How P&C insurance finance transformation can drive profitable growth

The Finance function plays a pivotal role in building a more strategic and operationally efficient P&C organization, but first the Finance operating model must transform. All elements of the operating model will need to be addressed to drive the outcomes needed to meet changing business needs: staying agile and competitive in the market while also driving cost and operational efficiency internally.

When executed effectively and comprehensively, Finance transformation programs can unlock up to 30% in efficiency gains while also emboldening the capabilities necessary to drive best-in-class business performance. With the pace of business and the ever-evolving competitive landscape, the cost of inaction in failing to unleash the power of the Finance function increases every day.

Why Finance must embrace strategic transformation to drive results

Insurance is dynamic. As we explore in our recent NextWave Insurance report, how insurers engage with individuals and small business customers over the next several years will change dramatically. Finance organizations need to be enablers of change, able to provide clear and fast insights and improve business performance.

High-performing Finance functions integrate with the business. Finance executives work with leaders to set a vision for services, processes and organizational models that serve the business needs, such as determining markets to enter or exit, examining the impact of scenarios on profitability, managing capital allocation, defining reinsurance strategy, implementing expense management and developing product strategies to support growth.

Three keys to leading strategic transformation within the Finance organization

1. People: Manage talent and shift focus to value-add vs. production activities.

In this era of rapid technological advancement and dynamic market shifts, P&C insurers can no longer afford to view their Finance function solely as a back-office support unit. Instead, they should recognize it as a strategic powerhouse that can drive efficiency, unlock insights and foster innovation. Embracing this mindset requires reimagining how the Finance organization approaches people and the workforce.

In response, many organizations are deploying a hybrid talent model. This approach blends locally and globally sourced talent, establishes centers of excellence and employs managed service arrangements for targeted processes. In essence, pinpoint the precise talents needed for the organization while opting for a cost-efficient, low-overhead model whenever feasible. By strategically reallocating effort away from non-value-add activities, particularly those that lack differentiation, local Finance teams can channel their energies into applying analytical insights and forging collaborative partnerships with other business units. This agile structure allows Finance to serve all levels of the business cost-effectively and to scale when and where needed.

2. Process: Redesign processes to make the most of data.

Firms with disjointed processes limit their potential in getting the most out of data and, ultimately, driving increased growth and profitability.

P&C insurers encounter challenges with processes due to growth through acquisition, resulting in complex legacy processes or architectures, disparate teams and decentralized processes. On top of that, cost pressures and ever-shrinking margins lead to a “need to do more with less” mentality within the organization. Often, a complex product suite and diversity of product portfolio add to the strain.

Not all business capabilities are created equal. Effective process transformation drives simplicity and efficiency in operational processes (best-in-cost) and enables analytics, insights and agility for differentiating processes (best-in-class). For P&C, examples of best-in-cost processes include activities such as accounting, regulatory reporting, accounts payable (A/P) and fixed assets. Best-in-class processes include areas such as financial planning and analysis (FP&A), expense management, management reporting and reinsurance.

Trends in P&C process transformation:

• Implementation of expense management for the organization that creates transparency, controllability and accountability, supported by data to promote operational efficiency and hygiene.
• Reduction and drive for efficiency through standardization and automation, which speeds up manual work, improves data accuracy and shifts staff focus from production to analyses that support management’s decision-making.
• Use of agile scenario planning and analytics to adapt to surprises and changes in situations, such as the use of historical and forecasted rate data during annual P&L planning.
• Reduction of risks via auto-controls for compliance and value-add risk management.

Through redesigned processes, the Finance function can become a proactive engine of growth and profitability as opposed to reactive back-office operations. High-quality data, strong data management, dynamic tools and an organized business system architecture enable efficient, in-depth analyses and sound decision-making.

3. Technology: Use and enable technology to become proactive.

As with all Finance organizations, and certainly within P&C, data is at the center of everything. A common challenge firms experience is the complex data landscape, given market growth through acquisition, along with rapid technological enhancements. As a result, companies are left with complicated architectures, which often results in redundancy of processes, data complexity, lengthy planning and reporting cycles, and more. Upgrades to technology and the transition to cloud-based solutions that support key business needs and enable growth and scaling will mitigate these issues.

By modernizing finance data solutions and leveraging new technologies, P&C Finance organizations can drive insights and actions both internally (expense management, cost efficiency and operational efficiency) and externally (pricing, underwriting, forecasting and planning, and reinsurance administration).

Examples of technology-driven transformation opportunities include:

• Leverage advanced analytics and predictive modeling to gain insights into customer behavior, risk assessment and pricing optimization to enable identification of new revenue streams, manage risks effectively and improve underwriting profitability.
• Embrace cloud computing solutions that offer flexibility to scale resources based on demand, reduce infrastructure costs, enable seamless integration with third-party systems, and facilitate remote access and collaboration.
• Implement user-friendly data visualization tools and empower business users with self-service reporting capabilities that provide access to relevant financial insights to reduce dependency on IT teams and enable faster decision-making based on reliable data.

Technology transformation trends today include digitizing the Finance function via automation, driving insights, establishing a single trusted source of truth and scaling growth through standardization and a transition to the cloud. The associated benefits are manifold: lower overhead costs through operational efficiencies, improved business partnering and support for decision-making, seamless onboarding of new entities and strategic planning enhancements from system upgrades. As firms look to re-evaluate their technology stack and design, Finance functions can become change champions and proactive value-add business partners.

How to approach Finance transformation within P&C insurance

Finance transformation programs fall short of the outcomes established at the start of the transformation program for a variety of reasons. Five common missteps are tackling too much at once, technical debt (long history, heavily complex), programs and projects that are long in duration and complexity (and momentum is lost before truly realizing the outcomes), and a lack of organizational buy-in at all levels.

To address this, we believe it is critical to deploy the following as part of transformation:

• Aggressively manage ROI.
• Evaluate the finance operating model, aligning capabilities to a best-in-class vs. best-in-cost framework to drive prioritization of initiatives.
  
• Map initiatives on a 2x2 matrix of impact vs. complexity to create a prioritized roadmap.
  
• Measure progress at key checkpoints (start, middle and end) against the expected outcomes and benefits. Many organizations don’t establish a budget or target outcome or do not measure as part of the overall transformation.
  

Finance transformation will support a firm’s ability to push its limits

The Finance function is key to a P&C firm’s success in combating industry and competitive pressures. An agile transformation of people, process and technology facilitates Finance’s ability to be more proactive and drive actionable insights, unlock efficiency gains and ultimately realize the “art of the possible.” Executing the right transformation programs in the correct lens may be a daunting proposition; however, the cost of doing nothing is too high to ignore.