Tag Archives: financial data

CEOs Expect More From Finance Function

Banking and insurance chief executive officers (CEOs) think it’s time for their chief financial officers (CFOs) to shine. But many also have deep misgivings about whether the finance function — and its leadership — is ready to deliver real value to the business strategy.

Winds of change keep blowing

Anyone that thinks that the financial services industry has been slow to change has clearly not spent much time in the finance function. Indeed, the last decade — the past 5 years in particular — have been all about change for finance executives.

Change has been driven from all sides: new accounting standards, increased capital adequacy and/or solvency rules, heightened reporting requirements, new regulatory directives and the recent shift towards more integrated reporting are just part of the change sweeping through the financial services industry and flowing into the finance (and risk) functions at financial institutions.

At the same time, bank and insurance CFOs also need to support the organization and its business strategy. New products are being introduced, businesses are being sold or acquired, non-strategic assets are being divested and new markets are coming into scope. And with each change, the finance function has needed to respond.

Rise above the fray

While bank and insurance sector CEOs seem to sympathize with the plight of the finance function, most clearly expect their CFOs to rise above the challenge. In a recent global survey of more than
370 CEOs commissioned by KPMG International, 67 percent of financial services respondents said they expect the role of their CFO to increase in significance over the next 5 years, the highest percentage among all c-suite executives.

The problem is that few of these CEOs seem to think their finance leadership is currently ready to take on this high profile role. The same survey found that just 53 percent of the financial services CEOs thought their CFO was viewed as a valuable business partner
by the business. Only around a third of respondents believed that their CFOs truly understood the challenges they face as CEOs. Just 19 percent thought that their CFO was currently playing a critical role in supporting the CEO and the board. Simply put, the data suggests that CFOs of financial institutions still have a long way to go if they hope to live up to their CEO’s expectations.

Taking an enterprise-wide view of performance

A number of CFOs at the top global banks and insurers are now starting to focus on developing and improving their enterprise performance management (EPM) capabilities. Essentially, they are starting to recognize that — by combining financial data with operational and customer data through the latest wave of integrated EPM solutions — CFOs can start to take a leading role in helping to dynamically manage the planning and execution of the business strategy.

EPM delivers benefits across the organization. At the finance level, improved EPM capabilities enable finance functions to optimize their finance operations and dynamically generate more value-adding reports, allowing the finance function to become a more vital business partner across the enterprise.

It can improve the speed, relevance and access to the type of performance reporting and analysis that creates real business insights when and where it is needed most: in the business. And it can help create better alignment between the organization’s diverse back-office functions (such as risk, capital management, compliance and operations) to drive better end-to-end decision making based on a single set of balanced key performance indicators (KPIs).

Improved EPM capabilities also allow the finance function to become a better — and more strategic — business partner.
In some cases, this is achieved by driving valuable forward-looking analysis and planning through the EPM’s integrated business and financial planning features. Using these advanced EPM functionalities enables finance functions to better anticipate and even predict business outcomes, leveraging sophisticated ‘what-if’ scenario-based analysis capabilities based on key business drivers, events and relationships. And, in doing so, it can help the finance function become more integrated with the organization’s sales and operations planning processes.

This forward-looking EPM feature is especially important for financial institutions, as new accounting standards like IFRS9 for financial instruments and IFRS4 Phase 2 for insurance contracts (both life and non-life) forces them to disclose fair market values and net present value (NPV) calculations on their financial assets and liabilities. This, in turn, will likely make results more volatile and more transparent, which will lead organizations to demand even greater control than they have today.

Many financial services organizations are also seeking to improve their end- to-end performance in key areas such as customer performance. Some have even defined new roles specifically to support improvements in their end- to-end processes. As a result, some organizations are finding that EPM helps deliver a consistent end-to-end framework that ensures consistency in definitions, improves connectivity to show correlations and encourages the reuse of data to improve reconciliation.

Aligning the Risk and Finance functions of insurance companies with EPM

For insurers, one of the big benefits of EPM is closer alignment between the finance and the risk functions.

Creating this alignment is more important today than ever. The finance function is critical to measuring and reporting financial metrics such as gross premiums, investment returns, claims paid and overall profitability, while the risk function needs to estimate the technical reserves based on a complex array of actuarial models covering insurance, market and operational risks. Together, these two form the basis for the all-important equity and solvency ratios of the company.

