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Driving on the raceway: with industry changes, management should revisit and challenge the information it needs for running the business.

Faced with tough, real-time strategic and operations issues along with increasing scrutiny by regulators and investors, corporate leadership overall and chief financial officers in particular have less margin for error in their decision-making than ever before. If in days gone by, navigating through troubled or unknown waters aptly described the challenge confronting management, now it's more like driving on today's business raceway--with hairpin turns and plenty of unknown hazards up ahead.

Arguably, however, the insurance industry has not been known for moving quickly. Indeed, the industry's Achilles heel has been getting the right data in a timely manner for effective decision making. Historically, information has been aggregated, packaged, one-dimensional, unreliable--and almost never timely.

This old management information paradigm is untenable in today's more competitive and higher-risk environment. Additionally, in the new Sarbanes-Oxley era of personal accountability for accurate and complete disclosure, the quality and timeliness of financial reporting and decision-making processes are even more critical.

Fortunately, change is here. The growing recognition that better, fresher information is vital for success is spurring corporate executives to fundamentally redefine their information and decision-support needs. Management is demanding information that is:

* Fact-based, accurate and consistent;

* Linked to strategy and high-level corporate goals;

* Forward looking and predictive;

* Available real-time, on-demand;

* Disaggregated, flexible and nimble.

In the past, getting good management information was constrained by legacy systems that didn't capture the right kinds of data, were inflexible and didn't "talk" to each other. Now, investments in new accounting, enterprise resource planning, customer-relationship management and enterprise data warehouses have created torrents of data. In fact, the amount of data stored by insurers doubles every year.

Many companies' recent information technology investments have gone toward high-performance transactional systems to improve operational efficiency and customer service. Yet despite big IT spending, the information and decision support provided to senior executives has remained largely unchanged. Management should revisit and challenge the information it needs and wants for running the business because business intelligence capabilities now allow for highly automated actuarial and management reporting processes.

Today's savvy insurance executives are capitalizing on the availability of information by developing advanced management reporting frameworks to dramatically improve their decision making and performance.

Today's savvy insurance executives are capitalizing on the availability of information by developing advanced management reporting frameworks to dramatically improve their decision making and performance.

These are the top five ways insurance executives can use new information for competitive advantage:

* Traditionally, results have been measured by line or business or product. In today's competitive market, this is no longer enough. Companies need to evaluate performance by distribution channel, agency, agent, territory, market segment and even customer.

* Historically, GAAP was king for insurers. Now, business leaders are increasingly demanding embedded value and other information that better captures the underlying business economics. And insurers are finding it easier and more practical to measure and explain results on multiple reporting bases by integrating and automating the valuation and analysis processes.

* With volatile capital markets, increasingly complex products and shrinking margins, it's imperative for insurers to more explicitly incorporate risk into their decision making. To optimize risk-adjusted performance, executives are turning to holistic, enterprisewide risk measurements across all lines of business and risk elements, economic determinations of capital needs, earnings-at-risk and embedded-value-at-risk, as well as risk-adjusted returns on capital.

* For many insurance products, it's important to closely monitor and respond to claim, persistency and other experience trends. Leading companies have real-time analysis and drill-down capabilities and can better predict the implications of various rating and other management actions.

* The practice of taking months to complete an annual financial plan is gone. Insurance executives now demand much more current and forward-looking information. Insurers need timely, rolling forecasts and "on-demand" financial decision support.

Getting it right in the insurance industry today is not easy. You need the right information. Companies that excel in this area are outmaneuvering their competitors and optimizing performance.

Michael A. Hughes is a partner in the Chicago office of Ernst & Young's Insurance and Actuarial Advisory Services Practice. He can be reached at
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Title Annotation:Property/Casualty; insurance industry
Author:Hughes, Michael A.
Publication:Best's Review
Geographic Code:1USA
Date:Dec 1, 2003
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