Clearwater Analytics Integrated by Design white paper
ystems for monitoring, managing, and reporting on financial assets are mission-critical, Sparticularly in such a volatile investment environment. Yet far too many insurers today
rely on legacy systems that are outdated, expensive to maintain, offer limited portfolio visibility, do not effectively assess risk exposure in a timely fashion, and are heavily reliant on time-consuming, error-prone manual reconciliation.
The Status Quo Historically, insurers have used a combination of installed point solutions and spreadsheets that are not Integrated by Design, requiring layers of middleware, custom coding, and manual intervention that add cost and complexity for the insurer and expose them to unnecessary risk.
Figure 1: The Problem with Investment Portfolio Reporting: Manually-merged legacy systems present significant, operational challenges.
Insurers today are seeking new ways to get transparency into their investment portfolios by enhancing or replacing outdated processes and systems they use to monitor, manage and report on their investment assets. At many insurance companies, investment management has historically been treated as an afterthought, said Bret Myers, the Assistant Treasurer, Group Health Cooperative. It has not had as much focus in the past as a way of augmenting the bottom line, but rather was kind of a compliment to core operating results.
Integrated by Design: Insurance Portfolio Reporting
1
www.clearwateranalytics.com
In the past few years there has been an awakening among senior management and boards at insurance companies in the way that they view investment portfolios, Myers noted. In 2008, with the nearcollapse of the financial markets, suddenly there was a need to be able to report on a real-time basis what was going on with investment securities. Deb Smallwood, founder of Strategy Meets Action, an insurance analyst firm, says insurers are investing in business intelligence tools, external data, and predictive analytics to help them manage their investment portfolios with more precision and effectiveness across compliance, reporting and performance management. IT investment is shifting towards these new technologies, which is starting to raise the bar in a new set of required business capabilities for investment management.
Source: Survey by the Economist 1 Intelligence Unit
A study conducted by The Economist Intelligence Unit states, When insurers have adopted technology to upgrade governance, risk and compliance processes, the focus has been on reducing costs and increasing efficiency, rather than providing an integrated picture of risk to support better decisions. Companies have managed to be profitable despite their dependence on manual processes, but as the pace of business accelerates, the speed and efficiency afforded by automation becomes more important. 1
A Move to Integrated Reporting Tools For the Investment Management operation, integrated accounting, compliance, performance and risk reporting and analytics constructed on a foundation of aggregated and reconciled tax lots is critical for monitoring the investment portfolios, making informed decisions, and reporting to senior management. Jim Krygier, Assistant VP and de facto CIO for The Warranty Group cites the market events of May 6th, 2010, compared with those during the beginning of the financial crisis in 2008 as night and day for The Warranty Group. In September 1 2008, we simply didn t Source: Survey by the Economist Intelligence Unit have the operational bandwidth to immediately determine our concentration of exposure in any area of our portfolio. Of course it didn t change the fact that the board wanted to know immediately. Now when the market dips, as it did on May 6th, I log on to our hosted solution, see
1
Strengthening governance, risk and compliance in the insurance industry, © Economist Intelligence Unit Limited 2009
Integrated by Design: Insurance Portfolio Reporting
2
www.clearwateranalytics.com
exactly where we stand and report to the board. That level of immediacy in today s market is remarkably advantageous. Ultimately, as innovations in security, bandwidth, and storage lead to increasing acceptance for a hosted solution for investment reporting, insurers will increasingly migrate to systems that provide such a significant, competitive advantage over fragmented and manually-merged investment portfolio tools.
