IFRS 17 as an accelerator of change

IFRS 17 increases the complexity for the Finance department across the board - from the closing process, through performance management measurements, to planning and projections - Finance personnel needs to move closer together to deliver the best possible outcome. For example, it will no longer be possible to retrospectively amend incorrect data during the closing process. Additionally, insurance liabilities can no longer be subsequently adjusted using so-called plug-ins. However, the expectations towards the CFOs remain the same: to operate efficiently as a business partner and provide timely and accurate information to the company, while responding to regulatory requirements that continue to increase (e.g., OECD Pillar II, ESG, etc.) and reporting business performance to analysts during press conferences.

It is therefore essential to address the question of "Who will do what in the future?". On the one hand, the new operating model should consider the fact that the accounting, controlling, and actuarial departments will interact more closely with each other. On the other hand, it should enable the organisation to exploit technological opportunities.

Adapting the operating model across the organisation represents a major challenge. As a result, the following four-step method Operating Model (OM) will be used to guide into this implementation phase:

1. Principles: Establish principles for your OM that serve as guiding principles
2. Organisation: Design the individual components of your OM 
3. Processes: Identify the OM processes to perform the required tasks as well as deliver the required results
4. Collaboration: Define the skills mix, team flexibility, and degree of centralisation for your OM processes

1. Principles

Our methodology includes the following principles for designing your OM:

1. Focus on value creation: The mandate of Finance (e.g., maximising operational efficiency while providing decision makers with fast and accurate information) should enable the Finance function to generate value along the organisational value chain. As a result, closing processes can be shortened. As well, planning, budgeting, and forecasting processes can be methodologically improved while performance management can be digitalised.
2. Organise for output: Typically, Finance employees are grouped in line with their expertise. This traditionally results in teams organised into accounting, controlling, and actuarial services. Conversely, in a results-oriented organisation, however, teams are organised according to the required outputs/deliveries. Thus, in this new framework, the team in charge of financial statements will not only consist of accountants, but also include actuarial and data scientists. Therefore, it is important to first clearly define the outputs/deliveries of the Finance department and align these within the organisation.
3. Shape for flexibility: A dynamic environment should go hand in hand with maximum flexibility. It is therefore important to differentiate between employees who are permanently assigned to an output and the employees that are assigned to a talent pool and can support the cyclical nature of certain tasks. This way, an optimised resource allocation can be achieved.
4. Bundle your sourcing: Once the value generation, the outputs, and the degree of flexibility have been determined, it is crucial to optimise the teams according to available skillsets and the associated costs.

2. Organisation

The figure below shows an example of a Finance OM. The core of the customised OM consists of interdisciplinary teams within the following three categories: Finance Factory, Finance Insights, and Specialised Finance.

Finance Factory: Primarily designed for data production and process handling, employees within the Finance Factory answer all data queries, create the necessary reports and handle processes that show great potential for automation. The aim is to tackle process optimisations that were previously neglected and to improve information procurement and thus also data quality.

Finance Insights: In the Finance Insights category, employees evaluate Finance Factory reports and market data to derive recommendations for action. This helps the Finance function position itself as a strategic business partner and thus support management as well as other stakeholders in aligning the company and achieving financial targets.

Specialised Finance: Specific expertise is bundled in the Specialised Finance category so that experts can be involved in topics such as IFRS, taxes, risk management, and M&A. 

3. Processes

Once the outputs of the Finance function have been defined as part of the principles, the necessary processes can be derived. The following figure illustrates a proven blueprint for the Finance department of an insurance company.

4. Interaction

To bring the OM to life, the final step is to define the required skills and to assess the degree of flexibility and centralisation per process. Besides assigning processes to the group, divisions and legal entities, Executives can consider centres of excellence, shared service centres and outsourcing providers to further bundle tasks. Consequently, an interaction model will be needed so that responsibilities are clearly defined.

The question "Who will do what in the future?" can be answered despite complex circumstances, and our proven methodology can help with this. The Finance team is at the core of creating an agile organisation that drives inspiration and attracts new talent. To ensure proper implementation of the OM, it is critical to involve all Finance Executives and Managers and plan for Change Management initiatives.

Are you inspired to initiate the adaptation of your Finance operating model and learn more about our methodology and our experience with clients in the insurance sector?