The latest generation of insurance- specific EPM systems can bring both worlds more closely together. Not only are they able to generate the usual financial and certain regulatory reporting requirements, but they can also support the integrated business planning and management reporting needs of the company through innovate data cubes, on-the-fly dashboard generators and real-time analytical capabilities.

From discretionary to mandatory

Perhaps most importantly, a strong EPM capability can enable management to make better business decisions. It can help improve speed and access to information. Leveraging new technologies (such as those on offer at the KPMG Data Observatory), EPM can deliver improved visualization and analytics capabilities, thereby empowering the organization with competitive insights. And it can make sure everyone is looking at consistent data from the same source, improving decision- making confidence. Essentially, it can help management answer the big questions that they are struggling to answer today.

This is exactly what CEOs say they want from their CFOs. Indeed, when we asked CEOs of large financial institutions what their CFO could do to deliver more value, three initiatives boiled to the top:

1. applying financial data analysis to help the organization achieve profitable growth;

2. using financial data analysis to create and implement new operating models; and

3. finding ways to turn the regulatory environment into a competitive advantage.

All three can be achieved through improved EPM capabilities.

As a result, most CFOs are starting to recognize that investing into EPM is no longer a discretionary activity. It is a source of potential competitive advantage, a way to better manage regulatory requirements and a path to improved efficiency and cost savings. As such, EPM is quickly becoming a mandatory capability for finance functions in the financial services industry.

More than just a reporting tool

We have used words like ‘discipline’ and ‘capability’ when we refer to EPM, rather than ‘software’ or ‘solution’. That is because EPM is much more than simply a tool or software package that is ‘bolted-on’ to consolidate and analyze global data from existing ERP systems. In fact, the real value of EPM comes only when the organization — led by the finance function — starts to turn that data into real, reliable and actionable insights. And that requires a holistic approach to EPM that spans the enterprise and the whole operating lifecycle (as illustrated in Figure 1).

To start, organizations may want to consider flipping the historical ‘plan-do- check-act’ approach on its head. Indeed, creating a robust and appropriate EPM program requires finance functions to start with the ‘act’ (i.e. what insights does the business need in order to act), and then ‘check’ what information is required and whether it is available. Only then should finance functions move onto the ‘do’ of building the solution and, ultimately, the planning that can be achieved once the information is available. Once EPM programs are in full swing, finance functions can then go back to the traditional and continuous ‘plan-do-check-act’ lifecycle process and culture.

Screen Shot 2016-04-14 at 1.28.26 PM

Become a value player: Solve the business’ problems

Securing ‘buy-in’ from the business for a new approach to EPM is not easy; fatigue with new change programs is high and executives are competing fiercely for resources for their own programs. But buy-in is critical, not only at the executive level but throughout the business and across the enterprise.

In this busy environment, CFOs may want to start by helping the business answer one specific (yet critical) management question: “How can I best help you achieve your business goals?” Maybe it’s about finding the optimal pricing mix for their products and services. Maybe it’s about identifying the right acquisition targets to drive profitable growth. Or maybe it’s about identifying the most profitable customer segments and channels.

The key is in working collaboratively with the business to solve their problems and then using that opportunity and outcome to drive greater appetite for more advanced EPM capabilities within the business.

Bank CFOs leverage EPM to become more strategic

Most banking CFOs are already well on their way to moving from being a scorekeeper to becoming a business partner. But EPM enables CFOs in the banking sector to move one step further by allowing the finance function to combine multiple sets of data — financial, customer, risk and operational, for example — to provide the organization with deeper, more valuable and more strategic reports.

Our experience suggests that the ability to leverage and adopt new technology and approaches will be key. Some of the leading banking CFOs are already using data visualization and predictive analytics to collect, analyze and communicate key data sets. And early adopters are now investing into robo-advisors and other automated technologies that can reduce or eliminate manual intervention.

A business-led approach

When we work with banks and insurance CFOs to create stronger EPM lifecycle discipline and improve their EPM capabilities, we focus on creating a holistic enterprise performance management model and approach that recognizes the transformation
that is required in process, people and technology to allow CFOs to drive real value from their finance teams.

In doing so, we lead our clients through a business-led technology transformation that instills the necessary EPM awareness, capabilities and skills across the enterprise and throughout the business, helping CFOs meet the evolving and increasingly sophisticated demands of their organization.

