Finance officials at a growing number of insurance companies have been expanding their traditional role and capabilities beyond basic balance sheet stewardship and compliance responsibilities to provide broader strategic decision-making support and advice.

Indeed, the finance function in general is evolving into more of an internal business partnering role to facilitate the development of new products and markets, cost-reduction initiatives, and efforts to achieve appropriate risk-adjusted returns, according to Deloitte's CFO Signals survey.

Business partnering in this context can be defined as the role that finance will assume to both support and challenge insurer initiatives. It is a shift from stewardship to strategic thinking, with finance looking to create value by improving the quality of business decisions while helping realize the highest financial value for a particular initiative at what is considered to be an acceptable level of risk.

The challenge is for finance to develop into an effective internal business partner to enhance strategy formulation and execution, while maintaining its stewardship and control capabilities.

Carriers are also looking to prepare for new financial information demands from regulators, likely to be generated by the National Association of Insurance Commissioners' (NAIC) Own Risk and Solvency Assessment initiative, the European Union's Solvency II directive, and other such calls for data and analysis. Finance will likely play a major role in scenario planning, stress testing, and other efforts to comply with new oversight requirements.

Yet a number of insurers continue to face challenges in finance when it comes to adapting legacy systems to meet these evolving data demands. Deloitte's research into business partnering among finance leaders in 11 industries found that while technology is a key enabler, it can also be an obstacle in effectively supporting the business, thus driving the need for transformation efforts.

This survey showed that even when finance business partners have the correct data, they often have to spend significant time rationalizing it to make it relevant for strategic business purposes. Indeed, 57% ranked “finance systems inhibiting access to data” as a top-three barrier.

How might carriers move further along the finance maturity curve so they may become true internal business partners, while also upgrading their systems and capabilities to provide the data and insights required to meet increasingly stringent regulatory demands.

Under Deloitte's “Four Faces of Finance Framework,” “Stewards” tend to emphasize protecting company assets and ensuring compliance with financial regulations, while “Operators” generally support efficient finance operations and service delivery.

However, business partnering likely requires taking the finance function to another level. “Strategists” help determine business direction and align financial strategies, while “Catalysts” look to proactively stimulate behavior to achieve strategic as well as financial objectives.

Therefore expect finance functions at a growing number of insurers to move towards internal partnering, and in the process become a more integral contributor in key business activities — including target-setting, forecasting, capital investments, risk management, and governance.

The drivers are two-fold, one being regulatory demands for stress testing and scenario planning, with the other being the need to better integrate finance into overall business partnering.

To reach this higher stage of transformation, finance will likely need to collaborate more closely with other functions, such as risk management, than may have been the case historically. To accomplish this, insurers will look to bring together financial with operational data, which often is not within the current reach of finance. As a result, they will also likely need greater information technology support to produce the types of data being sought for both business purposes and regulatory needs.

As companies transform financial processes, the lines of business, risk, and tax departments will look to reevaluate and improve the availability and quality of information, especially in relation to non-SEC/financial reporting data, as they seek to bolster business intelligence, predictive analysis, risk management, and capital allocation.

Talent can be a differentiator. Carriers looking to bolster their finance capabilities may need to develop or recruit those with certain critical competencies, such as commercial acumen and decision-making skills, strategic thinking, and the ability to influence and even challenge enterprise decisions.

In addition, there could be an increased utilization of outsourcing in the finance area for more routine activities to facilitate a greater focus on core strategic, business partnering priorities in-house.

The bottom line is that insurance players should take a more holistic approach to their finance transformation initiatives, exploring how finance could create greater value by playing the role of a “Strategist” and perhaps “Catalyst” in decision-making on broader company challenges.

Without sacrificing their stewardship role, finance leaders should develop a plan to align with higher value enterprise activities so they may become more integral business partners with their internal clients.

To evolve in this direction effectively, partnering competencies should be built or imported into finance — an area where recruitment and development efforts have traditionally focused more on acquiring or developing technical proficiency rather than a broader business skill set.

Special Reports /

Insurer Finance Function Moving from Steward to Catalyst

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