Insurance – Manage finance, risk and compliance
Efficient operating model, modernization of data and IT architectures, implementation of sustainability requirements, state-of-the-art management logic
As a result of the sharp increase in regulations (e.g. Solvency II), insurers’ finance and risk units have been significantly expanded in terms of personnel and structure over the past ten years. Many requirements were implemented under enormous time pressure and with a view to pragmatic delivery capability – and less with an eye on efficient and resource-saving processes. Consequently, the repetitive generation of standardized finance formats is often characterized by manual interventions as well as high personnel demands for data procurement and quality assurance. This means that many CFO units in insurance companies are not operating cost-efficiently and are coming under increasing pressure to optimize their operating model.
Outdated system and data architectures that do not ideally support efficient operations from a technical perspective are part of this challenge. In many cases, data storage in finance units is highly fragmented, which makes it considerably more difficult to obtain data for generating reporting products and performing analyses that are relevant to management. Outdated and poorly integrated system landscapes with numerous “isolated applications” and frequent use of MS Excel lead to long-winded processes and significant personnel costs.
Another current challenge for finance units is the sustainability transformation: a sustainable orientation of capital investment, the integration of sustainability risks into risk management, and the measurement/management of the company’s carbon footprint are on the CFO/CRO agenda and need to be implemented pragmatically depending on the company-specific ambition level.
Finally, finance units are required to keep their management logics up to date in order to make the impact of strategic business decisions on key financial indicators in profitability, growth and risk quantifiable and to further establish themselves as strategic business partners.
Through the systematic automation of repetitive standard processes, an efficient and agile organizational structure and the use of digital technologies, finance units can reduce their costs and free up capacity for more value-adding activities. The increased centralization of data storage and the use of integrated and modern system solutions support the transformation towards an efficient and flexible organizational model that will also meet future regulatory and internal requirements.
The implementation of sustainability requirements must be planned holistically and carried out with a sense of proportion so as not to overburden the finance organization and to enable a forward-looking orientation.
The further development of the management and risk model must be aligned with the growing external and internal requirements, enabling tailored support for the business lines and the investment function through relevant financial information. Asset & liability management plays a key role at the interface between underwriting and investment by making the effects of management decisions on insurers’ balance sheets and income statements transparent and by identifying levers for increasing capital income. Risk management also provides steering input based on scenario analyses and stress tests for all relevant risks and current macroeconomic developments.
Solutions & fields of action
To reduce operating costs in finance units, we often start client projects by refocusing the finance product portfolio: we systematically eliminate standard reports that the management considers to add little value, and we merge related formats, thus reducing reporting to the bare essentials. The second step is to conduct a market comparison based on our zeb.finance benchmarking: a comparison with the departmental structures of efficiently organized companies reveals fields of action and efficiency potential in the finance area – from which we derive a target operating model. Based on this target model, we support our clients’ operations in automating repetitive standard processes, e.g. through RPA (Robotic Process Automation) and AI, as well as in developing modern organizational and departmental structures – especially at the interface to IT.
Another key lever to realize efficiency potential in finance units is the data and system landscape (see IT transformation). All in all, we frequently manage to reduce the operating costs of our clients’ finance units by more than 20%.
Setting up a modern system and data architecture is crucial when optimizing the operating model and accelerating finance processes. We help our clients implement centralized data models (data warehouses, data lakes, etc.) to reduce the resource requirements for data provisioning and data quality checks and to increase data quality. Introducing modern finance systems such as SAP S/4HANA or alternative solutions helps to accelerate and digitalize processes. We advise and support our clients in all stages of system selection and implementation – from the design of the business and IT target architectures to data migration, test management and go-live. For SAP projects, we have a team of experienced SAP specialists.
Digital reporting is another lever to boost efficiency and speed, but also to increase the user-friendliness of reporting. We supply practical templates, tools and application examples for modern, digital reporting concepts and are familiar with tried and tested implementation options for different starting points and ambition levels.
One of the most important fields of action for the sustainable transformation of an insurance company is the alignment of its investments towards sustainability. We support our clients with practical know-how in specific implementation issues: How can the regulatory reporting requirements resulting from the Taxonomy Regulation and Disclosure Regulation be implemented pragmatically, e.g. in PAI (Principle Adverse Impact) calculation? How should sustainability considerations be integrated into the investment process from a strategic and tactical asset allocation perspective? How can sustainable backing assets for life insurance products be ensured in the context of Article 8 or Article 9 products?
In addition to investment, sustainability transformation in finance also affects risk management and business economics. We supply field-tested approaches for integrating climate risks into the risk management process as well as pragmatic models for quantifying them in the context of the ORSA stress tests required by supervisory law. Best-practice approaches for measuring (carbon accounting) and reducing company-wide CO2 emissions complement our range of services in this area.
We help our clients to increase their capital investment income long-term. The key lever for this is the systematic professionalization of the strategic asset allocation process – in terms of both business/methodology and technology. With the help of modern asset allocation tools utilizing scenario-based optimization logics (ESG: economic scenario generator), more efficient and higher-yielding portfolios can be generated. We supply the required implementation know-how as well as an overview of technological solutions available on the market. In addition, we have a clear view of how to integrate investments into asset & liability management for corporate management purposes and can provide further impetus for earnings growth in this area. Advice on the implementation of sourcing models (both outsourcing and insourcing) complements our range of services in capital investment.
Modern corporate management creates transparency about the profitability of individual units and business lines or insurance companies. Commercial law, regulatory and economic perspectives must be considered holistically to ensure an integrated risk-return management. This requires sound KPIs, an efficient capital management framework and tools for quick scenario analyses. We have best-practice examples and tried-and-tested solution approaches in this area.
Such management tools are the basis for using the finance capacities freed up by more efficient operations (see “Efficient operating model”) to provide even closer and more collaborative support to the business units. CFO units of the future make business segment strategies quantifiable and, as business partners, provide clear orientation through facts and figures to answer the key question behind every business case: How do strategic business decisions affect the complex and interdependent mesh made up by balance sheet, income statement, risk metrics and growth prospects?
Modern risk management must, among other things, consider “new risks” such as climate or cyber risks and derive the right management impulses for investments and underwriting from current macroeconomic developments (rising interest rates, inflation, pandemic, economic growth). zeb supports your corporate and risk management units with practical know-how and innovative ideas from numerous client projects.