How Business Intelligence Can Help Insurers Overcome Compliance Challenges

Insurance professionals, ranging from C-level executives to accounting managers and directors of start-ups, are facing a long list of daunting challenges, whether their business is healthcare, P&C or life insurance. Four key challenges seem to be common across all insurers:

1. Unpredictable returns on investment portfolios due the combination of a low interest rate environment and high volatility are driving the need for transparency into holdings, allocations, performance and attribution.

2. A greater focus on managing and capitalizing on risk across portfolios, product lines and geographies is driving the need for enterprise views of risk.

John Vercellino, Sungard

3. Insurers are looking for ways to gain ROI from compliance efforts in an age of increasing regulatory demands.

4. Maximizing efficiencies, data and transparency are more crucial to reducing costs and improving investment decision making and profitability.

[Insurers are prioritizing the ability to move quickly and nimbly in response to market opportunities and challenges: Realizing the Promise of Agility]

The most important issue that I see facing insurance companies today is preparing for and adapting to changing regulatory and compliance demands. Insurers need to develop a strategy that will offer ROI from all their regulatory and compliance efforts, whether that means better communication with ratings agencies or adapting processes and procedures in preparation for changes in regulatory rules. There are many regulatory organizations -- the NAIC, SEC and FASB, among others, as well as the large national and multinational regulatory initiatives such as ORSA (Own Risk and Solvency Assessment), LEI (Legal Entity Indentifier) and IFRS (International Financial Reporting Standards). Managing any one of these regulations is a challenge, and staying on top of them all while preparing your organization for the inevitable changes demands a full-time staff.

This is where business intelligence tools can help. Some insurance companies have billion-dollar portfolios with multiple investment managers, broadly divergent mandates, multiple asset classes and thousands of individual securities. Simple accounting tools or investment performance tools are not equipped to provide the level of visibility, transparency and insight that insurance investment managers need for today's portfolios. New solutions are needed to provide visibility into investment and financial data, transparency across a complex enterprise, and insight to help leaders make better business decisions.

With multiple portfolios, investment managers need visibility -- the ability to see their investment portfolios either in aggregate or on an individual basis. An investment manager has to monitor each portfolio in his or her purview to three levels of compliance: NAIC guidelines, state regulations, and the company's investment policy. In turn, each of these guidelines has specific requirements on asset classes, concentration and diversification, resulting in a patchwork of overlapping and potentially conflicting regulations.

An investment manager also needs transparency to see deep within their investment portfolios to determine where the issues lie, and where there are opportunities. While it's important to see portfolios from an aggregate level, it's perhaps even more critical to determine what, specifically, may be causing distress. Investment managers should be able to drill down into individual portfolios, to the security level, to see where they are in or out of compliance, or where they have an opportunity to increase exposure to take advantage of market conditions.

With visibility and transparency comes insight -- the ability to develop a powerful, profound understanding of investment positioning and adherence to compliance rules. These insights can help investment managers easily follow internal and external compliance guidelines while taking advantage of opportunities as they emerge.

Business intelligence tools can provide insurance investment managers with visibility and transparency for their investment portfolios by gathering the data, extracting the relevant information, and transforming it into easily digestible and understandable reports, dashboards and scorecards. Some insurers are already using these tools to develop insights about portfolio changes such as positioning, weights and allocations, all to stay inside their rules and regulations. What used to take days or weeks can now take only a few minutes. With these powerful insights, investment managers can quickly take advantage of the changing investment climate.

John E. Vercellino, AAM, AIAF, is vice president of product management for SunGard's iWorks Financials solutions. He holds the Associate of Automation Management and Associate of Insurance Accounting and Finance designations from the Insurance Institute of America, and is currently an Expert Level candidate in the Certificate in Investment Performance Measurement (CIPM) program of the CFA Institute.