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The future of the finance function - part 2

Published in: Corporate strategy, Regulation, Accounting - tax, Roundtable

Companies: Lockton, Travelers Lloyd's Syndicate 5000, Vitality Health UK, Aptitude Software

In part two of this InsuranceERM / Aptitude Software roundtable, finance leaders discuss how financial analysis is changing, how to deal with the flood of data, and the role that artificial intelligence could play

James Cooper, financial controller, Lockton
Chris O’Brien, CFO, Travelers Lloyd’s Syndicate 5000
Anna Miskin, CFO, VitalityHealth UK
Colin Charles, independent consultant to CFOs
Ross Chapman, marketing director, Aptitude Software

Chaired by Christopher Cundy, managing editor, InsuranceERM

Granular information

Chris Cundy: Do you crave more granular information? Or maybe you have the information you need, and it is just a question of organising it?

Colin Charles: Colin CharlesMore granular analysis of the technical account can only be a good thing. So, if you can get data by territory or by whatever attribute you have and you can cut and dice it on that basis to derive a loss ratio, you can achieve some valuable insight. I am not at all a believer in allocating fixed/indirect cost; it does not particularly help the equation, all you do is get the underwriters fighting over who should get which cost allocated where.

Chris O’Brien: If it is reliable data, I do not think it can ever be a bad thing. What we have to be careful of is that we use it appropriately. Sometimes granular data will be good to answer one particular question, but for other questions you may not need it.

Anna Miskin: The danger with granularity is that a uniform approach to analysis of all granular blocks of data (eg an intersection of market, channel, product, underwriting types etc) makes the process time‑consuming and not efficient. In the monthly performance packs, you have to be smart to not report pages and pages of analysis at the same level of detail, month-on-month, but zoom into the areas that are of genuine importance to substantial depth – and these areas may change every month. 

"The danger with granularity is that a uniform approach to analysis of all granular blocks of data makes the process time‑consuming and not efficient." Anna Miskin, VitalityHealth UK

Financial analysis changing

Chris Cundy: How is your delivery of financial analysis changing? Have you got mobile and iPad apps that your executives can use to view the business and drill down into data?

Colin Charles: The only app‑based data I have ever seen is sales-led. Maybe that’s not the best way for an insurance business in the current climate to work, but it provides faster feedback on premium income generation.

James Cooper: Our EPM [enterprise performance management] project is all about giving people more ability to self‑serve and extract the information and then come to us, maybe, for more intelligence on what is behind it.

Literally every COO and every business lead and some of their key people beneath them will have access to financial information. A lot of the regular requests, which can sometimes inundate finance and distract you from doing more interesting analysis, should go away with an EPM system which allows the business to access financial information more directly, thereby freeing up finance to add more value.

Staff changes 

Chris Cundy: Looking forward five years, do you think you will have the same number of staff, more or fewer, and what might be the drivers for that change? 

Colin Charles: The ideal would be the same number, but doing more value-added work.

Chris Cundy: Is the driver for that the automation of the more mundane work?

Colin Charles: Anna Miskin, Vitality Health UKYes. In those surveys of AI [artificial intelligence] accountants are one of the more likely groups to be replaced by AI, and you can see why. Having said that, we have been trying to do accounts payable on an automated basis for 20 years, too, and that is still manual! 

Anna Miskin: I certainly dream of a world where the word ‘reconciliation’ disappears from the vocabulary. 

Chris O’Brien: There is a risk sometimes with automation that you lose the understanding. It becomes a black box and it says, ‘The answer is this.’ If someone challenges that, you may not know what has gone on. We have to embrace automation, but we need to make sure we do not lose the ability to provide the basic essential check at the end: does that look right?

James Cooper: Accounting is about judgement, after all.

Chris O’Brien: An essential function of the finance team is to provide ‘quality assurance’ and for us to be able to stand in front of our stakeholders and say, ‘Actually this number is right. You might not like it, it might not make sense, but it is right,’ and we cannot lose that ability; the business needs it.

Artificial intelligence

Chris Cundy: Have any of you investigated what AI might help you do?

James Cooper: Not many AI systems yet are at the level where they are going to add value, but you can see within a generation that will be a different story. Look at the way it is already catching on in the investment management world: AI systems help them make better decisions on when to enter and exit markets and things like that. 

Chris Cundy: James Cooper, LocktonAre there any particular aspects of the finance function where AI could make a real big impact?

