How can insurers position themselves for a successful integration of risk and finance?

It is no surprise that life as an insurer is increasingly busy. Currently, one of the top agenda items for senior management is the upcoming accounting regime (IFRS 17). This new accounting standard requires insurers to use detailed (historic) policy characteristics in the calculation of their insurance liabilities. These requirements highlight how important it is for insurers to integrate administrative systems, databases and models between the risk and finance functions.


All in all, an integrated IT platform for both risk and finance is good for business. The integration will result in overcoming data reconciliation issues, relate associated risks to product returns, improve budget cycle predictions and reduce overall operational risks and expenses by incorporating automation in reporting processes.


Given these benefits, why aren’t all insurers eagerly starting to integrate their risk and finance functions? IT implementations are notoriously cumbersome projects and it's likely that senior management are reluctant, at least in part, due to the great effort and risks involved in an IT integration project, such as underestimating costs and project delays.


The integration of risk and finance requires the close cooperation of multiple departments, such as finance, actuarial and IT. However, insurers are often associated with a siloed work culture and this makes it even more difficult to implement extensive changes. How can insurers, therefore, improve their chances of success?

The most significant success factor is to identify and, more importantly, to align all users from the outset. Getting all internal stakeholders aligned from the start of the project significantly improves the chances of success. This ensures that the right people are at the table to tackle issues such as disparities in definitions between risk and finance, current system limitations (gap analysis) and data migration. This results in stakeholder alignment on a preferred IT system architecture. Furthermore, it reduces bottlenecks during the project because sufficient time will be allocated to the right staff to devote to the implementation.


Another important factor for success is the use of translators. Interdepartmental communication is often limited at insurance firms and, as a result, actuarial, finance and IT employees sometimes speak different languages (in terms of jargon and definitions) to each other. As the implementation requires close cooperation between the departments, this difference in language can lead to misunderstandings. Translators are either internal or external advisors that ensure a proper understanding and communication between the departments during the implementation.


Lastly, a comprehensive governance framework involving both the risk and finance departments is key for a successful adoption after the implementation. As IFRS 17 is principle-based, there is a multitude of modeling choices and assumptions that are needed to determine the insurance liabilities. Sound governance is needed to ensure that model risk is minimized.


Based on our extensive experience with several risk and finance related IT implementations, these above-mentioned considerations greatly improve a successful implementation project. As a result, we recommend insurers to take these elements into account when considering the integration of their Risk and Finance systems.


Raymond Rosa