, especially in a period of significant uncertainty and fast change, with such a viewpoint.
While industry veterans are aware of the dangers of excessively ambitious transformation efforts, we think the potential upside is so compelling that finance executives must act – and move quickly – if they are to produce the wealth that is within their grasp.