Written by Li-May Chew, Associate Director, IDC Financial Insights. Li-May can be contacted at: lmchew@idc.com
Following my earlier commentaries on the partnership between the risk and finance fractions at European insurers, I want to now turn to the United States (U.S.) and highlight some survey data specific to this country in my next blog.
Discussions with the tier one and two insurers from the States indicated that they are likewise conscientiously trying to forge greater risk-finance collaborations. As a matter of fact, indicating that they are going beyond just paying lip-service but actually taking decisive actions, 47% in the U.S. have already consolidated risk with finance, albeit just a handful of these respondents professed to have completed satisfactory integration. Those that have done so are actively working on collaborative initiatives around capital project evaluations, mergers and acquisitions and globalization strategies, financing decisions and budgeting. Furthermore, it is heartening to note that another 40% is just one stage behind and ironing out their integration kinks, while an equally sizeable cohort have concrete plans to achieve consolidation in the coming months.
What is driving these collaborative efforts? Factors compelling them to do so include being able to enhance analytical expertise for improved financial forecasting, and getting access to more complete, real-time view and precise reporting of the insurers' businesses. Achieving cost savings from consolidation was also foremost on the minds of the American insurers, with interviewees ranking potential cost efficiencies as the foremost driver spurring collaborations. These organizations are obviously cognizant of the fact that expenses can be reduced from having data, reporting processes and supporting systems that are all common rather than siloed and disparate.
And given that this chief risk officer-chief finance officer (CRO-CFO) partnership entails a degree of internal reworking, where is the funding coming from? We are encouraged to note that a very respectable 53% in the U.S. (against 36% of peers globally) have secured specific monies for these change-management endeavors, with only 20% needing to dip into their business-as-usual (BAU) funds. The remaining 27% however, have to put their case forth to senior management to secure additional discretionary funding.
As with all innovative programs, organizations are bound to encounter some barriers when it comes to implementing their risk-finance integration programs. Amongst all the operational and technological challenges, the American insurers noted that limitations from existing legacy technologies such as lack of scalability or interoperability of systems as the core factor restricting their risk-finance implementation. While this was given a score of 3.1 out of 5 globally, it was ranked as the top technological concern by the U.S. respondents at 3.7/5. Legacy modernization is therefore a critical imperative for these insurers to enhance business process and system capabilities and make way for greater risk-finance collaborations and business agility.
As these insurers busy themselves to integrate their risk and finance offices, we see them continually tweaking the extent of their risk-finance cohesiveness. While this is not an easy task, as integration efforts can derail from differences in objectives and priorities, benefits from more coordinated interactions would make it worth their while.
For those keen to read on developments specific to your region, do have a look at my previous blog on Europe, and an upcoming write up that will cover the Latin American market.
Download a copy of the IDC Financial Insights' White Paper: Risk-Finance Collaboration at Global Insurers: A Partnership in Transition.
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