Keeping it Together Large-scale finance transformation restores an insurer’s critical finance capabilities DOWNLOAD

Abstract

One of the world's largest insurance companies, which had risen to prominence by serving more than 50 million customers in almost 30 countries, used acquisition to create a new North American unit with both property & casualty and life & annuity operations. But a variety of problems in the newly acquired unit's finance function hampered performance and decision-making. In response, the insurer set out to build new finance capabilities, targeting a five percent margin improvement and $100 million in capital efficiencies while aiming to reduce risks and material weaknesses. The transformation effort is currently underway and is expected to continue through 2011.

The Challenge

The North American company's financial apparatus was underfunded, outdated and struggling to keep up with the demands that come from being part of a competitive global enterprise. Leaders lacked the insight needed to make strategic decisions. The company was also experiencing declines in North American profits, despite rising revenue; part of the problem was simply due to the nature of life and annuity products, which can often take as long as six years to become profitable.

In addition, the data and supporting technology infrastructure was highly fragmented. Reporting was siloed, because the property & casualty subsidiary and the life & annuity subsidiary - while necessarily distinct - were not leveraging any consistency.

Evolving regulatory requirements only added to finance's woes. Existing operations were scrambling to deal not only with the shift from U.S. GAAP to IFRS, but also with the new requirement to use European reporting standards (MCEV) because of the parent company's European roots.

To top it all off, there was significant turnover in the company's executive ranks, which added a significant human element to the project. Finance transformation is never easy, but this organizational disarray made things even harder. The company needed not only to restore its financial insight, but also to employ finance talent strategy, talent assessment and talent management strategy to create a stable culture that could put the insight to good use.

How We Helped

Solving this problem would require a full-scale transformation effort that affected every aspect of the company's finance function, from process and technology to people and organization structures. The company believed that Deloitte's multi-disciplinary capabilities—and demonstrated track record of serving them—made it the right choice to help. Key activities supported included:

• Developing a business case for finance transformation (FT)
• Designing the FT program and implementation roadmap
• Defining and planning the portfolio of FT projects

In designing the FT program and timeline, a key challenge was balancing the company's urgent need for immediate action against the constraints of its budget, capabilities and available staff. Once the overall plan was approved, we helped them construct a detailed program plan, governance structure and vendor strategy for eight work threads:

• Program management office
• People and climate
• Actuarial
• Solvency II (the regulatory environment required to operate in the European Union)
• Reporting and analytics
• Planning, budgeting and forecasting
• Controllership and shared services
• Technology

Once the program was approved, Deloitte was enlisted to help them create a regional finance function that will offer the company the ability to pin down profitability by product, channel and customer segment. We are also helping them implement an Oracle ERP financial reporting suite and automated account reconciliation process to further standardize and streamline their finance operations while helping them accelerate the financial close and reporting process.

Solution

At this time, the finance operation has been reorganized, key systems in parts of the organization are already live and the project is on track to meet or exceed the company's goals for improved efficiency, effectiveness and financial control:

• Efficiency goals:
  • A 15 percent reduction in overall finance function operating costs
  • Improved span of control (number of direct reports per person) from 2.7 to 5.5
  • Improved cycle time and reduced effort for financial close and reporting, planning, budgeting and forecasting
  • A $100 million capital efficiency improvement
  • A five percent margin improvement
• Effectiveness goals:
  • Improved accuracy, transparency and detail on product, channel and customer profitability
  • Improved ability to support business decision making and to integrate risk and capital in evaluating business performance
  • Improved performance numbers for finance talent quality and employee satisfaction
• Control goals:
  • Reduced material weaknesses and deficiencies from external audits
  • Reduced error rate and risks attributable to finance

We continue to help the company to move its conservative, consensus-oriented culture to more actively embrace change. And after a history of missed reporting deadlines and inadequate analytics, it recently posted its best-ever close under IFRS, with significant improvements in cycle time and quality of analysis.