The Finance Function Of The Future: Using IFRS 17 To Build A Competitive Advantage

Proshare

 

Introduction

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

Proshare Nigeria Pvt. Ltd.

 

 

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:


  • Where to grow and invest by providing real-time data for market inputs, claim assumptions and scenario analysis to more quickly understand potential disruptions and opportunities.
  • How to measure business performance by understanding key drivers and providing insightful reporting at various levels of the organisation.
  • How to manage risks by helping to enhance data governance and stress test plans and actuals in order to guide the organisation within defined risk parameters.

 

 

Fig 2: Which technologies will have the biggest impact on finance

Proshare Nigeria Pvt. Ltd.

 

 

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:

  • Integrated  reporting/management information (MI) capability for financial, risk and operations.
  • Shared data or sources of data that limit the need to reconcile across functions.
  • Cloud and cloud-based finance applications versus on-premise solutions.
  • Highly automated processes and workflows to speed up close, improve governance and minimise manual handoffs.
  • The right skills allocated to the right processes rather than organised by qualification
  • Role rotation and career paths across the integrated function and within the business.
  • ‘Para’ roles, such as ‘para-actuaries’ with basic skills to do a high-quality job with low-value data analytics and actuarial work.
  • Change capability built to maximise the effectiveness of change agents.

 

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.

 

 

Proshare Nigeria Pvt. Ltd.

Download (4.98 mb) The finance function of the future   

 

 

Related Content

1.      Use IFRS 17 to build your competitive advantage

 

2.     Three simple ideas can take the panic out of your prep for IFRS 17

Insurance companies have less than three years to adopt IFRS 17 but a soft design approach can help.

     

3.     21st CEO Survey: Key findings from the insurance industry

Insurers are under pressure to boost growth. Where is the growth going to come from? How can they develop the ‘bionic’ capabilities to capitalise?

     

4. IASB clarifies certain IFRS 17 requirements through its annual improvement amendment process

The IASB agreed to make clarifying amendments to IFRS 17, ensuring that the words in the standard reflect the decisions made by the Board during deliberations.

     

           

Proshare Nigeria Pvt. Ltd.

 

     

Related News

1.       IFRS 16 to Fuel Use of JVs to Avoid Lease Capitalisation

2.      How Government And Its Agencies Can Be More Efficiently Run – The BOI Example

3.      New Transfer Pricing Regulations, Guidelines and Circular - Legal Alert

4.      #NES24: Executive and Legislature must Work Together For Nigeria’s Progress-Saraki

5.      Senate Passes Resolution Mandating CBN To Suspend Bank ATM Charges

6.      ADR - Alternate Dispute Resolution Multi-Door Court House – Legal Alert

7.      NASSBER Bills – A Status Update On Market Related Legislation

8.     Stakeholders explore the Role of IST in Nigerian Capital Market Dispute Resolution

9.      Regulatory Conversations – A Public-Private Dialogue Holds On Sept 18, 2018

10.  Leadership Lessons In Alibaba''s Jack Ma Succession Plan Letter - Full Text

11.   NIPC engages Singapore Investors on Enterprise Development

12.  Communique of the 58th Annual General Conference of the NBA

13.  Copyright Collective Societies'' Regulations Revisited - Legal Alert

14.  IFRS Reporting – Matters Arising On Derivatives

15.   Corporate Governance As A Strategy For Investment Drive – August 2018

16.  Nigerian Patient’s Bill of Rights: 5 Things to Note

17.   IFRS 15 Implementation Efforts of 2018 Interim Reporters in the Oil and Gas Industry

18.  Shares Pump and Dump Schemes - Legality

19.  Sales Tax versus VAT: Supremacy - Case Law Review

20. The Draft Nigerian Code of Corporate Governance 2018 For Your Input

 

 Proshare Nigeria Pvt. Ltd.

READ MORE:
Related News
SCROLL TO TOP