Imagine a future in which finance can monitor business performance in real time and provide results to stakeholders where and when they need them.
Imagine it can close the books in two days and fully explain what drove the results. And that it can identify profitable customer segments and guide sales to those customers, or scan the horizon, preparing contingency plans to address the impact of things like market volatility. In essence, imagine the business benefits of having a finance function that provides timely, actionable insight and is a key partner to strategic decision making.
Our view is that this future is possible today, and that modernised insurers with this capability will significantly outperform their peers. IFRS 17 (the International Financial Reporting Standard issued in May 2017), if looked at as more than a mere compliance requirement, provides the business case to start building this finance function of the future now.
Fig 1: Current external pressures on finance
Use IFRS 17 to build your competitive advantage
Imagine a future in which finance can monitor business performance in real time and provide results to stakeholders where and when they need them. Imagine it can close the books in two days and fully explain what drove the results. And that it can identify profitable customer segments and guide sales to those customers, or scan the horizon, preparing contingency plans to address the impact of things like market volatility. In essence, imagine the business benefits of having a finance function that provides timely, actionable insight and is a key partner to strategic decision making.
Our view is that this future is possible today, and that modernised insurers with this capability will significantly outperform their peers. IFRS 17, if looked at as more than merely a compliance requirement, provides the business case to start building this finance function of the future now.
The importance of improved analytics
IFRS 17 is not just a new accounting standard for insurers – the changes it requires will affect almost every stakeholder and functional area, and many systems and processes, which is why it makes sense to use the standard as a springboard for broader change. And when thinking about the functionality the future will demand, highly developed information analytics will become the key determinant of competitive differentiation.
Insurers need greater business insight from their finance functions, and are increasingly seeking timely, forward-looking analysis to aid in the decision-making process.
In addition, many companies are asking how they can leverage both their volumes of historical structured data and emerging unstructured data to support strategic decisions. IFRS 17 is adding to these growing urgencies as stakeholder groups try to understand the implications of the new standard on the profitability of their organisations and the sustainability of profits.
To deliver more analytical power, the speed and sophistication of management dashboards will have to improve. Business users should be able to ‘self-serve’ their analysis and slice and dice data with very little help from finance, actuarial or IT, and results should be presented in a more visual way. It’s also important that users be able to perform ad hoc analysis in addition to periodic management reporting.
These objectives create a unique opportunity for finance to leverage new technologies, such as virtualisation (e.g., remote data conditioning), cloud high-performance computing capabilities (e.g., actuarial calculation engines in the cloud), new analytical tools (e.g., those that couple machine learning with reporting capability) and blockchain architecture. Also, cloud-based computing, by reducing insurers’ own fixed costs, can create a variable cost structure for insurance.
All of this not only enhances the customer experience but also generates a considerable amount of new unstructured data that can provide insurers with valuable competitive insights. For example, having real-time operational data enables proactive risk management and loss reduction, which ultimately helps reduce overall claims and expenses. Predictive analysis is not new to insurance underwriting or customer acquisition, but using it across all areas of the organisation is, and so is incorporating unstructured data in real time.
With better data, put to better use, finance and actuarial functions will have an opportunity to cut across organisational and data boundaries to look at opportunities and risks in new ways. Specifically, the finance function of the future can help determine:
Fig 2: Which technologies will have the biggest impact on finance
Creating a bionic finance function
If you believe that the finance function must change, the next question is how to make it happen. How exactly can the finance function of the future satisfy various stakeholders, and also gather, analyse and explain metrics – both traditional inputs and new data – and participate in more complex planning and budgeting?
Delivering on this vision of the future will require a strategic modernisation of finance, actuarial and risk into an integrated model with some of the following characteristics:
Key to making this modernisation work is a new approach to connectivity, not just among siloed groups but between man and machine, to create a bionic function. This is essential because people need machines to quickly understand new data and metrics.
There is real potential for automated front-to-back transaction processing, which would drive costs for these activities close to zero. Machines would be able to complete routine tasks that don’t require judgment, emotional intelligence or perception. This would allow finance specialists to remain focused on relationships, interpreting the future requirements for the organisation and figuring out how to encode these requirements as evolving business rules for the machines to use in execution.
This marriage of man and machine will enhance quality of life for employees, too.
Technology will continue to increase access to the workplace and to its data, allowing finance processes to take place at any time and location and by means of several interface platforms. Digital convergence and digitisation have made a powerful range of tools available in the office, on the road, at home or on the train. The mobile device, the tablet, the cloud, virtual meetings, and software and hardware offer a real alternative to finance employees always being at their desks or in their traditional places of work.
1. Use IFRS 17 to build your competitive advantage