Many insurers existing reporting processes have become increasingly unworkable and unsustainable as stakeholder pressure has grown, a state that will only intensify with new IFRS 17 accounting regulations
In recent years, the burgeoning and sometimes contradictory information needs of regulators, rating agencies, analysts and other financial stakeholders have left many insurers fighting to deliver more from their already strained reporting processes.
IFRS17 will only ramp up the pressure as firms are forced to revisit their core reporting processes and underlying calculation engines in anticipation of the new global accounting standard's 2021 implementation date.
Many companies are limping along with a patchwork solution, with processes that rely extensively on manual inputs and generate output reports in multiple formats. Underlying issues such as time creep, resource inefficiency, key person risk, lack of controls and governance, limited validation and rising costs are only now being addressed to bring the situation under control.
The road to transformation
Solutions are complicated by the notorious difficulty of transformation projects, not to mention the expense.
Typically, however, successful transformation projects have three essential and overlapping elements - effective tools (systems), engaged people and a fit-for-purpose process. And a blend of all three is needed, whether at the beginning (to enhance the chance of success), during (to manage it effectively), or at the end (to ensure the good work continues) of a project (Figure 1).
With that in mind, nine guiding principles for process transformation projects should prove useful:
Project start
1. Be clear on the objective
Projects can flounder because they lack a clear purpose at the outset. Focus on a distinct objective. For example, if the objective is to speed up the process, companies shouldn't be distracted by things that will change the numbers and expose them to unnecessary reconciliation activity. Just as important is to avoid framing an objective based on the current way of doing things. If the objective is to construct a fundamentally different process, then detailed process maps of the status quo are of limited value.
2. Get the right people
Any process transformation involves a complex, multidisciplinary programme. It needs a variety of skill sets; creativity, systems knowledge, people who understand the work methodologies and flows, and project management, to name a few. Some of those skills will exist within the business. Some will not, and will necessitate external partners.
Combining talent from different sources to get the right people in the right roles may mean a bit more overhead, but it definitely reduces project delivery risk.
3. Buy versus build?
Firms may be tempted to start building new systems and processes. But do-it-yourself building projects do not usually turn out well and often create key person risk and/or offend IT protocols. It's nearly always more efficient to buy into vendor solutions and focus efforts on how to implement those. The vendor community offers a range of maintained solutions across the end-to-end reporting process.
Mid-process
Once the objective is clear, the right mix of people are on board and there is a defined systems approach, attention can move on to making the transformation work for the business.
4. Leverage technology
The target process must be quick, stable, repeatable and tightly controlled, while delivering the right information to the appropriate people. Achieving the desired efficiency will rely on two fundamental tasks - process acceleration and process improvement - with the mix and order tailored to meet the objective. Power and automation are essential to achieving both.
Grid computing and pay-as-you-go capacity on the cloud can increasingly fill power gaps. The automation is provided by workflow management technology and is essential to building in controls and to limit the manual interventions that are frequently at the root of growing reporting pressures. True reporting transformation without good and adequate technology is next to impossible.
5. Take people on the journey
Companies in transition underestimate the people element of reporting process transformation. It is not all about systems and technology; the main impact will be on people and their way of working. Elements within the 'people work stream' include: new organisational design, revised job descriptions, training plans, redeployment guidelines, key person risk planning and impacts on performance targets and rewards.
6. Manage interactions with other corporate initiatives
As important as a transformation project may be, it will not be the only strategic programme in which the company is engaged. So it is critical that it dovetails with other related business initiatives. Although there may be multiple and different stakeholders across these initiatives, consider implementing one lead stakeholder to oversee consistent project governance, combined success targets where appropriate, and aligned remuneration.
Project end
Firms that have invested money, time and effort to implement a reporting process transformation project with a well-defined objective want to be certain of lasting benefits.
7. Reap the benefits
Keep these two points in mind:
1. How are new parts of the process introduced? Typically, a transformation project's core objective is to reduce manual tasks. So, the new process needs to be introduced into the live environment in stages of sufficient scale to drive head count reduction and free highly skilled staff for reassignment on more productive activities. It also reinforces the message that what is taking place is truly different and will make a difference. At the same time, implementation must be manageable for those expected to deliver change in a timely fashion.
2. When is a project finished? A project is only complete when the old process is fully decommissioned so that all pet spreadsheets and workarounds have been eliminated. Only when a firm has stopped using old, redundant tools, terminated surplus software licences, and eliminated inefficient, outmoded processes, should the project be considered closed.
8. Preserve the investment
Hard-earned time and cost savings can wither on the vine without appropriate ongoing investment in the new process.
Companies need to think about whether the organisation structure, role profiles, skills mix and rewards support longer-term needs. Periodic health checks, including reviews with vendors, are also an important part of establishing a control and continuous improvement cycle. Moreover, the technology on which reporting processes rely will inevitably change. Historically, insurers have faced painful periodic spikes in technology costs. Pay-as-you-go cloud computing options, software-as-a-service delivery models, and AI and machine learning capabilities can increasingly help address this issue.
9. Celebrate success
Successful reporting process transformation is not easy - hard work should be celebrated when it pays off.
Making it happen
One major European insurer faced the threat of being unable to meet the fast approaching reporting deadlines set for the 'Solvency II working day timetable' ahead of full implementation in 2019. This possibility drove efforts to transform its reporting process, although it also wanted to target other improvements, such as cost control and higher quality output.
The transformation process initially combined acceleration tasks (typically using technology for speed, without changing the underlying function) and improvement tasks (changing the way something works and, potentially, the results). But it realised that key acceleration tasks that were critical to meeting its main objective (the 'Solvency II working day timetable') had been left until the project's end.
The plan was changed to first focus on acceleration. Further, core principles of the revised process were also established, so that it would be event driven, not user driven, and that, more importantly, spreadsheets would only be used as a display tool.
Implementation involved re-engineering both the end-to-end actuarial process and the stochastic model execution runs that generate the regulatory numbers. Notably, although some modelling processes had been identified as prime targets for improvement, the initial focus remained on accelerating them.
The early introduction of new technology not only improved speed and helped employees to more easily adapt to the overall process transformation but also clarified where subsequent process improvements could have the most impact.
This 'technology first' approach had a huge impact. The elapsed time for the end-to-end actuarial process dropped by more than 50%. The duration of stochastic modelling runs was also halved. In both cases, the human input into the model runs was reduced to deciding what actual runs to do.
Richard Waller, senior director, Joyce Simmons, senior director and Mike Byrne, director, are all members of the finance transformation and outsourcing team at Willis Towers Watson.