James Cooper: One is the analytics. When you have enough data, it can help you identify what products are profitable and where you should concentrate your efforts as a business, and can eventually help you formulate strategies. It will identify things that you did not know about your business, like why is a particular team so successful? It will start showing out in numbers you have not currently got anyone looking at. 

Anna Miskin: It will certainly help us to get rid of reporting – or make it occupy just 10% of our time – and help us to concentrate on the value‑added tasks. However, there will be a long period when we will still have to be extremely clever and quick in interpreting what the machine is telling us, because all the machine will be doing is finding correlations between masses of different parameters, and we may end up with very spurious correlations..

James Cooper: A number of insurers are starting big data projects, using algorithms to try and find relationships, and the data they collect for that will become even more valuable when AI is developed. Good quality data over a long period of time is what you need.

"Not many AI systems yet are at the level where they are going to add value, but you can see within a generation that will be a different story." James Cooper, Lockton

Colin Charles: Thanks to all the regulation, we are producing financial data more accurately than ever. But it is then the ancillary data - what does not end up in PeopleSoft or your general ledger - that can suddenly become a key decision factor in this AI world, and there’s a big risk that it was entered wrongly in the first place.

Anna Miskin: Also consider the continuity and consistency of accumulation of this data across time. We are making changes in the way we sell, price or target our customers in response to market moves. This will confuse correlations unless there is a precise mapping of old into new.

New skillsets 

Chris Cundy: Are there any particular skillsets that you think you will need more of, in the near term? 

Colin Charles: I would like to see more accountants who can translate financial data into ‘business speak’ and develop good relationships with others in the business – particularly underwriters and sales/marketing.

Anna Miskin: My first priority is communication and presentation skills; second is probably data. 

Chris O’Brien: You need the ability to mine the data, and slice and dice it, but you also need that accounting discipline of control: making sure you are comfortable with the data.

"The inward-looking accountant seems to have become more important over the last few years, whereas I'd like to see more outward, forward-looking individuals." Colin Charles

James Cooper: There is an underlying core acumen of financial understanding, accounting knowledge, etc. but more valuable is becoming the stuff which is not necessarily a traditional trait or learned as part of your qualification, i.e. people skills, relationship building and the ability to influence.

Colin Charles: That is not to say that everyone needs to be like that - there is definitely space for the tax specialist or whatever it might be. However, I think that the inward-looking accountant seems to have become more important over the last few years, whereas I’d like to see more outward, forward-looking individuals, still with the rigour of an accounting training, getting the upper hand. 

Long‑term strategy

Chris Cundy: How can finance help develop long‑term value‑generating strategies?

Chris O’Brien: Chris O'Brien, Travelers Lloyd’s Syndicate 5000Finance is good at pulling things together from different sources, distilling it and presenting it coherently. In the question you have the word ‘help’, and we have to recognise we are part of a bigger team and we should never try to do too much of this on our own. 

But we can define what added-value would be, how we measure success, and then create a coherent and logical programme of how you would get there.

James Cooper: How do we know we are delivering on strategy? How do we monitor we are on track? Those KPIs are something that finance can calculate and forecast on, and outline to the business what actions may help in reaching strategic goals. 

Chris O’Brien: You always have to challenge strategy as well. There are different people within the business who will want to serve different stakeholders, so you have to play devil’s advocate, in terms of making sure we have considered a whole community of stakeholders and not just the sales manager’s or the CEO’s preferred one.

"Finance is good at pulling things together from different sources, distilling it and presenting it coherently." Chris O'Brien, Travelers Lloyd’s Syndicate 5000

Regulatory headaches 

Chris Cundy: Which regulations are causing you the biggest headache?

James Cooper: Brexit is one of the biggest changes over the next few years and there are a lot of unknowns. You need to work on contingency plans and look at different scenarios and what possible impacts that it might have.

Chris O’Brien: It is a problem we would prefer not to have. It will not be easy, but it can be dealt with as more of an operational, rather than strategic, issue.

Anna Miskin: Solvency II is still a bit of a pain, in the sense of how do we create value out of it. As for IFRS 17, let us see what that brings. The third one is probably GDPR [the General Data Protection Regulation]. Finance is not the biggest part of it, but it is a big European‑wide project that will undoubtedly impact the way we accumulate and process information.  

Read part one of this roundtable here.