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

According to a new report from professional services giantPricewaterhouseCoopers, “Steppinginto the Cockpit: Redefining finance’s role in the digitalage,” the role of the finance department is changing from asteward of historical data, analyzing what happened and why, to aforward-looking trusted adviser and business partner. The financeteam can show its value by predicitng what will happen, andprescribe what should happen to meet strategic and operationalbusiness metrics.

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

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

Related: Successful young brokers use data to help their companieschange

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

Slicing and dicing data

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

In the current business climate, in which each unit of anorganization is held accountable for its financial projections andresults, business users want to “slice and dice” data withoutwaiting for help from the finance or IT departments. They also wantto perform financial analyses at any time in addition to periodicreporting. These two areas create a “unique opportunity,” thereport says, for finance to step into the cockpit by usingtechnologies such as virtualization, cloud-modeling capabilities,new analytical tools and new technologies.

Insurance companies in particular are facing extensivedisruption and challenges.

Federal regulations require large insurers — those designated as"systemically important financial institutions," to project anddisclose profit and capital positions under multiple economicscenarios. The finance team has to efficiently interpret results topaint a clear enough picture to meet disclosure requirements, thereport says. It also predicts that all insurers eventually willhave to perform some form of stress testing to measure and monitorcapital sufficiency.

Related: MetLife unit’s SIFI off-ramp may pressure AIG as Icahnlooms

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

Financial and actuarial teams canhelp other business units understand the data driving many of theirdecisions. (Photo: iStock)

What can finance do?

Finance and actuarial teams now have an opportunity to cutacross organizational and data boundaries, the report says, to lookat opportunities and risks in new ways and on a more real-timebasis. 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 scenarioanalysis).
• How to measure performance by understanding key performancedrivers and provide insightful performance reporting at variouslevels of the organization.
• How to manage the risks involved by helping enhance datagovernance and stress testing plans and actuals to help guide theorganization within defined risk parameters.

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

• Providing a complementary role to model pricing andadjustments.
• 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 developnew skills and a new mindset of looking forward, not back, whenanalyzing the organization’s data, for example, information aboutconsumers’ driving habits. By taking a more active role in thecompany’s day-to-day operations, CFOs and their teams can be a morevital part of the business, adding more significant value andhelping determine the company’s ongoing business strategy.

The full report is available on PwC’s website.

Related: Are you prepared for these claims, tech and riskmanagement trends?

Have you Liked us on Facebook?