Insurance CFOs seem to be get-ting a bad rap. According to a recent study, insurance finance executives are so busy dealing with compliance obligations and administrative duties, they are finding it difficult to support their CEOs' growth initiatives.Developed in cooperation with The Economist Intelligence Unit, a London-based provider of industry analysis information, IBM's 2005 Global CFO Study reflects the responses of some 900 senior finance executives across the communications, distribution, financial, industrial and public sectors in 74 countries. Of those 900, 44 respondents came directly from the insurance industry.
Across the entire study, nearly 50% of executives report finance staff are tied up in transactional activities such as processing accounts and tax transactions, with only a quarter of staff focused on decision support, performance and growth-focused activities. Moreover, 64% of insurance finance organizations do not have robust processes and activities in place to support growth. Only 14% of respondents rated themselves highly effective in supporting the CEO's efforts to grow the company.
Respondents tend to excel at reporting historical financial results and meeting compliance requirements, but many are unable to unlock, from an upsurge in data volume, the hidden gems of information that could uncover future business opportunities and foresee trends or costly problems ahead of time, notes the report. And, almost 40% of insurance company respondents still have separate manual processes and controls to collect compliance data that deliver backward-looking reaction to risk events and growth opportunities.
The result, according to the report's analysis, is the CFO's inability to provide the CEO with insight as it pertains to performance, growth and financial risk.
"Insurance finance executives have been looking in the rearview mirror and have taken their eyes off the ball in terms of initiating major transformation efforts," says IBM's William Fuessler. A partner in IBM's New York-based financial services practice and survey facilitator, Fuessler points to regulatory compliance issues, such as Sarbanes-Oxley (SOX), as a chief contributor to the reported backslide.
In review of the report, Mike Murray, vice president of finance for Boston-based OneBeacon Insurance Group, says the industry needs to retain a "big picture" perspective.
"Clearly, the introduction of Sarbanes-Oxley has proved to be quite a hurdle for a lot of financial people to overcome, especially for publicly traded carriers," admits Murray. "SOX may have been a tremendous drain on our time, but it's all part of a fine balancing act and a larger perspective."
In the past, Murray points out, "a lot of our management reporting was predicated on ISO requirements," he says. "So there has always been a continuous effort to refine what we produce."
NOT JUST COMPLIANCE
The concerns faced by insurance finance executives don't just stem from regulatory compliance, according to the IBM study. About 70% of respondents have yet to implement process and data standards, pursue process simplification, reduce the number of disparate platforms, rationalize budgeting and forecasting tools or reduce the number of enterprise resource planning (ERP) systems enterprisewide.
And they don't only stem from technology. Transaction-focused activities for finance executive's teams dropped by only 3% since 2003 to 47% in 2005. Growth-focused (decision support and performance management) activities increased only 2% from 2003 to 26% in 2005.
Fuessler suggests these results reflect a cyclical and cumulative effect that relates to both technology and processes. "The information insurance CFOs get is coming from a host of different areas, it's not consistent or coordinated, so they spend a lot of time gathering and then trying to decide what to analyze," he says.
Murray believes that in spite of the report's negative results, there is light at the end of the tunnel-and technology will most likely lead the way.
"In the industry's new technology environment, we have a blank slate on which to develop these robust databases that can capture every possible element, perform multivariate analysis based on all this data and step up to be able to provide the intelligence the CEO and stakeholders need."
But that's a first step, adds Murray. "It's incumbent upon financial professionals not to lose sight of the present, while also looking forward." And, as companies develop new products and technology, their ability to look forward is enhanced tremendously, he says.
Getting there will require investment of time and resources, points out Fuessler. "There has not been a lot of investment in the last few years in technology, so it will take some doing and some time."
It's the innovative insurers that will be successful, Fuessler predicts. "And let's not be naïve, because although in the last six months or so we've seen an increase in carriers implementing newer technologies like service-oriented architecture and component-based approaches, there will still be silos out there. It will be a slow process."
Fuessler believes getting executive sponsorship to new technology is key. "The way it has to be positioned is that 'we want to keep you out of jail,'" he says. "Present the idea with few distractions. If the CEO has this vision, it will have a positive outcome."
Murray is less harsh: "One of the roles of a financial professional is to provide the CEO with an honest assessment of what the real landscape looks like. Sometimes that means pushing back a little, but it's up to us stay on top of how to do that, and proper use if this information will be instrumental to future winners. It boils down to how you organize, manage and disseminate this information."
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