Selling the Move
Solution
Design
Precision
Still, cross-functional buy-in to an Integrated by Design solution that combines accounting and the analytics required by investment management can be elusive. Chief Investment Officers and members of the investment teams at many insurance companies are actively looking for The Status Quo versus Integrated by Design hosted investment The Status Quo Integrated by Design portfolio reporting and analytics solutions to DISPARATE: Comprised of point solutions, INTEGRATED: Built on a single, aggregated middleware, spreadsheets and databases foundation of accurate portfolio holdings, and replace point solutions, which are difficult to maintain and providing Accounting, Compliance, Performance spreadsheets, manual upgrade and Risk reporting processes, and INACCURATE: Built on disparate sources ACCURATE: Reconciled by a technology enabled cumbersome database of inconsistent information and burdened service bureau using automation and trained queries. with manual, error prone processes
Speed
Accessibility
Manageability
Scalability Cost
exception-handling
Deployment of a solution that replaces existing FRAGMENTED: Isolated systems servicing TRANSPARENT: Displayed in dashboard accounting software and different departments and objectives limit summaries with supporting detail at the tax-lot processes can meet stiff summary reporting and access to level available at the click of a mouse resistance with the underlying details accounting function CUMBERSOME: Difficult to maintain and OUTSOURCED: Hosted, maintained and upgraded where the primary upgrade, requiring significant IT with no user IT support necessary objective is the creation involvement and manual manipulation of monthly, quarterly and LIMITED: Challenged by point solution SCALABLE: Provided on a platform designed to annual financial reports and manual process limitations scale with portfolio growth and regulatory filings. EXPENSIVE: Inefficient with regard to use AFFORDABLE: Operationally efficient liberating Because existing systems of resources internal resources to focus on best & highest use and processes are getting the job done, the resistance is understandable. From a senior management perspective, however, having both accounting and investment management reporting drawing from the same data foundation and reconciling across all portfolio reports is vital. DELAYED: Designed to create monthly re-
TIMELY: Current as of the previous business
porting and analysis
day s close
Krygier explains that there is a high degree of apprehension among accounting divisions when presented with the prospect of shifting over to a new system. Cumbersome as many legacy systems are, over time they become part of the department s operating culture, given the sheer volume of sweat equity invested in making them workable. As a result, accounting department heads are extremely reluctant to accept when it s time to trade in the old system ‒ sweat equity and all ‒ for a solution Integrated by Design that allows for greater accuracy and transparency. Instead of expending the usual effort needed to make sure our data ties out across legacy systems that were never designed to communicate effectively, we can now allow our hosted, integrated solution to do the heavy lifting for us and spend our time using that data to make more informed
Integrated by Design: Insurance Portfolio Reporting
3
www.clearwateranalytics.com
investment decisions. In short, we ve gone from being operational and tactical to being more forward-thinking and strategic. Without an integrated accounting and investment management reporting system, the inconsistencies and complexities of manual processes and spreadsheets and their weaknesses, from a control perspective, persist. One significant weakness is the labor required to reconcile between systems. This reduces confidence at the senior management level and ties up resources that could be more effectively deployed elsewhere.
Overcoming the Status Quo: Integrated by Design Ultimately, Chief Investment Officers and investment managers need access to reporting that provides timely, accurate, actionable information to monitor investments and make informed decisions about opportunities and risks. Likewise, the accounting team needs to replace manual processes and spreadsheets with automated tools to improve accuracy and reduce the time and effort necessary to reconcile information and generate financial reports and regulatory filings.
Figure 2: Problem Solved: An Integrated by Design investment portfolio reporting solution optimizes operational efficiencies
Integrated by Design: Insurance Portfolio Reporting
4
www.clearwateranalytics.com
Conclusion While changing the status quo won t be easy, for many insurers who have made the move to a hosted portfolio reporting and analytics solution that is Integrated by Design, they have enjoyed the benefits of becoming more streamlined and focused on their own core competencies. Dean Sandros, Senior Investment Accountant and “While insurers have become very Assistant Portfolio Manager at United Heritage comfortable with many tools and Insurance Group, explains, "In today's market technologies within operational silos, the industry at large has not invested environment, reporting systems that provide data in the capabilities needed to correlate integrity and immediacy are essential for anyone all of its risk exposures and track their tasked with monitoring, accounting for, or managing interdependencies.” a diversified investment portfolio. Our system s Source: Survey by the Economist transparent reporting capabilities, its ability to draw 1 Intelligence Unit from multiple data feeds, daily reconciliation and book-of-record reporting have allowed us to put more focus on driving yield and making our portfolio a more efficient profit center. Outsourcing our accounting, reporting and analytics affords us the opportunity to focus on our core strengths rather than spend time reconciling and manually entering data. As a result, we have been able to make more informed investment decisions."
