The time is now for insurance providers to embrace analytics
Here's why insurers that adopt cutting-edge analytics capabilities will move faster into the future.
Insurance is one of the most heavily regulated sectors. From customer protection compliance to solvency requirements, insurers are no strangers to managing complex regulatory situations. One element of the insurance business, in particular, is becoming increasingly essential for insurance providers to harness, and that’s analytics capabilities.
Insurance providers also represent one of the most complex investor groups, with portfolios that include a wide range of different asset classes, from cash and commercial mortgage investments to hedging instruments and derivatives like futures and cleared swaps. Insurers typically manage billions in assets that they continuously need to track in the marketplace. While the markets are creating new opportunities each day, with these opportunities comes more risk, compounding changes and massive amounts of data to process.
Given this shifting environment, insurers that still rely on Excel spreadsheets and other antiquated legacy systems to track their investment and accounting operations face mounting pressure to change and upgrade to core investment technology that automates accounting and reporting while making the most use of the gold mine of their client data.
Technology modernization is key. Insurers that take the biggest step forward to adopt cutting-edge analytics capabilities to drive their portfolio decisions will move faster into the future. “Insurers with more sophisticated IT capabilities have an obvious advantage in terms of agility, growth and cost ratios” and also “have a five-year revenue CAGR that’s four times higher than that of competitors,” according to McKinsey & Co.
With this differentiation in mind, here are three key priorities that insurers should strategically consider as they look to modernize their investment accounting infrastructure.
Increase risk understanding and visibility
Bad things don’t just happen at the end of a quarter or year. Risks crop up around the clock, and early detection is essential to an insurer’s ability to triage incidents, isolate impacted areas and initiate an effective and timely response. Moreover, risk incidents are incredibly nuanced and interconnected. Thus, relying on modern analytics and AI-based technology that can improve their organization’s ability to identify, avoid and eliminate risks is essential not just in improving organizational efficiency, but also in saving insurers potentially billions in lost revenue should an investment go sideways.
Modern technology can make compliance a breeze by automatically notifying users of any violations in their portfolio within a day. With the right software, you can gain easy access to all relevant compliance data from a single comprehensive dashboard and even build customized reports to investigate and gain further insight into your compliance status with just a few clicks.
Prioritize proactivity
With global investment comes a slew of compliance and regulatory responsibilities. Reuters reports that we saw over 64,000 regulatory alerts worldwide in 2021 — an eye-opening number that is putting pressure on insurers to embrace a new technology-driven way of doing business. But the headaches of remaining compliant don’t just end there.
For decades, the compliance landscape was defined by how quickly you were able to remediate an issue that arose. If businesses were able to effectively respond to a compliance issue and demonstrate that they had taken appropriate action to avoid similar issues in the future, they were largely able to avoid the worst possible consequences. Those days have fallen by the wayside. Thanks to the availability of advanced investment accounting software and the globally distributed business world, automated regulatory tracking can ensure that the portfolio is kept compliant, no matter what changes occur.
Implementing a solution to keep track of regulatory requirements can save your business valuable time and resources. Updates to guidance can be seamlessly integrated into your reports, without any disruption to your workflow. This aligns well with regulators that now expect businesses to have robust proactive controls and procedures in place. And with the SEC, Department of Justice, and many worldwide regulators doubling down on more aggressive enforcement, the sooner businesses are able to preempt issues, the better.
Break down intelligence silos
To effectively drive investment accounting and compliance today, insurers need to stay on top of thousands of different data types and data sources, such as custodian data, market data, trading data, and alternative asset data, which is delivered in untraditional formats. All too often, insurers rely on legacy systems to access these insights across multiple silos, which in turn, results in wasted time and effort in reconciling all this data.
To correct this, insurers would be well-served by embracing a technology that pulls in data every morning from third-party data sources and presents it in a comprehensive, holistic way. By tapping into modern investment management technology that’s AI-driven and based in the cloud – insurers can break down the barriers that exist in their decision-making. Cutting-edge technology can aggregate, enrich, and report on your complex global investments and manage diverse reporting requirements such as NAIC, IFRS, Solvency II, and global GAAP standards. From there, business leaders can get a better sense of where issues or potential opportunities exist, and devise strategies that will benefit their short-, medium-, and long- term goals.
The modern insurance investment world will only get more daunting and complex if insurers continue to rely on antiquated technology underpinning their investment accounting processes and regulatory compliance. By investing in state-of-the-art analytics capabilities today, insurers can easily run their portfolio book-of-record accounting, handle compliance monitoring, understand performance metrics, and access risk analytics data — demonstrating that an agile tech foundation that can make an enormous difference in their business, now and in the future.
Souvik Das is chief technology officer (CTO) at Clearwater Analytics. These opinions are the author’s own.
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