Enabling the exponential value accelerated for insurance with SAP Finance Technology
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Christophe Vallet – Director - TEA-SAP - Deloitte
André-Louis Jadot - Senior Manager - TEA-SAP - Deloitte
Published on 21 July 2020
Insurance companies are faced with many new regulatory reporting requirements such as IFR17, the country's GAAP (generally accepted accounting principle), Solvency II (Directive 2009/138/EC in European Union law which codifies and harmonizes EU insurance regulations) among others. These new regulatory reports trigger strategic movements and require a more integrated system landscape. Managing multiple books with different valuation rules is a challenge for most existing accounting systems. New accounting systems with several sub-ledgers for different financial products allow data insights and analytics based on the data market and are important in the in light of current regulatory requirements.
EMBRACE THE CHALLENGES OF YOUR FINANCIAL OPERATING MODEL
New regulations, legal reporting, trends, and "what if" scenarios are new paradigms that insurers must face, to produce and analyze the world under new "financial regulation". While reports and traditional financial accounting only display balances, profits and losses, the new regulations require various valuations, sub ledgers per financial product and audit trails in order to produce reports and remain compliant. In addition, they must also adapt quickly to market trends and be able to look to the future using new IT capabilities. “What if” scenarios are capable of producing real-time hypothesis results that evolve rapidly in today's world.
ILLUSTRATIVE COVID-19 CASE WITH SAP
The Covid-19 crisis illustrates a real scenario analyzed on a day-to-day basis to ensure that the insurer can react quickly to the real pandemic situation in all types of activity and facing various political and health decisions. The variety of cases, rules and values to calculate takes time and requires rapid restatement of financial book values to maintain the capital coverage required by regulators.
The regulation strengthens the relationship between data and financial records. Regulators are willing to have details of the activities that would be more transparent in the financial results and figures. What data about the coronavirus pandemic do you have in your financial statement? What are the relationships between them? How can one isolate the contractual financial objects concerned by this pandemic?
Insurers and reinsurers must ensure that they enter reliable and consistent financial information for reporting and decision-making.
Insurers and reinsurers use and evaluate business data in financial entries to separate values and distribute financial product entries in separate ledgers/subledgers designed, among other purposes, for regulatory reporting. With the SAP Finance technology running on SAP S/4HANA, you can benefit from a competitive advantage by getting a full integration of ledgers/subledgers, allowing to anticipate the impact of financial crisis in order to protect capital and investment in the face of the rapidly changing global situation as explained above with the coronavirus. Understanding the evolution of the market and staying compliant require a data overhaul and a better integration between finance and business. Data silos and lack of integration make closing and reporting time consuming, which is no longer acceptable to the Board of Directors and shareholders wishing to have reliable and clear financial dashboards.
Build a modern financial accounting solution
Group, financial and regulatory reporting projects are therefore business projects that integrate finance and business together to structure and deliver information in the right way, in the right format, and at the right time. Developing finance by building a platform to play a strategic role within the company, while achieving efficiency and maintaining consistency and compliance, will be the differentiating factor that will be the engine of future success. In addition, as is progressively more evident in the field of IT projects, the engine of growth is increasingly business and even the project managers come from business rather than IT. The high cost of operating multiple legacy accounting systems and the need for significant resources makes no sense in today's world, where business decisions are made daily based on market analysis.
One of the objectives of the Financial reporting overhaul is to provide data for regulatory purposes. Using this data to forecast and control the processes to plan cash flow is an advantage of such a redesign. Based on the calculated values and using market trends, we can anticipate cash flow and enhance the dashboard for decision-making. The monthly production of several evaluations takes time and when carried out sequentially can no longer be accepted by business.
Using SAP Analytics Cloud for Finance facilitates the harmonization of the presentation of financial data and figures, using different evaluation methods and compliance with the rules of the directive. Now you can compare apples to apples and pears to pears. Inter-company sales and purchases
facilitate the easy monitoring of cash flows in a single environment. The internal clearing and the cash bank account are managed internally within the group without interaction with banks.
Complementarily, the SAP Leonardo technology for Finance enables the use artificial intelligence, robot per automation (i.e., structure/unstructured data reading) and machine learning to help decision makers propose alternatives and anticipate threats that strengthen insurers' position on the market. Exploring and understanding the results is sometimes difficult, simulating scenarios (“what if” analysis) is almost impossible without a databased overhaul.
SAP Financial Products Subledger (FPS) is a unique solution to meet today's increasingly complex demands related to financial management and reporting by insurance companies. The design of a modern accounting approach ensures that insurance accounting is at the center. The use of a significant non-biased common denominator removes data redundancies and keeps centralized accounting rules shared and allocated booking logic. It builds an accounting baseline relying on an integrated data model for facts and projection, it generates required accounting data at source once for multiple use while providing benefit from a unique subledger solution covering assets and liabilities as well as an automated closing process.
GUIDING PRINCIPLES TO DESIGN YOUR FINANCIAL PRODUCT SUBLEDGERS
Beyond compliance with insurance reports, not everything would be possible without driving accelerators through pre-integration. Nowadays, Intelligent SAP Finance Technology offers a range of pre-configured Financial Products Subledgers for:
Financial instruments and insurance contracts
Compliance with regulatory requirements (IFRS; Solvency II)
Centra/delta GAAP enabling a walk between valuations and optimizing financial steering
Seamless integration into the accounting documentation chain
Setting industry standards and a common platform to enter a new era of insurance accounting
Financial reporting and steering based on data insight and analytics
RELY ON SAP TECHNOLOGY TO ENGAGE YOUR FINANCE TRANSFORMATION JOURNEY
The new generation of SAP Finance Technology opens up the possibility of rethinking finance:
- Review the compliance management approach, for example, using cash flow as a reference to derive any additional GAAP. Use a modern accounting solution with multiple timely and independent valuations to comply with all regulations at the same time. Use Financial Products Subledger with Seamless integration of the subledger and the general ledger in the financial landscape in order to guarantee compliance with general regulations on financial products specific to accounting and insurance.
- Use the central data repository required by IFRS 17 to conduct the business through the data insight and analytics. Most of the effort in IFRS 17 will come from the accounting definition, data flows, process redesign, actuarial models, integration and transition. New financial tools make it possible to generate projections and planning allowing settings of vision and strategy in the medium and long term. New financial tools enable real-time analysis and reporting, including the exploration of the most granular details and simulation scenarios.
- Merge forecast and control processes with projected cash flows. The pre-configuration of the packages will speed up the standard calculation (VFA, RA…) with, however, limited ability to use "plug & play" the other preconfigured elements such as Life / P&C models and built-in CoA.
New generation SAP finance technology is a key component for preparing the Future of Finance in the insurance industry. It provides agility in the way of structure, storing, processing and using the information made available while staying compliant to any evolving business, reporting and regulatory changes. The recent and rapid change on global situation with the COVID-19 situation demonstrates that SAP Finance technology is able to provide functionalities, level of details and reliable information helping understand the current situation, simulate trends of the impact of economic crisis supporting strategic decision and protecting capital and investment.
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