Integrated by Design: Insurance Portfolio Reporting
5
www.clearwateranalytics.com
rely on legacy systems that are outdated, expensive to maintain, offer limited portfolio visibility, do not effectively assess risk exposure in a timely fashion, and are heavily reliant on time-consuming, error-prone manual reconciliation.
The Status Quo Historically, insurers have used a combination of installed point solutions and spreadsheets that are not Integrated by Design, requiring layers of middleware, custom coding, and manual intervention that add cost and complexity for the insurer and expose them to unnecessary risk.
Figure 1: The Problem with Investment Portfolio Reporting: Manually-merged legacy systems present significant, operational challenges.
Insurers today are seeking new ways to get transparency into their investment portfolios by enhancing or replacing outdated processes and systems they use to monitor, manage and report on their investment assets. At many insurance companies, investment management has historically been treated as an afterthought, said Bret Myers, the Assistant Treasurer, Group Health Cooperative. It has not had as much focus in the past as a way of augmenting the bottom line, but rather was kind of a compliment to core operating results.
Integrated by Design: Insurance Portfolio Reporting
1
www.clearwateranalytics.com
In the past few years there has been an awakening among senior management and boards at insurance companies in the way that they view investment portfolios, Myers noted. In 2008, with the nearcollapse of the financial markets, suddenly there was a need to be able to report on a real-time basis what was going on with investment securities. Deb Smallwood, founder of Strategy Meets Action, an insurance analyst firm, says insurers are investing in business intelligence tools, external data, and predictive analytics to help them manage their investment portfolios with more precision and effectiveness across compliance, reporting and performance management. IT investment is shifting towards these new technologies, which is starting to raise the bar in a new set of required business capabilities for investment management.
Source: Survey by the Economist 1 Intelligence Unit
A study conducted by The Economist Intelligence Unit states, When insurers have adopted technology to upgrade governance, risk and compliance processes, the focus has been on reducing costs and increasing efficiency, rather than providing an integrated picture of risk to support better decisions. Companies have managed to be profitable despite their dependence on manual processes, but as the pace of business accelerates, the speed and efficiency afforded by automation becomes more important. 1
A Move to Integrated Reporting Tools For the Investment Management operation, integrated accounting, compliance, performance and risk reporting and analytics constructed on a foundation of aggregated and reconciled tax lots is critical for monitoring the investment portfolios, making informed decisions, and reporting to senior management. Jim Krygier, Assistant VP and de facto CIO for The Warranty Group cites the market events of May 6th, 2010, compared with those during the beginning of the financial crisis in 2008 as night and day for The Warranty Group. In September 1 2008, we simply didn t Source: Survey by the Economist Intelligence Unit have the operational bandwidth to immediately determine our concentration of exposure in any area of our portfolio. Of course it didn t change the fact that the board wanted to know immediately. Now when the market dips, as it did on May 6th, I log on to our hosted solution, see
1
Strengthening governance, risk and compliance in the insurance industry, © Economist Intelligence Unit Limited 2009
Integrated by Design: Insurance Portfolio Reporting
2
www.clearwateranalytics.com
exactly where we stand and report to the board. That level of immediacy in today s market is remarkably advantageous. Ultimately, as innovations in security, bandwidth, and storage lead to increasing acceptance for a hosted solution for investment reporting, insurers will increasingly migrate to systems that provide such a significant, competitive advantage over fragmented and manually-merged investment portfolio tools.
