CFOs: IN THE DRIVING SEAT
The
Greatenabler Great enabler Jeremy Marchant of finance management software provider Aptitude cautions insurers not to ‘let technology take over’. Rather, it should be seen as part of a broader transformation journey – one that’s increasingly driven by the finance team When it comes to innovation in the insurance sector, vision is everything. Technology will obviously help solve some of the biggest issues, but insurers need to be clear what the problems are that need fixing in the first place. “Of all the industries in the world, insurance is the one where CFOs are most looking at technology-enabled innovation,” says Jeremy Marchant, head of international pre-sales at financial services software provider Aptitude Software. Insurance CFOs are taking more ownership of the innovation agenda and data across their organisations than in any other sector, he adds. “That includes banking – a lot of experts think banking is at the cutting edge. Well, it turns out it’s not. It’s insurance.” Insurers were particularly hit by the COVID-19 pandemic, which severely disrupted operations and put pressure on profits. However, this only exacerbated problems already facing the sector, most notably those relating to technology and productivity.
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TheInsurtechMagazine | Issue 5
McKinsey’s Insurance Productivity 2030: Reimagining The Insurer For The Future report estimates that insurance carriers will have the chance to boost productivity and cut operational expenses by up to 40 per cent over the next decade, while also improving customer experience. But this transformation from traditional insurance models will likely require major technology investments, with clear implications for many CFOs. Radical improvements in productivity across the entire value chain – rather than piecemeal changes – will be needed for insurers to thrive in the post-pandemic world, the report observes. McKinsey concludes that, by 2030, the most productive insurers will provide no more than five to 10 products – a stark contrast to the 50 to 100 products that many property and casualty (P&C) insurers currently offer, but many of which do not generate meaningful revenues or profitability, McKinsey said. In fact, it estimates that it’s only the top 10 to 15 current products that generate more than 95 per cent of the total gross written premium (GWP). Marchant agrees, citing McKinsey analysis himself which says technology can have a disproportionate impact by focussing on a few processes,. “What they mean by that is probably up to 40-45 per cent of an insurer’s cost base is determined by about 20 of their end-to-end processes. So, looking at a small number of processes and really prioritising where they’re applying the technology can have a disproportionate effect on the underlying cost base.” Like many industries, insurers have been
guilty of applying sticking-plaster fixes to regulatory requirements as leadership teams seek to strike a delicate balance between compliance and implementing changes in an efficient way. This is understandable and there are times when such fixes are appropriate, says Marchant. “People don’t want to spend too much, they want to wait until the requirements are fully finalised. In particular, people wanted to wait until they could see what IFRS 17 looked like and the overlap or alignment with Solvency II,” he adds, referencing two of the biggest regulatory changes of recent years to fundamentally affect insurers across the EU. “But that has led to big, negative impacts on the finance functions,” he says. “Where you’ve got fragmented architecture, you’ve got lots of expensive people and processes to paper over the cracks.” The problem with the sticking-plaster approach is that it creates a lack of agility and makes reacting to the market a problem, adds Marchant. Transparency is also an issue as the finance team spends so much time keeping the function together that they’re unable to provide valuable insights to the CFO and the rest of the C-suite. “So, that means things like suboptimal pricing and new products take longer to come to market. Overall, it comes back to an organisation that is less reactive, less adaptable to the market and the competition it faces, and less competitive because companies have a high cost-to-income ratio.” Marchant believes that enterprise-wide transformation needs a different approach. While achieving compliance in an efficient www.fintechf.com