Podcast transcript: How insurers can transform what and how finance delivers

Nick Smith

Hi and welcome to our Finance Reimagined podcast. Today, we’re looking at the changing role of finance and how the service delivery model and technology supports this. My name is Nick Smith and I’m a senior manager in our CFO consulting team based in London, working with many insurers to define and deliver their finance transformation journey. I’m delighted to host our podcast today with Alex Cliff, group financial controller at Direct Line Group, a listed general insurer in the UK, and Martin Müller, head of global finance transformation at global insurer and reinsurer Swiss Re. Alex and Martin, welcome to you both.

So, just to set the scene, we’re seeing a pivot to post-pandemic growth that requires scale, acceleration, and digitalization combined with continuing cost pressure and a war for talent and this is driving a need to revisit the finance service delivery model, a topic we’ve recently published a point of view on. And while finance remains the custodian of robust financial reporting and control, the drivers for change have shifted from a regulatory and compliance focus to applying commercial and finance acumen to addressing greater demand from the business, that demand being to provide insight into performance and to support growth opportunities.

In light of this, a number of our clients are reassessing their finance target operating models, coming at this with a transformational mind-set. And while cost is still an important factor, finance leaders are asking bigger questions and have a number of choices open to them when redefining their future state. For example, how do we translate our vision of providing value-added insight into what finance teams do on a day-to-day basis? How do we create capacity, often with a focus on time, but also in terms of budget and capability to focus on the new? And how can different sourcing strategies help us overcome our technology debt or capability gaps?

Alex, how does this resonate with you? Direct Line Group has been on the front foot from a technology perspective, bringing finance to the cloud a couple of years ago, and you’re in the process of increasing the outsourcing of a number of finance processes. What were the key strategic drivers behind this and for shaping a new service delivery model for your finance function?

Alex Cliff

There were a number of points, Nick, there that really resonated with me. At Direct Line, we’ve had two main strategic drivers. Firstly, we’ve had significant technology investment in finance driven by a move to Oracle Fusion and embracing cloud technology overall and also from IFRS 17. Secondly, as a business, we’ve been going through a significant technology transformation and a digitization journey and that has been requiring finance to keep pace with our business.

We’ve found that these technology changes have really acted as a springboard for finance to explore opportunities to change its operating model and it’s caused us to ask, how do we get and demonstrate value from the significant investment we’ve had in technology both from a cost and a capability perspective? It’s really made us realize that getting to grips with our data and technology can really change the way we work, removing pain points, creating capacity, and aiding our ability to add value. It’s really this that has made changing our service model an absolute imperative.

Smith

Thanks, Alex. Some really interesting points, especially about how technology change is acting as a springboard to explore the operating model and to support both cost and capability objectives. In turning our attention to how finance delivers, what were the key options around the new service delivery model that were considered? Were there any that were immediately discounted or prioritized and how did any investments in technology play a part?

Cliff

We considered three main options on our service delivery model. We looked at delivering it ourselves, we’ve looked at moving to a more managed service basis, and we’ve looked at materially enhancing our current outsource model. What became clear fairly rapidly was that, firstly, it was very difficult to change at the pace we needed ourselves without experiencing a significant increase in our cost base. Secondly, we lacked some of the skills to be able to capitalize on our technology investments and that we wanted to go quicker than we could ourselves and that there were others really best placed to help us transform and crack on with those technology enhancements.

So, we made the decision to materially expand our existing outsource relationship, looking to lift and shift end-to-end processes across all areas of finance, going into areas that we traditionally have not looked at such as FP&A, looking to leverage where our partner has more capability than us, and we’ve embarked then on a transformation of our processes in conjunction with our partner. It’s really all designed around giving us the capacity to operate and providing interesting work for our people and allowing us to develop the skills and, as the technology turns on the lights around our data, really looking to try and make and capitalize on those benefits.

