The insurance industry is reaching a tipping point. With new technologies like connected cars entering the scene and a more informed consumer marketplace, risk and finance professionals in the insurance sector must break down departmental silos and work together to create a more integrated business model that drives new revenue streams.
Industry thought leaders, along with SAP’s own Pat Saporito, recently discussed how to accomplish this in the SAP Radio Show broadcast, Risk and Finance: 1 plus 1 equals 3. The broadcast examined findings from a recent SAP and IDC white paper stating that an integrated risk-finance profile can enable faster response times to evolving mandates and facilitate improved financial forecasting, enhance timelines, accuracy, and completeness of information.
How technology has changed the game
Technology is fundamentally changing the nature of the insurance industry. The spread of digitization and consumer knowledge has changed the way companies must glean knowledge and assess risk.
Daniel Haudenschild, partner/financial service advisory at Ernst & Young, related a few examples that illustrate this new challenge: “First, look at self-driving cars. How can a company insure a fleet of cars where the car is almost incapable of having an accident? Or a family that enjoys taking skiing trips wants to insure their equipment and their family members, creating the need for a policy that is a mixture of property and casualty. Scenarios like these are starting to pull the rug out from under classic insurers, which are struggling to keep up with these new demands.”
To position themselves for success despite these rapidly changing external factors, insurers must get ahead of the change to recognize looming risk, performance, and management issues before they happen and set up a plan of attack.
According to Pat Saporito, senior director in the Global Center of Excellence for Analytics at SAP, insurers are up against a “triple tsunami” that includes Big Data, Internet of Things, and industry regulations. “If risk and finance professionals can establish a single data foundation, they will be able to generate consistent responses that will help the company minimize operational silos that impact customer satisfaction and new opportunities for revenue,” she said.
Technology has created an opportunity for companies to be agile despite new industry challenges. Insurers must see what’s happening both inside and outside their organizations and evaluate the impact it will have on their existing business models based on a synthesized set of data.
The influence of IFRS
The International Financial Reporting Standards (IFRS) are becoming the global language for finance, but insurers have been slow to get on board due to the complex requirements and lack of finalized standards. After nearly 10 years of debate, the industry is nearing a consistent and transparent standard for insurance companies to report profits.
During the broadcast, Francisco Nagari, who is the global IFRS insurance lead partner at Deloitte, stressed that the shift to a new and consistent reporting model is fundamental for the insurance industry as a whole. “Once investors will be able to compare and evaluate the cost of raising capital, it will become more affordable and straightforward for insurers,” said Nagari.
As insurance companies look to rewrite their traditional models and shift into new market verticals, they must continue to operate as well-oiled business machines.
“Regulations will always shift, and insurers must deal with this, but there’s a need to get much more efficient at it,” said Haudenschild. “Insurers can no longer afford to keep investing in new technology solutions that help them meet compliance; they must be able to achieve compliance at the press of a button.”
Integration: the path forward
The wave of industry reporting standards from the IFRS are coming at just the right time.
“Everyone talks about the need to see what’s coming in the future, but it’s very hard to do this effectively with such a variation of data to analyze,” said Nagari. “Insurance accounting is very complicated, and the language must be kept simple or companies will not be able to see the change that’s happening within their organization.”
With true transformation previously hindered by the absence of a consistent regulatory framework on a global scale, insurers will now be set up for ongoing success in the very near future.
“Now is the time for insurers to integrate their risk and finance foundations so they have an agile technology platform that meet external indicators,” concluded Saporito. “With the new IFRS formats and models, insurers will be able to fulfill any reporting requirements fairly seamlessly, as long as they have already addressed existing data governance and data silo issues.”
SAP is here to help insurers and financial executives with this transition. For more information, visit www.sap.com/insurance.