Closing the Data Gap on Finance and Risk Management

By Gregory Derderian and Neil Bromberg, Ernst & Young

In the current economic environment, insurers are resistant to invest in new and improved data management and reporting technologies. The good news is insurers may be able to improve the quality and reporting of their finance and risk information by capitalizing on past investments and putting initiatives into place to standardize on a limited collection of finance and risk platforms.Many of the challenges facing insurance companies today are similar to those they were addressing long before the current financial crisis - to provide accurate and timely regulatory, risk, financial and management information. The financial crisis is adding pressure for increased disclosure and financial information transparency from historically disparate and opaque reporting functions, yet funding for the processes and technology to improve information flow has waned.

Many insurance companies have not fully integrated the breadth of their 20th century growth strategies. Geographic and product line expansion - without corresponding investment in integration of finance process and systems - has left the consumers of financial and management information the task of breaking down organizational silos to get a complete performance picture.

In the Ernst & Young Insurance Finance 2010 study, CFOs indicated the need for aligned finance and risk-related data to support corporate decision making. At leading organizations, the CFO and CIO are collaborating to clean up the information flow and fulfill their longstanding objective to be valued business partners in the organization. With minimal incremental investment, they are utilizing the Enterprise Resource Planning (ERP), data management and consolidation technology already in place to help solve the data silo problem and serve as a platform for future initiatives.

Perception Gaps and Inconsistencies

World class organizations are headed toward information convergence and aligning data from different sources with data governance programs that drive consistency and quality. However, many of today's insurance companies have evolved through years of mergers and acquisitions and, as a result, have multiple disparate systems that hinder the consistency process.

When finance drills down into the numbers, they run the risk of losing credibility if their data is stale or inconsistent with other areas of the organization. Our Study pointed to a gap between finance's perception of itself as a strategic business partner and the corporate perception of finance. The gap would close if finance was perceived as a business partner that leverages a single structure data rich environment to provide meaningful and aligned financial, risk and management information. A true partnership between the business and finance exists in organizations where finance has taken leadership, responsibility and ownership of this information.

Improving the Data Environment

The data management technology needed to enable finance to own and manage this data is prevalent in insurance companies. Incremental investment in a limited number of "strategic platforms" while retiring inconsistent and one-off applications will help to deliver information consistency. Examples of the ancillary benefits of addressing data quality, data governance and leveraging technology investments include a more efficient and higher quality financial close, as well as the ability to respond more effectively to regulatory and financial reporting changes. As companies are being asked to do more with less, they should be aware that there is no shortage of tools at their disposal. The appropriate platforms are available in the form of multi-book general ledgers, advanced consolidation and reporting tools and master data management applications; they just need to be properly leveraged across the global enterprise. Maximizing the benefit of these technologies provides the opportunity to streamline reconciliations, to process transactions more consistently and to eliminate redundancies.

Technology as an Enabler

Many insurers have made investments in their technology infrastructure but are not capitalizing on them. The question is whether the CRO, CIO or CFO is willing or able to drive toward an integrated technology environment. A leading practice perspective may dictate that doing so is the right long term solution. Ultimately, the decision is one of time, effort and whether a company is inclined to invest a bit more in this current climate. We are seeing the better performing organizations taking advantage of this down market to drive increased efficiency in their environments. They are structuring formal data governance programs and instituting data and information standards through tactical, cost-effective efforts. The net result for these organizations will be streamlined processes, rich data sets, and improved information to support front, middle, and back office decision-making.

The authors are based in the New York offices of Ernst & Young LLP. Greg Derderian is a principal and can be reached at [email protected]. Neil Brombert, an executive in the practice can be reached at [email protected] of quality risk and finance data will drive performance management, operational improvements and cost efficiencies.