Why insurers must reimagine their finance function for the future

Transforming the finance function is critical to succeed in a dynamic marketplace.

In brief

• There’s never been a better time for finance functions to transform and become an active leader and value creator for the entire business.
• Advances in technology and data have redefined what’s possible for finance – comprehensive data makes it easier to connect performance across the business.
• The goal is not simply to automate for efficiency, but also to rethink the services finance offers and how it can add value to the business.

Changing customer expectations, continuous technological advances, and the explosion in the availability of data present compelling performance improvement and growth opportunities for insurers that can successfully transform key parts of their operations, including finance. A fundamental new accounting framework will shift how the industry measures performance – another prompt for significant change.

Against this backdrop, we believe now is absolutely the right time for insurers to rethink, redefine and – yes – transform the broader finance function. Everything should be under consideration – from the purpose of finance and the services it provides to operating models and integration with the business, to the necessary tools and talent. Finance leaders must take a broader – and bolder – view of transformation. The goal must be to assume a more active and strategic role in advising the business and creating value.

These are among the issues and opportunities we explore in our latest report, Insurance finance reimagined: the why what, and how of transformation.

Thinking bigger and bolder about finance means integrating the multiple groups and functions involved in calculating, projecting, and managing financials. Beyond the traditional finance unit, actuarial, investment teams and certain risk disciplines need to work together to provide accurate information and clear insight. EY’s vision for the future of finance includes all of these groups collaborating seamlessly and accessing the same timely data sets to add more value for the business. Tax and treasury teams must also be more closely linked to the broader finance ecosystem than in the past.

Key drivers of change

Our report covers five critical drivers of change:

1. Shifting business needs: Changes in customer expectations, the competitive landscape, regulatory requirements, underwriting, technology, and data have led insurers to make significant investments in new digital platforms, process automation, and improved customer service capabilities. However, if decision support, insight generation, capital planning, and enterprise protection capabilities – key roles for finance functions – can’t keep up, half of the value from initial investments will remain on the table. As the business evolves its operations, the broader finance organization must evolve how it evaluates investments, allocates resources, measures returns, and reports on performance.

2. Technology tipping points: Technology has redefined the art of the possible for finance, actuarial and risk management. Advancements that seemed “just too hard” are now within reach, including 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 huge scale, capability, speed, and operational cost savings. The opportunities range from more straight-through processing to easier access to consistent data (which is critical for integrating with risk and actuarial), to enhanced scenario modeling and insight generation capabilities.

3. Increasing regulatory demands and the shift to long-term value: New accounting standards – including IFRS 17, IFRS 9, and Long Duration Targeted Improvements (LDTI) – are having a major impact. Regulatory requirements for data availability and transparency are increasing, especially relative to ESG. New metrics will fundamentally shift how both life and P&C insurers measure and report earnings. In some cases, finance leaders will need to help senior management (as well as financial markets) understand and interpret these new numbers. Insurance accounting has always been complex and these new regulations will make it seem more so, at least in the near term.

4. An intensifying battle for talent: As cloud capabilities, artificial intelligence, machine learning, and hyper-scale computing radically transform accounting, tax, and actuarial processes, people will provide differentiation and competitive advantage through more informed decision-making and increased risk intelligence. Finance will need more analytical, tech-savvy workers, meaning that insurers must become better at attracting and retaining scarce talent. The next generation of talent is looking for meaningful workplace experiences too, including access to advanced technology and careers that represent more than a paycheck.

5. The huge potential upside: The final – and perhaps most compelling – the reason for reimagining the finance function is the upside potential it offers the business. First movers and early adopters will realize not just near-term value, but a sustainable competitive advantage for the long term. Insurers that move quickly and boldly to digitize, integrate and transform their finance, actuarial, risk, and tax functions will see the value in the form of increased operational efficiency and a strategically oriented function that adds value to the business.

Core strategies for the future of finance

Beyond these five drivers of change, the report highlights four key strategies to build the finance function of the future:

1. Set a vision, define the services finance offers, and integrate with the business

High-performing finance functions have clearly defined visions to guide everything they do, from process design and service portfolios to tech selection and organizational models. Developing such a vision requires asking potentially difficult questions, such as:

• What value do we really offer?
• Which capabilities are truly core?
• Can others provide services more effectively than we can?

Finding the right answers is critical to defining the mission and purpose of the finance function. It is also important to define what finance does not do.

2. Strengthen the data management foundation to generate value

Strengthening data management capabilities is arguably the most important investment for creating the finance function of the future. That’s true because many firms struggle to manage enormous quantities of data residing in legacy systems – a problem that will only get worse as volumes continue to expand dramatically.

Finance organizations can – and should – serve as the gateway to deep insight into business performance. It’s not just about having clearer insight into current performance and efficiently reporting past results; rather, finance must excel in data management so that it can provide the business with forward-looking views for better decision making.

3. Innovate, automate and optimize with enabling tech and the cloud

Those finance teams that have successfully transformed automate end-to-end business processes to achieve excellence in service delivery. Straight-through processing across end-to-end processes is essential to achieving high degrees of efficiency and effectiveness. Indeed, widespread process automation enables a shift from transaction processing and data manipulation to more strategic, analytical and value-adding capabilities. The benefits of a strong technology strategy include:

• More scalable applications and wider adoption across the business
• Simpler integration across the application landscape
• More flexible, on-demand access to computing power and capacity
• Lower total cost of IT ownership

4. Get the right people and teams working in the right way

The right people, culture, and organizational design are necessary for insurers to execute their service, data, and technology strategies. Further, they are necessary to unleash innovation and maintain high-performance levels as finance functions become truly data-driven and tech-enabled. Not only must finance work more collaboratively with the business, but groups within the broader finance function must do the same.

Design principles for change

Driving transformation at this scale requires blending revolutionary thinking with an evolutionary approach to change, with a focus on cultural change and capacity expansion, and new sourcing and vendor management strategies.

To transcend the common pitfalls of failed transformation initiatives, finance leaders must combine bold, creative ideas with proven tactics that build momentum through incremental gains. Taking a long-term view will help shape viable plans that address the most pressing “fix-now” issues and create capacity for change without losing sight of the need for ongoing, continuous innovation.

Cultural shifts are necessary to operationalize vision and purpose and, most importantly, sustain change over the long term. Achieving ambitious goals requires defining what you want to achieve, crafting the plan to achieve it, and committing the necessary resources. Communication is important because more engaged teams lead to more effective change programs.

Beyond integrated data, advanced technology, and empowered teams, tomorrow’s top-performing finance functions will also excel at building mutually beneficial relationships with key vendors and partners. Leaders must think through the various attributes they are looking for in their partners and how to optimally structure the relationships. Compatibility of expertise and cultural fit are important criteria.

The path to the future

Those finance groups expand their capabilities, streamline and link their processes, and enhance their technology and data to help the business take advantage of market opportunities in a strategic, safe, and informed way. They will enable the business to compete more effectively and therefore contribute more meaningfully to bottom-line performance.

As the central point for all performance data, finance is uniquely positioned to accurately measure performance, identify opportunities across the business, and predictively model what’s to come. With such a perspective, it can provide strategic advisory services that help promote innovation and growth, even during a time of great uncertainty and rapid evolution.

While industry veterans understand the risks of overly ambitious transformation programs, we believe that the future upside is so compelling that finance leaders must act – and the sooner the better – if they are to create the value that’s within reach.

Thank you to Steve Capps, EY Global Insurance Finance Transformation Leader, for his contributions to this article.