Inflation, rising interest rates, seesawing stock markets, supply chain disruptions and geopolitical uncertainty might not have spurred some of the world’s largest insurers to invest in financial transformation. But they and others in the insurance business who have made the leap are much better positioned to deal with what appears to be a major reset of the financial order thanks to those investments.
While a term as broad as “financial transformation” means different things to different insurers, there are constants. One is harnessing the cloud – public, private or hybrid – to enable an aggressive pruning of redundant data sources and, in doing so, provide a single source of truth.
A second is exploiting that single source of truth to the maximum possible extent. We’re seeing real-time or near-real-time reporting rather than having to wait for hours or days to combine and rationalize data from disparate sources and run batch reports. Also, having a single, reliable data source opens the doors for new machine learning and artificial intelligence tools developed in-house or by partners – PwC’s Cash Intelligence being one example.
A third involves a concerted effort to derive real business benefits from the major investments needed to meet the regulatory requirements of IFRS 17 and LDTI – not to mention prepositioning for compliance with future regulatory demands such as those that may emerge from the International Sustainability Standards Board. Often, doing so involves modernizing not only the financial function as narrowly defined, but also the actuary function. That combination lowers operational costs and brings immediate, much more comprehensive visibility into one’s own investments and fast-evolving risk profile, and it enhances agility in adjusting portfolios based on the shifting sands of a volatile market environment.
A fourth element of successful financial transformation has to do with acting on the new insights into one’s own operations to experiment with new business models and exploit the opportunities that an unpredictable market environment can open up.
See also: 4 Strategies as Customer Behavior Changes
These four elements are already being put into place – primarily by major insurers that, given their scale and the operational complexity, have been the leaders in financial transformation. Major insurers also have the biggest budgets, of course, and financial transformation is an investment. But we’re seeing that investment pay off, as demonstrated by these examples:
- The U.S. subsidiary of a major European insurer launched its financial transformation effort to meet IFRS 17 requirements. That involved building a multi-ledger, parallel-ledger architecture, one that enabled IFRS testing to happen fast. But the company recognized that insurance was only part of the story. Its finance team could work faster and sharply cut month-end and quarter-end turnaround times while boosting throughput by roughly half. Advanced analytics accessing a common data platform could derive insights that, in the past, would have remained shrouded and unactionable.
- Regulatory compliance also drove a major reinsurer’s financial transformation, and, as was the case with many others, compliance was only the start. A new multi-valuation subledger bridged the gap between operations and actuarial systems, and that and other improvements brought efficiencies of surprising power. One example: Time to financial close shrank from 55 days to just five days.
- A midsize European insurer reported better support for decision-making with real-time business insights and faster reporting through the ability to use general ledger reports in the settlement process. The simplified IT landscape enabled one source of truth and increased transparency, empowering employees to work more productively. Among the benefits include 70% faster financial report generation and efficiency gains of about 20% in both annual auditing and, more generally, the completion of finance-related tasks.
Other cases show financial transformation to be paying off. A South American insurer reported better visibility and transparency of its data and processes as wells as improved sales and budget planning, with a 75% reduction in accounts-receivable closing time. A Central European insurer rationalized 20 finance systems running across its 119 companies into a single solution, using parallel ledgers and flexible data modeling to shrink the number of general ledger master records by 75%. Their quarterly close now happens four weeks faster.
In short, the idea that financial transformation can help insurers better serve their customers even as they position their businesses for rough seas is no longer theoretical. Success in an uncertain, highly competitive global insurance business is increasingly going to depend on it.