Over and above the buzz of disruption, regulation changes and intensifying competition, insurers must dial back down to the basics of the finance function in order to create, transform and realise value, said EY leaders Jonathan Zhao and Martyn van Wensveen at the 11th Asian Insurance CFO Summit in Hong Kong yesterday.
Finance faces “perfect storm” of challenges
Mr van Wensveen, Advisory Partner & Finance Transformation Leader, who boiled the finance function down to three key drivers – performance and growth, cost and efficiency, risk and regulation – said it presently faces a “perfect storm” of challenges as a combination of external and internal pressures including disruptive technologies, evolving regulations and legacy systems, add to the already overloaded finance function of traditional insurers.
Traditional finance function must thus transform from its current state of being operations-heavy, entailing mundane repetitive work processes (ie book-keeping), and light on business partnering and analytics capabilities, to a future state that is the inverse. The basics, or finance operations, will be where the most automation will take place, and hence reduced in volume; the middle office layer, which focuses on reporting and control, must shift from a “commentator” to deeper specialisation, rationalisation and standardisation; while strategic business support must form the bulk of the finance function.
Sizing up today’s world and business environments, Mr Zhao, Managing Partner & Asia Pacific Insurance Practice Leader, alluded to an onion and said that regardless of the type of business, the industry’s focus is the customer, and the layers that make up [the onion] are the front, middle and back offices. Insurers and CFOs must get the front office, which comprises the distribution channels, to work effectively; keep costs low and raise performance in the middle office layer, which deals with claims processing and product development; and internalise transformation with technologies, along with managing compliance and regulatory changes in the back office – in order to create value for shareholders, investors and most importantly, their customers.
CFO roles and required skills
Separately, a panel led by Mr Scott Ryrie, Commercial Director, A.M. Best Asia-Pacific, saw speakers MetLife CFO Lyndon Oliver, A.M. Best Rating Services Chief Operating Officer Matthew Mosher, Zurich Insurance’s APAC Head of Finance Peter Hirs and Prudential Hong Kong CFO Nigel Knowles, discuss among other topics, the evolution of the CFO’s role and the skills required to carry out the job. While CFO responsibilities have expanded, Mr Mosher said that CFOs have had to focus more on technical aspects, such as complying with IFRS and solvency standards, as a result of regulatory trends. Nonetheless, panellists maintained that the importance of reporting and the CFO’s traditional functions must not be discounted even as the CFO is increasingly expected to play a more strategic role alongside the CEO.
Meanwhile, the industry leaders also shared that there is an increasing need for insurance CFOs to be able to communicate effectively to a varied audience, who may or may not possess an accounting or actuarial background. As such, CFOs need to be able to “distill” the essence of financial numbers and present them in a narrative that is easily understood by the layman and the business.
Similarly, in her keynote address, Ms Carol Hui, Assistant Commissioner of Insurance, Office of the Commissioner of Insurance (OCI), Hong Kong, said CFOs are no longer just “guardians of numbers”. Instead, they must be invested in the business as growth drivers and change-makers, as well as help lead integration across the company, creating and adding value in the face of increasing competition and the rapidly-changing market.
The insurance CFO’s role, she noted, will become more difficult with the recent wave of regulatory changes in Hong Kong; guidance notes 15 and 16, which adopted a cradle-to-grave approach, have brought about unprecedented changes to the life sector in recent years. “Regulatory changes can create some fundamental changes to the well-being of the company. And the CFO who can ride the wave and manage the risks related to these changes will be greatly valued.”
Ms Hui added that come 26 June, which will see the start of the new insurance ordinance in Hong Kong, the insurance CFO will take on statutory responsibility. “Under the ordinance, the CFO will be considered a key person in a financial control function and will need to be approved by the new IIA, as well as meet the fit and proper requirements under the law.”
The conference, which ends today, was organised by Asia Insurance Review, and sponsored by EY, A.M. Best, Moore Stephens and MasterCard. More than 130 delegates attended the event, which was supported by the International Insurance Society (IIS), the Hong Kong Federation of Insurers (HKFI) and the Actuarial Society of Hong Kong.