Insurance FP&A: Modern apps enable better analysis

Timely and insightful information is the foundation for strategic planning

The insurance industry is, by its nature, a paradox. It is built on centuries worth of information and relationships; however, its business leaders require timely and accurate data to support their visions for growth and avoid catastrophe.

Standing in the way of this information are decades of technology debt and finance teams burdened by the responsibilities of aggregating data rather than analyzing information. Nonetheless, there are opportunities to drive efficiency, effectiveness and timeliness through advances in financial planning and analysis (FP&A) applications.

With the frequency of external shocks — such as stronger storms, severe wildfires and inflation — affecting insurance industry results, there has never been a greater need for transparency into the performance of the business. Fortunately, significant developments in new technology-enabled competencies for FP&A teams have reduced the time from data ingestion to analytical results.

Fully modernized FP&A functions provide critical, timely insights into the performance of:

• Individual products and locations
• Distribution channels and partners
• Reinsurance contracts and relationships

These insights are much deeper and more nuanced than those previously provided by FP&A primarily for two reasons. First, the ever-increasing availability of rich, illuminating data enables analyses at a level of granularity that was once unachievable. Second, the automation of data aggregation and processing has freed time for FP&A personnel to perform analyses rather than manual data management tasks.

Start with scenario planning

The ultimate goal of FP&A modernization is real-time, continuous forecasting, which enables organizations to change their plans almost immediately based on changes in their results. However, achieving that level of forecasting takes time after FP&A modernization, so organizations typically start by using their new tools to build flexibility into their planning.

In the insurance industry, even after FP&A modernization, companies maintain their five-year and three-year plans as well as the 12-, 18-, or 24-month rolling forecasts. But their new tools allow them to build in the flexibility to assess how different outcomes may affect their strategic or capital planning needs.

These tools provide the ability to create multiple forecasts based on different assumptions and examine their likely impact on:

• Premiums
• Underwriting costs, including sales commissions
• SG&A costs
• Their underwriting ratio, expense ratio and combined ratio
• Liquidity considerations

For example, a company that is debating whether to add a new product line would use the technology to estimate the additional revenue the product could add as well as the costs that supporting the new product could require. For any new employees who might need to be added, for example, the models can incorporate factors as detailed as the average employee pay in the particular state where they will be hired. The models then provide similarly detailed insights that can lead to better business decisions.

Tips for getting started

Getting started with FP&A modernization starts with a basic question for leadership: “What do you want to accomplish?”

Knowing your goals for your KPIs and reporting requirements helps an insurance company design its data framework and implement tools to achieve those goals. To avoid delays and unsuccessful implementations, finance leaders should determine the desired final outputs before starting an implementation.

When choosing a tool, flexibility and scalability are the most important factors — particularly for smaller companies that are likely to evolve over time. In the fast-moving insurance industry, business models change quickly. That’s why the best technology tools provide the flexibility to continue serving company needs and delivering on objectives as they evolve.