Smith

It’s really interesting to hear the path taken to create capacity and interesting roles for your people. This is a challenge that we see many of our clients and finance leaders having to work through. One final point. What in your view are the key things to get right to ensure a smooth and controlled outsourcing journey?

Cliff

I think firstly, for me, you’ve got to be very clear and aligned on your outcomes. For us, this was all about transforming finance and it was about moving away from traditional, old, outsourced models. I think you have to be really in lockstep with your outsource partner on those outcomes and really look to work as a team. I think you have to have the buy-in from your senior team. If anyone is pushing in the wrong direction, it is very difficult to get that smooth and controlled journey and it starts to stutter.

Then, finally, the journey is all about people, your people in finance, the people you service in the business, and the service we ultimately provide to our customers. Getting the people journey right is so important and the transformation you want to go through is only successful really through people. Technology cannot do it alone and you have to keep your people, stakeholders, and customers front and center as you move through that process.

Smith

Thanks, Alex, for sharing the Direct Line journey. Martin, over to you. Swiss Re are a very different organization to Direct Line. What were some of the key drivers behind your finance transformation?

Martin Müller

Similar to the situation described by Alex, our finance technology platform was in need of investment. Historically, we had built a large number of applications in-house. These are relatively old and also fairly high when it comes to maintenance. This approach contributed to a deviation in how processes were performed across business units along with duplication of these processes. So, in 2014, Swiss Re started three finance transformation projects, one for each of our business units. This was due to our organizational structure where significant responsibility is delegated to business units not just in the area of finance, but also when it comes to underwriting, claims, and other areas.

These three transformations resulted in separate target operating models by business units, separate infrastructure where one used SAP but for the other two we used other solutions. This changed in 2020 when the group decided to change from US GAAP to IFRS as our external financial framework. This moved all transformation programs to the same common deadline. With this, we decided to change and consolidate the three projects into one, to do the effort once but do it right. The focus is now more on the target operating model more broadly, not just on infrastructure.

Smith

Thanks, Martin. How did technology play a role in creating a platform to evolve finance? Has what you’re asking of your offshore function changed?

Müller

So, we partnered with SAP to co-develop a solution that met our requirements, especially in the area of subledger for insurance and for the financial instruments. We started with a single business unit, in this case, reinsurance business unit, and then when we merged the programs, we replicated this approach across the other business units to create one common infrastructure. This created a stable and common platform, starting with the general ledger, for processes, standardization, and centralization and allowed us to move more of our finance processes across all of our business units offshore.

One of the key elements in our transformation is the so-called “multivaluation approach”. We want to have one system, one process to deliver all valuations, starting with group IFRS but then also moving to the economic framework, Solvency, and local and statutory reporting requirements. In addition, we follow the same approach across assets and liabilities. We use the same subledger and we do the multivaluation approach across investments and insurance liabilities.

This is a long journey. Currently, we focus on group IFRS and Solvency, but the other valuations that I’ve mentioned will follow. The objective is to make production much more automated and reconciliation between valuations automatic and to spend more time on business partnering, strategic insight, and the role that finance has to shape the strategy of the firm.

Smith

Thanks, Martin. It’s great to see at both Direct Line and Swiss Re how revisiting the service delivery model and implementing new technology platforms is creating a capacity to allow finance to focus on becoming a strategic partner to the business. Turning our attention to next steps, what are your future plans to use the platform to transform the way finance delivers?

Müller

So, the SAP platform allows us to drive standardization and transparency across processes and to reduce process cycle times. It also provides an opportunity to centralize current processes, which not only permits us to reduce costs but also to take advantage of economies of scale. Some of this is still in flight. Typically, one would start at the finance vision, target operating model, followed by processes, and then have a look at systems and infrastructure, but given the significant change I mentioned and the direction or the change in direction we have taken in 2020, where we focused on group IFRS and consolidated the three programs into one, we have to focus on the delivery of group IFRS and other things will follow over time.

