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Insurers' Top 3 Risk or Finance Pressures

The current situation between Risk and Finance has been referred to by IDC as ‘a perfect storm which is brewing across the global insurance industry’. Their new global survey of insurance decision makers, sponsored by SAP, was conducted recently and is now available here. Executives from the risk management and financial disciplines were interviewed, including chief risk officers (CROs) and chief financial officers (CFOs) from 10 countries. The regional makeup involved leading insurers across Europe, Middle East and Africa (EMEA), North Americas (NA), Asia/Pacific (APAC) and Latin America (LATAM). More than half of the respondents represented mid-size to large insurers with annual gross written premiums in excess of US$500 million. So let’s look at some of these revelations.  

Firstly, what’s driving the tightening of Risk and Finance disciplines? The global financial crisis of 2008-09 created urgency for Risk managers to participate with executive management to help navigate the strategic course of their businesses. Since then, with a continually increasing complex risk environment, heads of risk have begun to regularly participate in senior management discussions. As for the Finance managers, they have also been elevated in importance. Their focus has shifted away from traditional transaction processing, financial reporting and tax compliance. Today, they have broadened roles which include implementations of robust financial performance management, along with the expectation to collaborate with the risk office to ensure insightful analytics and improved financial forecasting.

Regarding Risk and Finance operations, both roles need to work proactively together in response to regulatory developments such as the evolving legal and accounting rules as directed by IFRS4 and the EU Insurance Solvency legislation. They also need to keep up with the technological evolution, which includes: advanced analytical tools and processes to facilitate enterprise information management; quicker go-to-market responses to counter competitive pressures; centralization of data modeling; and the adoption of new enterprise resource planning (ERP) software. Their collaboration will help them better manage market unpredictability and costs, as well as improve strategic decision making. Lastly, integration of risk with financial decisions should include cooperative initiatives around capital project evaluations, mergers and acquisitions, and globalization strategies.    

In addition, the paper offers insights into the impact on organizational structure, operational and technology barriers, and how to break through those barriers. Enjoy the read and please share your feedback.