Screen Shot 2016-04-14 at 1.32.33 PM

Questions to evaluate if your organization needs improved Enterprise Performance Management capabilities …

  1. Doesyourexecutiveteamhave real insight into the group’s true profitability by product, service/ channel, country/region and customer?
  2. Is your organization combining financial, operational and customer data to make better decisions and create a competitive advantage?
  3. Are you able to anticipate future regulatory changes and use those insights to gain entry to new markets using innovative channels faster than your competitors?
  4. Do you know which channels currently provide the best growth and profitability and do you have a plan for optimizing them?
  5. Are you able to conduct collaborative planning across all of your business functions to optimize investment decisions and improve shareholder return while at the same time maximizing capital efficiency?

Reprinted from (Regulatory Challenges Facing the Insurance Industry in 2016,) Copyright: 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. The KPMG name and logo are registered trademarks or trademarks of KPMG International.

All information provided is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the facts of a particular situation.

For additional news and information, please access KPMG’s global web site.

legal department

2 Steps to Transform Claims, Legal Group

Technology. Innovation. Even in 2016, when “technology” and “innovation” are oftentimes brushed aside as clichéd buzzwords, technology and innovation can still be daunting to many of us. Even more daunting is implementing technology in your insurance company to transform your claims and legal department.

By breaking down innovation into the two simple steps described here, using technology to spur innovation becomes a lot less daunting. In fact, using the technology described here, you can achieve breakthrough improvements in performance while simultaneously decreasing expenses.

  1. Document Automation

Automating legal documents is a simple way to use technology to improve processes and save money. Claims and legal executives at insurance companies know that pleadings and other legal documents full of the same old legalese are par for the course. No matter the case, claims and legal executives see the same pleadings containing the same content time and again. Nevertheless, attorneys continue to charge for each legal document, and insurance companies continue to pay for each legal document. Even more troubling, these documents typically have little to no impact on the pending litigation, and they are impossible to manage.

The solution is legal document automation. Imagine if you had a robust library of hundreds of automated legal documents including pleadings, discovery, letters, notices and motions at your fingertips. These standardized forms allow for stricter quality control and instant access to top-shelf legal documents. Insurers do not pay for the same document twice, leading to huge financial savings. Perhaps most important, a software-based platform aligns with changes in strategy, case law and legislative change to ensure these are captured in every legal document. Taken together, automation allows insurers to take control of legal outcomes.

Legal documents are the toolbox of every legal department and attorney handling a case. If you are not busy and are not trying to profit, go ahead and use a hammer and nail to litigate. But if you looking to innovate and transform your department, why not use a power drill?

  1. Analytics

Insurance company executives handling claims and litigation have data. Lots and lots of data. Turning that data into intelligence is no easy task, but it is crucial in this rapidly changing insurance industry. You must move your business from yesterday’s hard data environment to today’s efficient virtual platform. Real-time intelligence, including descriptive and predictive analytics, will take your claims and legal department into the future.

Descriptive Analytics

Descriptive analytics answer one simple question: “What happened?”

Using software to capture yesterday’s hard data, your claims and legal department can transform latent data into actionable descriptive analytics, allowing you to answer many of the important questions:

  • When is the claims process most likely to break down?
  • Which adjusters and engineers realize the least overall cost, including indemnity and expense?
  • Which attorneys achieve the best combination of results and expenses?
  • What are the emerging issues and how can we mitigate them?

Predictive Analytics

Predictive analytics answer another simple question: “What might happen?”

For example, predictive analytics could provide a range of the number of times an insurance company may be sued next year based on data trends from last year.

Predictive analytics allow a claims and legal department to:

  1. Allocate resources
  2. Reserve
  3. Produce effective and efficient settlement values
  4. Identify potentially fraudulent claims
  5. Identify potentially large losses
  6. Manage expenses
  7. Analyze emerging issue trends to aid the underwriting process

Technology can capture yesterday’s hard data and makes it searchable, sortable and reportable. Further, using a customized collaboration tool with the right fields accessible to the right users, you could automatically collect the most pertinent financial data in real time. This technology allows access to descriptive and predictive analytics and gives insurers the ability to evaluate expenses and outcomes on a real-time basis, as well as obtain efficient resolutions.

By focusing on these two simple steps, insurers can turn claims and litigation expenses into valuable assets. Gone are the days of zero return on investment. Implement these two steps, and your litigation costs will produce countless opportunities to reduce expenses and write better business.