Smith

Thanks, Martin. Both you and Alex have been on exciting transformation journeys. To close out, I would like to ask you both to share some of the key challenges you’ve experienced and any advice you would give to others. Martin, can I come to you first, please?

Müller

So, there are five things I would mention. The first one is, there’s enormous complexity, especially when dealing with such large programs and projects. So, on the one side we have IFRS. We have the finance transformation that I’m responsible for, but there are other finance and non-finance programs that we need to consider. So, the coordination effort across these deliverables is key to focus on.

Secondly, it’s important that there is buy-in to change and we need to work with the wider organization very closely. Things are typically getting more difficult and tougher before they get easier, and this is difficult to accept at times. The third point to mention is, I think there is a natural tendency to get stuck in the past and think about how things are currently done, but we really need to think about the future and what sort of opportunities we are being provided by the things that we implement.

The fourth item is the whole area around talent and people. It is extremely important to get the right people with the right skillset into these programs. There needs to be a willingness from the organization to provide these skills, to provide these people at 100% to the programs. The final point I would mention is senior sponsorship. This is typically a long and, at times, bumpy journey, so the tone from the top and communication is key to success.

Smith

Thanks, Martin. Alex, is there anything you would add?

Cliff

I agree with Martin, particularly on the senior sponsorship and a number of the complexity challenges that he faced. I think it’s really important that, amongst that complexity, that you really do try to keep it as simple as possible, but I think I would add to that that for us, getting the momentum around the people and process change was one of the most difficult pieces we experienced. It’s relatively easy to get behind technology choice and technology change, but making decisions that impact process and ultimately people is hard, but without tackling that people and process change, you never really get to the heart of transforming finance.

So, my advice to anyone embarking on this would be to really keep a focus on that people and process change and to be really clear on the outcomes and benefits that you want to achieve from the technology and plan the time to make sure that you actually tackle those difficult areas.

Smith

Thanks, Alex. Some excellent advice from both Alex and Martin there and a great discussion around how investment in technology, outsourcing, and asking more of the offshore function has created capacity and delivered capabilities that have allowed you to move closer to your finance vision.

Just to add to the points that Martin and Alex have made, I think that technology is a hugely important enabler to the future finance vision. In parallel to this, we also need to translate the vision to truly partner with the business into what finance teams do and how they deliver. For me, with a refreshed vision in mind, the first step is to invest time in defining what finance do. We’ve seen many finance visions land and yet the finance service catalogue fails to change. I think defining where we stop and continue isn’t really the problem. Spending the time defining what finance should do is critical and it requires a reimagination and can’t simply be about improving FP&A processes or MI.

I think with the what clear, then comes the how and there’s probably four key considerations around this. Firstly, prioritization. So, it’s natural to want to be the best in class at everything, but we have to prioritize what will create value for the business and therefore should be performed in-house and closer to the business and what can be sourced from other parties or executed offshore.

Over time, sourcing and service models have also evolved. Traditionally, these were a cost play. However, they should be evaluated to consider how they can enable change. If we take managed service as an example, firms should be asking how these arrangements can give them access to new skills, access to advanced technology, benchmarking data, and industry insights, how these arrangements can drive continuous improvement in service delivery, and how they can provide a solution to capacity and provide much-needed scalability in times of increased demand.

Thirdly, I think we need to consider how the service model influences our technology strategy and also allows us to address our technical debt. This is an important factor when defining the data and systems aspects of the TOM. Finally, we can’t forget our people in all of this. Building new capabilities will lead to redefining career paths and development plans and is going to be essential in attracting and retaining key talent.

To close, I would like to thank you both for sharing your insights and for such an engaging discussion. Some great, thought-provoking points for us to reflect on. As we noted at the start, now is the time to seize the opportunity to define what we want our finance teams to do and to optimize how they do it.

Cliff

Thanks for having me today, Nick. It’s been great to engage in the conversation and to hear Martin’s perspectives as well.

Müller

Thanks, Nick, and thanks, Alex. I really appreciate the discussion. Thank you very much.