New reporting standards and regulation have driven a more precise assessment of results, backed by much more detailed disclosure. This has been matched by the needs of boards and management for more timely, accurate and detailed information on the balance sheet and revenue position actual and projected, to support decision making. The need for this information is crucial in a market where capital has become increasingly scarce and the understanding of some of the business risks is clearer. See the changing financial management landscape section for more details on these drivers for change.
In Europe, Solvency II is the logical next step in these developments. Solvency II also sets specific standards for the quality of reporting, for example, the requirements for data quality and the need for model validation, raising the bar even further. All of this provides a significant challenge to the best run finance functions.
A lack of investment in the finance function can cause further challenges to this transformation process. There are a number of factors that have been part of the problem and need to be part of any solution:
- Data and systems: the volume and complexity inherent in insurance presents real difficulties, which are typically exacerbated by a lack of investment in Finance systems, which have been extended through pragmatic quick fixes to meet changing reporting requirements, and are now inflexible, fragile and opaque.
- Process, analysis and reporting: the calculation of liabilities is fundamental to the result and balance sheet. This not only adds significantly to the reporting process, but also complicates any analysis of the results, which are dependent on liability movements which are not incorporated in the accounting systems.
- People: Integrating and managing two quite separate groups of financial professionals – accountants and actuaries. Both contribute significantly to the reporting process, but historically have worked in separate silos, making any holistic analysis of the results difficult and inefficient.
Faced with the challenge of Solvency II – and with further changes expected under IFRS – many insurers have acknowledged these issues for the first time over the past two years, and have identified a need for fundamental change – as opposed to incremental adjustment.
This has led to the initiation of a number of Finance transformation programmes aimed at addressing these issues through the design and implementation of new operating models covering people, process and technology. These programmes are very large and complex, with significant risks to the integrity of reporting during the change process as well as to delivery. They require the integration of a range of professional skills, including accounting, actuarial, and technology, ways of working that ensure ruthless issues resolution, strong stakeholder management and a sustained focus on delivery of required business outcomes.
KPMG have helped a number of our clients to design, manage and successfully deliver finance change programmes of this nature. This website sets out our approach and introduces our leading insurance experts in the field.