EXCLUSIVE: “It’s not just a numbers game” – Liza Richardson, Aptitude Software in ‘The Insurtech Magazine’

Accounting software company Aptitude is focussed on supporting the rapidly changing office of the insurance CFO. Its VP of Solutions Consulting, Liza Richardson, tells us how she sees those changes playing out

THE INSURTECH MAGAZINE: Aptitude works across financial services, so how do you support insurers specifically?

LIZA RICHARDSON: We take the data from their policy, admin, claims and actuarial systems and put it through an automated accounting rules process to finalise their numbers and produce reports.The idea is to remove a lot of the manual steps involved in those processes, remove the spreadsheets as much as possible, but also to provide really granular accounting. This is not summarised accounting that’s going to the general ledger – rather, this allows insurers to trace everything back to the individual claim, or the individual premium that’s been paid.

TIM: Let’s talk a little bit about the CFO. Because there was a time when the CFO was almost regarded as a glorified accountant. Now, they are, arguably, the CEO-in-waiting. What do you understand to be the role of the insurance CFO today?

LR: In any organisation, it has changed to be much more of a strategic leadership role than just that of a controller who looked at the numbers, made sure they were reported correctly, and presented statutory accounts. Instead, it’s become a future-looking position.

Shareholders want to know how things are going to play out for the business, what the CFO has investigated, what they’re looking at. The finance department is seen to be a partner of the business now, rather than just an overhead. It’s helping with strategic decisions, even down to organisational change, helping to restructure businesses and looking at the strategy that needs to be followed. CFOs are looking more globally, too, not just at the market they’re in right now, and the outsourcing opportunities that might come into play with that.

We’ve seen lots of outsourcing take place in the insurance industry over the last few years. Organisations have been brought in to manage closed books, for instance, and the CFO would have been instrumental in a lot of those decisions.

TIM: Even if you’re a small business, you’ve kind of got to operate on a global scale now. What are the challenges from an accounting and a CFO perspective, and how does Aptitude support businesses there?

LR: There’s a difference between operating your business in those areas, and just having a back office in them.

If you’re operating globally, then everywhere you go, you’ve different regulators to deal with, and the overheads and expense that goes with that. Being able to report under multiple different GAAPs (generally accepted accounting principles), or different accounting bases, to meet all the different regulatory requirements, is really important these days, because otherwise you just can’t get your books closed. When it comes to supporting these insurers, we start from the principle of capturing every transaction at the lowest granularity, at least initially.

So, if you’re subject to three or four different bases, we will account for a transaction in each of them and we will be able to produce sets of books and records in each one of those bases, and do it in parallel. Previously, you’d have had to do that serially.

You’d have one master GAAP, or one master basis for accounting, and, once you’d finalised that number, you’d start making adjustments to get the next one, and then the next and the next, lengthening your close process, and making it much harder. Using manual processes meant your traceability disappeared, too – ‘why did you make that adjustment to get to that number?’ – which also introduces key person risk a lot of the time, because you only have one or two people who know what needs to be done.

With automatic controls in place, the system doesn’t allow rubbish data through, either. So, if you can’t account for it under the multiple bases, it’ll stop, because it’s identified there’s an issue. That means organisations can have faith in the numbers they are producing – because it’s being done consistently, and in an automated way, rather than a spreadsheet that could be manipulated, and has no controls around it.

TIM: Insurance has been subjected to a lot of regulation over the past few years that has fundamentally affected the accounting process. Does the Aptitude approach make it easier for insurers to comply with regulation?

“IFRS 17 has been a significant change for the insurance industry, and it’s really affected the way finance and the actuarial teams work together”

LR: It future-proofs them as much as possible, yes. Because if you’ve got all that data at a really granular level, if a regulation changes, or you’re required to categorise or treat something differently, you’re not having to change the fundamentals of your solution. You just add some other data and group it together differently.

The software is also very user-driven, so clients themselves can update rules, for example. They’re not having to go back to a heavy IT function, and wait for months for someone to go in and change a bit of code; they can, because they own the rules.

That’s key to driving efficiency.As you say, over the last few years, insurance has been subjected to a lot of regulatory change – Solvency II and now IFRS 17, which, if you’re reporting globally, you really need to adhere to. There are a number of jurisdictions that are going to be late adopters of it, but we’ll definitely be looking at how we help there, based on the learnings we’ve had elsewhere.

If you’re listed in the US, you have to adhere to US GAAP but, even then, if you’ve got international investors, you probably have to report under IFRS together to some extent, because that’s how people want to compare, and know that they’re making their investments in the right way.

So, even jurisdictions where IFRS 17 might not be a important local reporting requirement, it is still a global reporting requirement, because of the investors, in a lot of cases. IFRS 17 has been a significant change for the insurance industry, and it’s really affected the way finance and the actuarial teams work together. Instead of operating as two separate islands, now insurers have to automate feeds from the actuarial systems and get them into the accounting process.

Previously, insurers have not needed to do any accounting from the actuarial system, they’ve just been given a provision from the actuaries. Now, they need to evaluate, at a policy level, or a group of policies level, whether something is profitable or not, based on what those projected cashflows are, and any adjustment for what happens in the real world. You have to operate at a much more granular level, in order to be able to make those assessments, and the IFRS 17 standard has enforced that. It’s fundamentally altered the way things work, and the granularity of data that’s needed as well.

Automation is key to all of this because it’s very difficult, as soon as you have any volume at all, to be able to comply with IFRS 17 otherwise.

TIM: So what will be key in influencing the role of the finance department in insurance over the next few years?

LR: P&L numbers are going to change, moving forward, so the way that insurers are evaluating their businesses will change – and that will impact the key performance indicators (KPIs). As insurers begin to see the results from IFRS 17, they’ll start thinking about how they set those KPIs.At the same time, there is real pressure for insurers to become more efficient. The new players in the market, the insurtechs, don’t have all the legacy and overheads that traditional players have had.

They’re able to start business immediately on a more streamlined basis. The CFOs of these new organisations are already focussed on strategy, on where the business is going, and how to get it there – putting all of the right steps in place, so that they can grow rapidly.

That’s really where everyone else has got to get to.

This article was published in The Insurtech Magazine Issue 10, Page 34-25