Few U.S. companies will escape the fallout from the recent financial scandals in corporate America. One outcome of the well-publicized corporate debacles is the Sarbanes-Oxley Act of 2002, requiring CEOs and CFOs of public companies to attest to the integrity of the company's financial statements.In a heavily regulated industry, such as insurance, this increased scrutiny just adds to the already daunting financial reporting burden.
However, an emerging data standard-XBRL for Insurance-offers carriers the opportunity to streamline financial reporting through a standard framework for the representation of business and financial data for use over the Internet.
The Sarbanes-Oxley Act may just be the catalyst that was needed to create a sense of urgency to move forward on the implementation of faster, more economical and accurate financial reporting methods. With the SEC proposing that quarterly filing dates be accelerated to 30 days (from 45 days) and annual filings to 60 days (from 95 days), insurance executives can't afford to wait to see what happens.
Demanding reporting regulations are not new to insurers. It's no secret that there is an abundance of financial data in the industry, but the mystery lies in knowing where to find the good/usable numbers and then getting them in the right format, to the right people, at the right time.
Traditional insurance industry financial reporting methods are a combination of automation and manual efforts, with an exorbitant amount of time spent gathering outputs from the disparate systems strewn throughout the enterprise. Once the data is uncovered, it must be exported, massaged and assimilated into a variety of financial reports.
The result of today's cumbersome and time-consuming financial reporting process is slow information flow, which is prone to error, and with lengthy delays in the decision cycles for industry stakeholders. When you add new reporting and time-frame concerns such as those introduced by Sarbanes-Oxley and the SEC proposal, what was a time-consuming nuisance becomes the personal responsibility of CEOs and CFOs.
A standard approach
The insurance industry has always had an affinity for standards and recognizing the value of technology. And, XBRL is the emerging standard that enables rapid delivery of current financial information to the people who need it, when they need it.
A joint effort of more than 170 companies and agencies worldwide, XBRL (Extensible Business Reporting Language) is based on the XML (Extensible Markup Language) standard, and enables financial data to be uniformly 'tagged' and shared by the entire reporting community over the Internet.
As the insurance industry-specific XBRL standard takes form and is adopted by both public and privately held insurers, the time to prepare financial statements will be drastically reduced, and the accuracy and reusability of the data will be drastically increased.
Armed with timely and accurate financial information, the experienced and time-strapped insurance professional can focus on analyzing the information and making informed business decisions.
Some insurance entities have multiple insurance companies and multiple divisions, often organized around a type of insurance or geographic region.
With XBRL, divisional financial results can be provided and reviewed earlier, allowing for quick identification and reaction to problem areas. Once information is "tagged," it can be reused for other purposes such as management reports, statutory statements, credit reporting and tax filings.
Speed and efficiency
Faster data collection and assimilation with XBRL enables more efficient real-time analysis of the credit-worthiness and stability of the partners. And, early insight gained by analyzing reinsurance results and surplus balances quickly, may impact credit ratings.
Today, peer analysis within the industry is a time-consuming and error-prone process. But, with the uniformity offered by XBRL, an organization can efficiently and quickly compare financial and business performance with industry peers.
A fair portion of fees paid to insurance examiners and outside auditors is for the expense of gathering the required data and manipulating it into a usable format. XBRL-gathered and tagged information can be simply reused by examiners, auditors and other parties. XBRL also enables the efficient delivery of financial information via the Internet, potentially reducing the time examiners and auditors need to spend on location.
Given the data-intensive nature of the insurance industry, XBRL offers significant value to all those involved in financial reporting. As the industry finally migrates from the archaic paper methodology to a globally accessible e-business platform for financial reporting, XBRL will be the enabler.
Gary Wicklund is vice president, industry relations, at Eagle Technology Management, Marion, Iowa.
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