On the Financial Front

Addressing the issue of high operating costs in the insurance and financial services fields often comes down to how technology is being deployed to cut expenses. In a recent report, “The Finance Function in Financial Services,” the management and technology consulting firm BearingPoint surveyed chief financial officers on their views on how to drive transformation within their organizations.

Gil Mermelstein, managing director in BearingPoint's management consulting practice, relates the overhaul of legacy systems and systems for the core operations of the company are viewed as critical factors by the finance side.

“Financial services organizations must continue to find ways to improve performance and reduce costs,” says Mermelstein. “[Companies] are looking to their CFOs for leadership in gaining and maintaining competitive advantage. Legacy systems are obstacles to change.”

The different industries that fall under the financial services label have their own ways of approaching issues, Mermelstein points out. While some in financial services have embraced outsourcing opportunities, he explains insurance companies have been relatively late to this area. Still, the objectives are the same for everyone. “It's very much about transforming the cost space, being more efficient, and making process improvements,” he says. “In terms of how they go about those things, insurance tends to be a little more conservative in certain aspects.”

Outsourcing should be one of the first steps insurers take to cut their spending, continues Mermelstein. “That tends to be a point of entry in many cases because the changes made in their enterprise are not as severe,” he says. “They are not changing processes.”

CFOs see the value of information technology as a way to improve efficiencies, but they realize the tremendous costs involved. “Whether you look at the IT function as an integrated system or how [IT] goes about choosing and prioritizing projects, it's a very big-ticket number,” says Mermelstein. Tension frequently exists between IT and the business side, too. “The business side often feels it is not getting what it needs quickly enough or in a cost-effective manner,” says Mermelstein. “Whether we are talking about sourcing strategies, how you buy equipment, or IT contractors, IT is definitely a big part of the strategy when you talk about global delivery.”

But Mermelstein asserts improving process efficiencies takes a company just so far. “You can do only so much without starting to affect your IT in terms of making your processes more efficient,” he says.

U.K. insurers have been more in the forefront of IT operations, Mermelstein believes, but he contends U.S. carriers are deploying new strategies around how to deliver their operations. “Very often it involves creating shared services and lowered cost markets,” he says. “[U.S. insurers] definitely are picking up steam. Banking and the financial markets are paving the way for insurance.”

The research reinforces the central role CFOs have taken in cost reduction, Mermelstein reports. “To fulfill that role, leading practice CFOs are catalysts for change both within and outside the finance organization,” he says. “They are tapping opportunities in outsourcing and offshoring. They are supporting and demanding smart technology decisions, and they are fostering a commitment to efficiency and improvement throughout the C-suite.”