Accounting systems may seem about as exciting as dry toast, but they're becoming increasingly important hubs in insurance carriers' IT strategies.On the back end, they serve as collection points by integrating data from billing, HR, investment management and even policy administration systems. On the front end, either alone or in combination with other products, they feed information into data warehouses and management dashboards to provide detailed and flexible reports that give managers new ways of seeing their companies' workings.
Users are becoming more demanding of the reports they get from their accounting systems, says Donald Light, a senior analyst with Boston-based Celent LLC and author of a 2006 report on insurance accounting vendors.
"There are really two levels of reports that are relevant," Light says. "One is reports for everyday users—the folks who make the accounting entries, do the closes at the end of the period and all that. Their job is much easier to the degree that they can have powerful and flexible ways of getting reports. The second type of report is management-and performance-oriented. We're seeing a lot more emphasis on that, as well. So, it's ease of use and making the information you have valuable and actionable."
The National Life Group in Montpelier, Vt., a diversified life, annuity and asset management company with $19.3 billion under management, replaced a 20-year-old mainframe accounting system with Lawson General Ledger last October. It did so primarily with a view to expanding its reporting capabilities and making it easier to track financial results. Two decades of growth and change also played into the decision, says David Sanguinetti, second vice president-financial planning and analysis.
The legacy system "had served us very well for a long time, but during that time our business had grown substantially," Sanguinetti recalls. "We'd added a whole new subsidiary, Life of the Southwest, in 1996. Our asset management operation had expanded significantly. We'd reorganized the Group into profit centers and changed the way we reported our internal results to support this new accountability."
Currently, National Life uses Business Objects' Crystal Reports to generate many of its reports and uses Lawson's Business Intelligence (LBI) suite, a front-end product that allows the carrier to centralize its reporting capabilities.
"At the simplest level," Sanguinetti says, "I can use LBI to set up a Web page for a particular part of the company-our profit centers, for example-and on that Web page I can put all the Crystal reports that they need." And, he adds, the integrity of the data in the reports is assured because it all comes from a consistent data source.
So far, only National Life's financial people are using those reporting capabilities, but Sanguinetti says he sees opportunities to expand into reports for other managers in the company. He singles out one Lawson tool, Smart Notifications, as having great potential. Smart Notifications monitors data sources, called infosets, and alerts users when the company meets predetermined thresholds.
"We have people who'd like to know when a particular-size policy gets issued or if there's an entry that's made into the accounts payable system to write a check above a certain amount," Sanguinetti says. "Smart Notifications are like the best data analyst you ever hired. If a certain event happens, it will tell you about it through a report link that appears on your LBI Web page. The report then lets you dig into the event and figure out exactly what's going on."
TIME FOR CHANGE
One way to know it's time to start looking for a new accounting system, says Celent's Light, is to keep an eye out for overdependency on spreadsheets. Everyone uses them for analyses and allocations, he notes, but "if you are doing most of your accounting on spreadsheets and then hand-spooning it into the accounting system, that's bad. It's bad from the general control and quality point of view and it's especially bad in the world of Sarbanes-Oxley."
Before implementing SunGard's EAS system last year, Folksamerica Reinsurance Co.'s accounting and financial reporting system included an insurance-specific general ledger system supplemented by spreadsheets, says Dennis DeNobile, vice president of financial systems.
"Most of our reporting was on Microsoft Excel, which was replaced by Business Objects' Crystal Reports and BizNet Software Inc.'s BizNet Insight," says DeNobile. "Worksheets were produced between IT, accounting, actuarial and financial reporting. This caused a lot of redundancies and was very labor-intensive. Our planning system was also Excel-based. It was very accurate, but time-consuming and labor-intensive to prepare."
Folksamerica is a New York City reinsurer, a subsidiary of the White Mountains Re Group. Last year, Folksamerica's gross written premium totaled about $1 billion. The company replaced its previous general ledger, including most of those Excel spreadsheets, by switching to SunGard's iWORKS Enterprise Accounting System (EAS) last year. Folksamerica ran parallel systems in the fourth quarter of 2006, and switched to EAS the first quarter of 2007.
"Our primary objective was to eliminate as much of the manual process as possible," DeNobile says. "A key benefit of EAS, he continues, is that it automatically gathers information from multiple sources, consolidates the data and reports the results to the company's financial management team."
Among the Folksamerica systems that feed into EAS are the company's premium and loss system and its investment system. Next up are payroll and fixed assets systems. EAS, in turn, feeds a new planning system, Oracle's Hyperion HFM System 9.
Folksamerica expects the new accounting system to save time and increase control, giving the staff time for more detailed analysis. In the future, Folksamerica expects portions of annual statements will be automated, as will overhead expense allocations. Ultimately, DeNobile expects that with the new software, Folksamerica will create a streamlined and paperless system for accounting and financial reporting.
One surprise Light found when he began his research into accounting systems in the insurance industry was just how concentrated the market for those systems is. Among larger carriers, just five companies accounted for 75% to 80% of the accounting software.
Those, in turn, split neatly into two camps-systems positioned as part of larger ERP suites; and systems that more closely resemble point solutions. Bigger, more complex firms tend to choose the ERP route, Light found; while mid-sized companies with more straightforward needs tend to favor the point solutions.
Folksamerica considered ERP when it updated its accounting system, but DeNobile says the price tag was higher than SunGard's and the features, though sometimes impressive, went beyond his company's needs. Under the circumstances, they seemed like overkill, he says.
American Community Mutual Insurance Co. of Livonia, Mich., sells health insurance in eight states and is licensed in another 32. Part of the company's growth plan, says David Skup, senior vice president and chief financial officer, is to expand methodically into new geographical markets at a rate of one or two states a year.
American Community Mutual sells through independent agents, but a subsidiary, Precedent, markets directly to consumers over the Internet and through advertising. Precedent, too, is expanding into new markets.
All that change makes flexibility and ease of integration important, and although the company's SunGard accounting system has been in place six or seven years, Skup says, it continues to meet those demands. American Community Mutual uses SunGard's EAS; Enterprise Portfolio System, for investment portfolio management; and Enterprise Filing System, to generate statutory statements. Systems for administration, claims, reserve and commissions also feed into EAS.
The company recently began using Cognos for budgeting and monthly reporting but hopes to get even more out of its systems, Skup says. Cognos will also feed a companywide data warehouse, "so that we can have all the non-financial, non-accounting information in one place with the same data definitions, so it means the same to everybody."
The company is also developing analytics with a view to reporting loss information and then using that as a pricing tool. "All the information we need from a statistical standpoint from all of our groups and all of our individuals from a pricing standpoint will be contained in there, so they can do a lot of 'what-if' scenarios," Skup comments.
And to broaden the data warehouse's usefulness for other, non-financial users, American Community Mutual has begun a dashboard project, Skup says. "We're starting to interview all of our executives to determine what kind of information would help them run their individual areas better-with the intent of using Cognos to put that information on a dashboard for each of them."
What should insurers look for when they're considering new accounting systems? "Integration is the key thing," says Skup, and he gives SunGard good marks for ease of integration. "The ability to integrate systems rather than re-input information is absolutely critical. Another thing we learned during our installation is that you've got to have a good mix of technical and financial analysis expertise in order to make sure you get the system set up so it gives you the most useful information."
DeNobile offers advice, too. "Know your overall objectives," he says. " Think logically and come up with a list of things you really can't get now but you wish you had."
Register or login for access to this item and much more
All Digital Insurance content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access