Insurance companies, like other businesses around the world, are continually fine-tuning their operating models and data-gathering. They understand the need to adapt to the shifting business landscape and exponential pace of change. Each business unit has to contribute to the company’s overall strategy, and that includes the finance function.

According to a new report from professional services giant PricewaterhouseCoopers, “Stepping into the Cockpit: Redefining finance’s role in the digital age,” the role of the finance department is changing from a steward of historical data, analyzing what happened and why, to a forward-looking trusted adviser and business partner. The finance team can show its value by predicitng what will happen, and prescribe what should happen to meet strategic and operational business metrics.

The report suggests that chief financial officers and their teams should be helping develop management “cockpits” that go beyond traditional “dashboards” to model underlying business drivers, predict what is likely to happen under different business and competitive scenarios and develop “what if” simulations to help their business counterparts make mid-course corrections and “in-flight” decisions.

Like stepping into a flight simulator, CFOs are being asked to make changes to key business metrics — for example, combined ratio, market share and risk appetite —and evaluate how the company performance could change under different economic — interest rate, inflation and growth rate, for instance — and competitive scenarios.

The financial team can help business units perform financial analysis at any time, not just at specified reporting times. (Photo: iStock)

Slicing and dicing data

The report also notes that reporting activities will need to evolve as new stakeholder groups seek to understand not only the current profitability of organizations and the sustainability and enhancement of such profits, but also the effect of economic and other forces on the organization.

In the current business climate, in which each unit of an organization is held accountable for its financial projections and results, business users want to “slice and dice” data without waiting for help from the finance or IT departments. They also want to perform financial analyses at any time in addition to periodic reporting. These two areas create a “unique opportunity,” the report says, for finance to step into the cockpit by using technologies such as virtualization, cloud-modeling capabilities, new analytical tools and new technologies.

Insurance companies in particular are facing extensive disruption and challenges.

Federal regulations require large insurers — those designated as "systemically important financial institutions," to project and disclose profit and capital positions under multiple economic scenarios. The finance team has to efficiently interpret results to paint a clear enough picture to meet disclosure requirements, the report says. It also predicts that all insurers eventually will have to perform some form of stress testing to measure and monitor capital sufficiency.

The rapid pace of technology development, adoption and use is increasing the type, volume and availability of data. In addition, the growth of the Internet of Things is leading to the digitization of practically everything. Companies are drowning in data, but most of it is unstructured. That can provide insights to insurers when the data is put into perspective. As the report observes, “While predictive analytics is not new to insurance actuarial functions, using it in all areas of insurance and using unstructured data to perform real-time predictive analytics is.”

Financial and actuarial teams can help other business units understand the data driving many of their decisions. (Photo: iStock)

What can finance do?

Finance and actuarial teams now have an opportunity to cut across organizational and data boundaries, the report says, to look at opportunities and risks in new ways and on a more real-time basis. Specifically, finance can help determine:

Where to grow and invest by providing real-time feedback on, and understanding of, the potential impact of disruptors on plans (in terms of changes to assumptions and providing scenario analysis).
How to measure performance by understanding key performance drivers and provide insightful performance reporting at various levels of the organization.
How to manage the risks involved by helping enhance data governance and stress testing plans and actuals to help guide the organization within defined risk parameters.

In addition, the CFO and financial team can help grow revenue, enhance profitability and support operational excellence by taking the following actions:

Providing a complementary role to model pricing and adjustments.
Evaluating, validating and monitoring business cases.
Evaluating and modeling the impacts of data breaches.
Monitoring business performance.
Evaluating data quality and consistency.
Capitalizing on analytical insights.

To be more effective finance professionals will have to develop new skills and a new mindset of looking forward, not back, when analyzing the organization’s data, for example, information about consumers’ driving habits. By taking a more active role in the company’s day-to-day operations, CFOs and their teams can be a more vital part of the business, adding more significant value and helping determine the company’s ongoing business strategy.

The full report is available on PwC’s website.

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Insurance CFOs need to play a different role, PwC report says

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