Insurance CFOs must step up their game if they want to be masters

The domino effect of the recent financial crisis on insurance companies has been far reaching. It hit full force with significant depletion in asset values; lower customer loyalty; slower business demand; lofty cost ratios; a higher incidence of fraudulent claims; poorer credit ratings for some insurers; and tighter regulations for all.

Now, as seen in other industries that have had to innovate in order to address the challenges of economic cycles and competitive threats, insurers must accelerate their efficiency efforts while also gaining better insights into enterprise performance in order to better steer their businesses through these difficult times.

Industry leaders have already significantly increased their focus on operational efficiency and recognise the need for improved capabilities to assess growth opportunities, customer service and product innovation, differentiation and distribution. Based on lessons from other industries, those that fail to adapt to changing market realities will likely be consumed by the winning competitors.

Achieving and sustaining a high performance requires a new level of operational rigor enabling the finance function to play a much greater role in enterprise-wide decision-making and to identify and drive business value.

Accenture’s research has demonstrated a high correlation between those companies that have worked to develop high-performance finance organisations and those that exceed their peers in overall business performance. Insurance chief financial officers (CFOs) have an opportunity to lead the transformation of finance and progress their role as a strategic business partner, going beyond the requirements of transaction processing, control and compliance to proactively participate in and support enterprise-wide decision-making.

The market is dictating that CFOs and finance departments fundamentally shift their position, moving to the forefront of the business to enable rapid and sustained cost management and operational excellence. The role of finance is changing more rapidly than ever to be that of a strategic partner evaluating market options, generating growth ideas and developing dynamic business scenarios to help deliver the overall strategy in a more collaborative manner and to contribute more value to the business.

Through our research, we have identified the characteristics that define these high-performing finance functions, or ‘masters of finance’. These are:

  • alignment with the business strategy to drive the most value;
  • low-cost, highly efficient operations;
  • clearly defined processes that are consolidated, standardised and/or rationalised;
  • strong governance for data structures;
  • automated systems, tools and capabilities; and
  • the right disciplines and skills, retrained with specialisms, which are used to extract and interpret insight for better decision-making.

The more comprehensive the level of enterprise insight brought into the business by mastering the finance function, the more the organisation can help create higher levels of business performance. This provides for:

  • better decisions, both short-term/operational and long-term/strategic;
  • more effective allocation of capital toward value-creating opportunities;
  • tighter linkage between strategy, performance metrics and value creation; and
  • a culture and decision-making that is focused on improving value.

Finance mastery does not require an insurer to be the best at everything at all times, but rather, to be the best in those areas that count the most. In other words, trying to achieve advanced capabilities across the board will not make a company a finance master, but building superior capabilities that enable the company to excel in the areas that are critical to driving value for both the shareholder and the enterprise will move the organisation towards mastery.

For most insurers, this will involve a heavy focus on enterprise performance management and enterprise risk management. The greater the integration between financial, risk and performance management, the better the insight that executives will have to make timely and accurate decisions on enterprise investments, returns and exposure.

Furthermore, facing the distinct possibility of more stringent regulation, leading insurers that are able to progress this agenda in their organisations have the chance to influence the debate and may help to shape future outcomes.

CFOs’ responses to the need for greater compliance, lower costs and more variable fixed-cost must also include sourcing talent globally and further leveraging utilities for a limited number of back-office functions.

Insurers will need to use a combination of operating structures including: building up captive offshore structures, looking to increase their use of shared services and, in some cases, expanding the scope of back-office functions that are outsourced — all as part of a strategy for operational excellence.

Because finance is at the heart of commercial operations, getting it right matters, as superior finance practices can change the competitive game. Yet, according to a recent Accenture survey of hundreds of finance executives worldwide, few believe their finance organisation is performing at the highest possible level today – so the opportunity for improvement clearly exists.

While many insurance CFOs recognise the need to improve their finance capabilities and break free from the status quo, the leaders understand that by stepping up and advancing the function to meet the demands of current and future market challenges, they have the chance to significantly increase their position against their industry peers.

Steven Culp is managing director of finance and performance management in Accenture’s global financial services practice.