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Lawrence Richter Quinn
Lawrence Richter Quinn
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Coming of Age in Finance Management

Demutualization, globalization, anda focus on the bottom line are bringing financial systems into the Internet age.

Many insurance financial managment functions have been slow to reach their technological "coming of age." Despite the growing importance of performance management and real-time financial analysis, many legacy systems did not support enterprise-wide dissemination of critical financial information.

Rather, the focus in many insurance companies has been primarily on asset/liability matching and the need to meet GAAP and regulatory accounting requirements, while NAIC requirements have guided investment strategies.

However, in the past 12 to 18 months, a combination offactors—including demutualization, the performance of the capital markets, board and executive team demands for improved bottom-line performance, and the drying up of traditional income sources—are forcing companies, both public and mutual, to modernize their investment and financial management tactics.

Also, factors such as globalization and consolidation—events that have forced insurers to determine how to capture and transmit financial data across multiple geographic locations in multiple currencies—are forcing CFOs, investment managers, line-of-business heads and their IT partners to measure and track profitability in any number of ways: by department, product, channel and sales agent.

As a result, providers of treasury, investment and other financial systems providers are racing to keep up with new demand while simultaneously making their offerings Web-ready.

"The whole financial function is being transformed to play a more strategic role," says Paul McDonnell, managing director of financial services at KPMG Consulting LLC, New York. "Now people are paying attention to expense control and the way funds are allocated. They're looking at capital allocation and wondering if they're making the best use of it. They're starting to look at budgeting, too, with performance measurement in mind." This shift in orientation is happening in part, McDonnell says, because major insurers are increasingly run by people with bank and IT backgrounds. "We're moving in the right direction," he comments.

Other financial systems vendors agree. "There's no question that treasury and finance have a new face today," says Tim Plunkett, industry marketing director, financial services at Lawson Software (St. Paul). "Consolidation is a huge driver," he says. "In the past people used to design their own accounting systems, but as they begin to merge and acquire, they're seeing the need to standardize. They're asking, 'How do you take two books of business and put them into one financial system?' Without that, the merger activity is really slowed down."

M&A activity, combined with a greater emphasis on cost allocation, is creating a demand for the most adaptable of accounting systems, says Tara Winters, senior vice president of accounting products at SunGard Insurance Systems (Atlanta), where sales of accounting products are growing annually at about 25 percent.

"Because mergers are changing the complexion and complexity of insurance companies, flexibility in accounting is key," she says. "With layer upon layer of new business and activity, people are really struggling with how best to get a handle on this."

To provide maximum analytical flexibility, SunGard has introduced to its enterprise accounting system a "business unit structure" that enables companies to look at their numbers by division, branch, department, function, line of business, and even by agent. "Our definition of a business unit is any organizational grouping by which you manage your business," says Winters. Companies that historically expected to produce reports on budget variances department-by-department can continue to do so, she says. But, she adds, "they might also look at it by product-term life versus whole life, for instance."

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