In an increasingly competitive world, CFOs for Asia-Pacific insurers see their role as providing clear, concise and timely insights that support business growth while managing the traditional regulatory and compliance roles entrusted to Finance functions. To do this effectively, they need the right infrastructure and resources. So how do you transform today’s Finance function into an agile, integrated and efficient machine that facilitates effective decision-making? Ms Janine Donelly and Mr Phil Gough of EY explore.
Released in March 2017, the results of EY 2016 Global Insurance CFO Survey of nearly 60 global insurers (20% headquartered across Asia-Pacific) captures where insurance CFOs need to focus in order to support their business where growth remains the key challenge.
Business drivers
Achieving growth is considered the top priority for Asia-Pacific insurance CFOs, which is consistent with their global peers. This result reflects the competitive pressures insurers are facing with new entrants, such as global financial institutions expanding into new markets by pursuing mergers and acquisitions and FinTech disruptors, further squeezing margins.
For Asia-Pacific businesses, the challenges are greater. Rapid economic and demographic changes have led to increased demand for insurance products and insurers are competing aggressively to capture this new market share, while ensuring retention of existing business. The focus on growth and expansion provides Finance with opportunities to add considerable value in assessing and pursuing top-line growth.
The region’s CFOs continue to be focused on improving profit by addressing costs and margins, and leveraging the power of Big Data and analytics to increase competitiveness. Finance teams can support their organisations by providing timely analytics around direct and allocated cost, and the impact of customer activity on overall profitability.
Accommodating regulatory and financial requirements remains a key driver, in particular with the release of the final IFRS 17 reporting requirements. CFOs are concerned that the resources and investment required for the compliance change could deflect efforts away from business growth initiatives.
As a case study, Asia-Pacific insurance CFOs can look to the impact of Solvency II in Europe to understand the potential business impact of a sweeping regulatory change. Only half of the CFOs surveyed have conducted an impact assessment or other preparatory work and 10% have done no planning or preparation, so it is expected that meeting regulatory reporting challenges will remain a regional priority between now and the IFRS implementation deadline of 2021.
The four top issues facing Finance in achieving business priorities
How can Asia-Pacific CFOs best support insurers between now and 2020? More than nine out of 10 say it is by providing better insight.
In a world of growing complexity, they see a need to partner more closely with the rest of the organisation so they can supply analysis that support more informed decisions around business and revenue growth.
To achieve this, the following focus areas have been identified:
- Enhance people skills;
- Develop data analytics capabilities;
- Address technology limitations; and
- Reconsider organisational alignment.
While CFOs in all regions rate upskilling their team as important, it is the leading priority in Asia-Pacific for 92% of insurance CFOs. Talent shortage is a recognised issue within this region, driven by the rapid expansion of the insurance market. Sourcing available and affordable skilled people is a major challenge. CFOs therefore need to plan investment in retooling and reskilling existing teams through enhanced training programmes and offerings.
The role of data analytics across an insurance organisation continues to increase in importance and is considered to be an asset in driving both growth and efficiency. Managing data effectively will be essential for business success. Sophisticated technologies such as reporting and dashboarding tools continue to emerge to support this capability and CFOs now have a clearer understanding of how it could add value.
Not surprisingly, technology is another top-ranking issue for Asia-Pacific CFOs, reflecting a lack of investment in recent years. Improving finance technology is critical if CFOs are to better inform the wider business and meet their cost efficiency targets by leveraging robotics process automation.
Finally, Finance is less effective and cannot support corporate goals if it is operating in a silo. Asia-Pacific CFOs place a higher priority on fixing this issue than their counterparts, who are generally more advanced in this area. The majority flagged a need for new, more integrated finance operating models in their quest for closer partnering and increased efficiency, which includes relationships across markets, functions including risk and centres of excellence supporting data and analytics.
Creating the finance function of the future
Asia-Pacific CFOs are generally in agreement that the current finance operating model cannot support their 2020 vision. They are working towards a new model that repositions the CFO as a business driver, while balancing regulatory changes and their role as overall cost steward.
So how can they overcome the four biggest barriers to their target model?
People
Asia-Pacific insurance CFOs regard having a finance team with the right talent, skills and capabilities as their top requirement for the future operating model. They require people who are comfortable with technology, embrace change and can deliver business-driven analytics.
Insurance CFOs are rethinking their criteria for new hires and plan on upskilling existing employees. They should also be considering how to upgrade their team’s skillset beyond today’s needs to capitalise on emerging technologies, such as artificial intelligence (AI), which have the potential to transform how Finance adds value.
CFOs’ attention will also focus on developing multi-disciplinary training programmes that include commercial understanding, communication and presentation skills. While providing insight relies strongly on technology, only people can interpret and explain the business value. Finance executives at all levels, including the CFO, should be broadening their competencies to include deeper analytical skills and enhanced communication capabilities.
Data
The insurance CFO’s ability to provide better business insight is limited by not having timely access to quality data. This is evidenced in reporting financial results, which are key to shaping business strategy.
Currently, the average insurer spends one whole month closing the quarter’s books and longer closing the year-end, resulting in information lagging behind the business decision-making process. CFOs acknowledge this is too slow and are working towards a faster close.
In the survey, Asia-Pacific CFOs identified ambitious close acceleration targets by reducing the close calendar by 46% for quarterly reporting and 22% for annual reporting.
With only 55% of Asia-Pacific insurance finance organisations currently using data and analytics, there are real opportunities for CFOs to support the business case for investment in this area. Insurers are investigating Big Data solutions that provide an integrated platform, which can increase the volume, speed and granularity of reporting across functions, in particular finance, risk and actuarial.
Technology
The CFO’s ability to remove technological barriers will influence their ability to action their top priorities. Upgrading finance’s technology infrastructure to remove siloed data and systems will play a significant role in improving efficiency and will enhance finance’s archiving, data enablement and visualisation capabilities, all of which will help CFOs to add better business value and report on integrated regulatory requirements.
To ensure benefits are realised in 2020, CFOs should be addressing the limitations of their legacy IT systems now and investigating options for a more sophisticated, integrated finance architecture that supports straight-through processing and eliminates manual hand-offs. Finance can lead the organisation in adopting new digital solutions, such as the latest cloud-based reporting, analytical and robotic automation offerings.
Organisation
Aligning the finance, risk and actuarial functions will allow organisations to provide deeper insight, to inform business decision and strategy. This model also supports cost and performance efficiencies and a smarter response to regulatory challenges for additional disclosures.
Asia-Pacific insurance CFOs should look to their global peers where 70% of CFOs now oversee Financial Planning & Analysis (FP&A), actuarial and risk management. Some have expanded the CFO perimeter further, into capital management, M&A, corporate finance and investor relations. With 56% of Asia-Pacific CFOs seeing organisation misalignment with strategic objectives as a barrier, it is likely they will follow.
The way ahead
The recent EY Global Insurance CFO Survey shows that the insurance CFO’s role will continue to evolve with the emphasis on data-driven business advice, presenting opportunities and challenges.
CFOs who succeed will be those with a well-defined, prioritised plan around their goals. With the CFO’s effectiveness so closely intertwined with the future success of their organisations, there is a lot at stake. A
Ms Janine Donelly is Partner, Financial Services and Mr Phil Gough is Executive Director, Financial Services at EY.
|
This publication contains information in summary form and is therefore intended for general guidance only.
It is not intended to be a substitute for detailed research or the exercise of professional judgment. Member firms of the global EY organisation cannot accept responsibility for loss to any person relying on this article.
|