Selling the Move
Solution
Design
Precision
Still, cross-functional buy-in to an Integrated by Design solution that combines accounting and the analytics required by investment management can be elusive. Chief Investment Officers and members of the investment teams at many insurance companies are actively looking for The Status Quo versus Integrated by Design hosted investment The Status Quo Integrated by Design portfolio reporting and analytics solutions to DISPARATE: Comprised of point solutions, INTEGRATED: Built on a single, aggregated middleware, spreadsheets and databases foundation of accurate portfolio holdings, and replace point solutions, which are difficult to maintain and providing Accounting, Compliance, Performance spreadsheets, manual upgrade and Risk reporting processes, and INACCURATE: Built on disparate sources ACCURATE: Reconciled by a technology enabled cumbersome database of inconsistent information and burdened service bureau using automation and trained queries. with manual, error prone processes
Speed
Accessibility
Manageability
Scalability Cost
exception-handling
Deployment of a solution that replaces existing FRAGMENTED: Isolated systems servicing TRANSPARENT: Displayed in dashboard accounting software and different departments and objectives limit summaries with supporting detail at the tax-lot processes can meet stiff summary reporting and access to level available at the click of a mouse resistance with the underlying details accounting function CUMBERSOME: Difficult to maintain and OUTSOURCED: Hosted, maintained and upgraded where the primary upgrade, requiring significant IT with no user IT support necessary objective is the creation involvement and manual manipulation of monthly, quarterly and LIMITED: Challenged by point solution SCALABLE: Provided on a platform designed to annual financial reports and manual process limitations scale with portfolio growth and regulatory filings. EXPENSIVE: Inefficient with regard to use AFFORDABLE: Operationally efficient liberating Because existing systems of resources internal resources to focus on best & highest use and processes are getting the job done, the resistance is understandable. From a senior management perspective, however, having both accounting and investment management reporting drawing from the same data foundation and reconciling across all portfolio reports is vital. DELAYED: Designed to create monthly re-
TIMELY: Current as of the previous business
porting and analysis
day s close
Krygier explains that there is a high degree of apprehension among accounting divisions when presented with the prospect of shifting over to a new system. Cumbersome as many legacy systems are, over time they become part of the department s operating culture, given the sheer volume of sweat equity invested in making them workable. As a result, accounting department heads are extremely reluctant to accept when it s time to trade in the old system ‒ sweat equity and all ‒ for a solution Integrated by Design that allows for greater accuracy and transparency. Instead of expending the usual effort needed to make sure our data ties out across legacy systems that were never designed to communicate effectively, we can now allow our hosted, integrated solution to do the heavy lifting for us and spend our time using that data to make more informed
Integrated by Design: Insurance Portfolio Reporting
3
www.clearwateranalytics.com
investment decisions. In short, we ve gone from being operational and tactical to being more forward-thinking and strategic. Without an integrated accounting and investment management reporting system, the inconsistencies and complexities of manual processes and spreadsheets and their weaknesses, from a control perspective, persist. One significant weakness is the labor required to reconcile between systems. This reduces confidence at the senior management level and ties up resources that could be more effectively deployed elsewhere.
Overcoming the Status Quo: Integrated by Design Ultimately, Chief Investment Officers and investment managers need access to reporting that provides timely, accurate, actionable information to monitor investments and make informed decisions about opportunities and risks. Likewise, the accounting team needs to replace manual processes and spreadsheets with automated tools to improve accuracy and reduce the time and effort necessary to reconcile information and generate financial reports and regulatory filings.
Figure 2: Problem Solved: An Integrated by Design investment portfolio reporting solution optimizes operational efficiencies
Integrated by Design: Insurance Portfolio Reporting
4
www.clearwateranalytics.com
Conclusion While changing the status quo won t be easy, for many insurers who have made the move to a hosted portfolio reporting and analytics solution that is Integrated by Design, they have enjoyed the benefits of becoming more streamlined and focused on their own core competencies. Dean Sandros, Senior Investment Accountant and “While insurers have become very Assistant Portfolio Manager at United Heritage comfortable with many tools and Insurance Group, explains, "In today's market technologies within operational silos, the industry at large has not invested environment, reporting systems that provide data in the capabilities needed to correlate integrity and immediacy are essential for anyone all of its risk exposures and track their tasked with monitoring, accounting for, or managing interdependencies.” a diversified investment portfolio. Our system s Source: Survey by the Economist transparent reporting capabilities, its ability to draw 1 Intelligence Unit from multiple data feeds, daily reconciliation and book-of-record reporting have allowed us to put more focus on driving yield and making our portfolio a more efficient profit center. Outsourcing our accounting, reporting and analytics affords us the opportunity to focus on our core strengths rather than spend time reconciling and manually entering data. As a result, we have been able to make more informed investment decisions."
Integrated by Design: Insurance Portfolio Reporting
5
www.clearwateranalytics.com
