Exclusive: ‘Future-proofing and change: A CFO perspective’ – Carl Moxley, Legal & General in “The Insurtech Magazine”
Digitisation at Legal & General is impacting every department, but in finance it coincides with changes wrought by regulatory reform that demand a fundamental rethink of critical processes. Carl Moxley, Chief Financial Officer for L&G’s Retirement Institutional division, shares his experience
Touching any part of a legacy system has its risks, and nowhere is an organisation rightly more nervous of those than in the finance department.
No one wants a gung-ho CFO, but neither can an organisation’s most critical functions be protected from fundamental reform forever. That’s where insurance as an industry finds itself.
In 2018, the then head of platform and change at one of its biggest operators, Legal & General, admitted the company had been working with the same internal system since 1991 and would be ‘changing every tool’, as it executed its transformation strategy. That means Carl Moxley, in his role as CFO for L&G’s Retirement Institutional division, has become increasingly involved with how digital processes are implemented, and the impact those changes in his department will have on the wider organisation.
Moxley’s journey at L&G may be a specific one, but it will undoubtedly speak to a number of CFOs who are also looking at the risks and benefits of change.
Like many working at insurers operating in the EU, much of Moxley’s time has and is being spent overseeing the company’s response to a raft of regulations with potentially huge operational impact on his department, including Solvency II and IFRS 17 reform. But while the consequence of embedding these new requirements has been to tie CFOs to their desks for months, even years, on end, Moxley believes the technology solutions they finally settle on to implement them could release chiefs and their teams to grow into a more strategic asset for the firm.
Necessity forcing change
Solvency II and IFRS 17 require a deep level of calculation and analysis, ‘that’s making us really think about our end-to-end processes and how we can make them better’, says Moxley.
“With IFRS set to be implemented in 2023, that is another change in the amount of information, detail and data that’s required, in terms of our accounting. There’s an increasing focus [by regulators] on operational resilience, as well. While, in the past, the banking and insurance industries in particular have seen a lot of focus on their balance sheet resilience, capital and liquidity, that’s now moving to the operational side.
“We’ve a kind of shortening window of time to be able to do our reporting, that’s something the whole industry faces, and when we have growing business, increasing the need for data manipulation, it becomes really important to think about how we view automation, digital capability and predictive analytics. There are clearly legacy systems that were fit for purpose in the past, that now need to be rethought.”
Previous piecemeal approaches to reform were understandable, but have not done the industry any favours, admits Moxley.
“When you need to get something in place, in the short term, you tend to do stopgap-type analysis, and layer on additional levels of complexity, because the business case for wholesale changes isn’t necessarily needed – it’s just a small iterative process,” he says.
“But the more you layer onto the systems, the more difficult it is to then fundamentally change, especially while you still need to keep the wheels running. All these aspects have been barriers [to transformation]. That’s certainly what I’ve found. It’s the large-scale thinking around these new regimes that make you start to consider your whole process. The journey we’re on in my function is to get to the end state of a more automated, digital process.”
Will that significantly change how the CFO perceives his role, and how others in the boardroom see it?
“The CFO is responsible for the balance sheet, expenses, the management of the financials of the company. I think that is probably always going to be the case,” says Moxley. “But you get a whole range of different types of CFO roles; I’m quite lucky in that mine is fairly broad, it’s not just the balance sheet. I also look at longevity and credit risks, and have responsibility for those, as well as financial controls and all manner of other things.”
But, in the current period of change, he’s also been able to experience a new level of collaboration with other departments.
“It’s working with the transformation team, the chief operating officers of the company, and the IT directors, to think about what a future finance function should look and feel like, so that you are able to scale efficiently,” says Moxley. “What has always been true, but even more so for me now, is asking how the finance function adds value to the business, because the real value is predicting and looking at the future. This transformation journey gives the space and time for my finance function to be able to do that.
“It all starts with the data,” he adds, “on both the asset and liability side. We then set assumptions that get modelled and projected, and then a whole lot of analysis follows. I was finding that the initial process – the data modelling before the analysis – was taking far too long, and my actuaries and accountants weren’t spending as much time on the value add, which is the analysis and understanding. So we’ve gone into that first stage of the process and looked to see where and how we could speed up or automate it.”
Cloud technology has allowed this smooth automation and is re-addressing older means of recording data.
“In some areas where we’ve used historical spreadsheet macros to calculate quite important and detailed calculations, we’ve been able to shorten the time that incurs by using vaster computing power in the Cloud,” says Moxley. That level of speed and efficiency is what has made it easier for him to get more people across the business onboard with the transformative capabilities of digitisation for finance.
“Being able to show time saved in that one process, and that there’s less operational risk, is something that seems to have won the hearts and minds of both my team and the sponsors of this. It’s working well and it hasn’t taken fundamental focus away from our business-as-usual work, which can’t stop.”
That has been part of the challenge when it comes to digitisation and transformation: how do you convince those you work with that it isn’t going to affect the momentum of the business?
“I have found the most powerful teams are those where you’re able to get the actuaries and the accountants to articulate what they need and want to see in the process, and to get the people who really understand the latest technology involved to help them,” says Moxley.
That doesn’t mean there isn’t jeopardy involved in that.
“When you’re starting to move things off the mainframe and onto the Cloud, you’re introducing cyber-type risks, different IT mainframe risks, especially if you’re reliant on someone else’s recovery plan. If you start to move into artificial intelligence (AI) or machine learning (ML), you need to be cognisant of who’s programming that, and if they are programming it with their own bias, which you might not be able to see in the results.
“But I absolutely do think this is a great moment for insurers to really think about their future finance processes. It makes things faster, it makes things more controlled. Using new tools, new ways of coding and new ways of data mining, and I’m sure AI and ML, too… all of these things, in my mind, enable the finance department to be future-proofed.”
And that reassurance should bring CFOs nervous about change right back into their comfort zone.