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Increasing risks in unprecedented times impacting profitability for insurers

Oct. 20 2020 by Marco Van der Kooij, Managing Director - ForSight Consulting

Performance Management Budgeting & Planning

The last couple of years new regulation has been pushed towards insurers. Think about Solvency II, IFRS 9, 16 and 17 (of which the latter with the biggest impact) to provide a better understanding of risks and financial situation of the insurer. At the same time profits were decreasing in e.g. life-insurances, and divestments and acquisitions were taking place to reorganize or extend port-folios.

The current Covid-19 measures taken by governments have a big impact on the health of society and the economy. Some industries and people are more hit than others increasing its risk profile for healthcare insurances or bankruptcies for credit insurances or some insurances are reduced almost to zero like for travel and events to mention a few. While other sectors of society and economy are hardly hit or even grow their business spectacularly due to growing demand.

Digital transformation is accelerated through the Covid-19 measures. A digital way of working with customers, brokers and own employees was required overnight. Actually, contributing to operational excellence to be more productive and cost-effective. Also new technologies, like artificial intelligence and machine learning have a big impact as well.

Insurance companies need to know how to deploy the right technology for the right purpose or they risk being left behind. Prevention and protection are two areas to focus on for growth. Insurers will provide platforms to accommodate prevention and protection, and moreover, this will improve customer experience and loyalty at the same time.

How is this impacting the office of finance?

The emphasis is still on compliance reporting for regulatory purposes, as I have experienced at multiple insurers the last years and caused a rapid change in software platform. Cash flow is relatively easy to predict, as this is based on policies to be renewed on a yearly basis and also the renewal rate is fairly easy to predict by product. Even when e.g. a change in tax policy takes place or bankruptcies increase.

Providing a faster and more accurate forecast, next to more detailed profitability reporting & analysis are areas where the office of finance can contribute to improve business and financial performance. Providing forward-looking insight in profitability during the product life-cycle and value chain of especially new initiatives by customer, brand, sales channel, geography, etc. puts the office of finance in a pivotal position to provide the right data fast for both business and financial users to take action.

An holistic approach

An holistic approach is needed to serve regulatory compliance, forecasting and the need for more detailed, accurate and faster profitability reporting and analysis. New regulations like IFRS 9, 16 and 17 require to store more granular data at policy level to calculate and report on. The same data enriched with more dimensionality, including the financial data can be used for forecasting and profitability management. A central data hub to store the required granular data, together with an enterprise performance management application platform that also provides the content for regulatory reporting meets the demands of today and tomorrow for insurance companies. This will lower the total cost of ownership compared to current separated legacy systems considerably.

Now it is time to act and replace your legacy system.

If you want to learn more about the benefits that Aegon is gaining with CCH Tagetik Budgeting & Planning solutions watch the video here!

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