EUROPEAN INSURANCE CFO SURVEY – Minds made for building financial services
COVID-19 is adding new impetus to finance transformation
Article by Stavros Violaris, Associate Partner, Head of Insurance Sector, EY Cyprus
The EY European CFO survey was undertaken to capture Insurance CFOs’ views on emerging trends in the aftermath of the COVID-19 pandemic. Responses were gathered during Autumn 2020, before what is often referred to as the second wave of lockdowns. EY team surveyed 46 CFOs from insurers operating in Europe: Belgium, France, Germany, Luxembourg, the Netherlands, the Nordics, Spain, Switzerland and the UK. Most of them are large players in their respective fields and markets. Many of them have international presence and some of them are local arms of large international insurance groups.
21 insurers operate as composite insurers, 13 in Life, Pensions or Health, eight in General Insurance, four in Speciality and Reinsurance.
The survey covered the following areas:
- Key CFO priorities
- Physical return to work
- Working day timetable
- Accounting judgments and disclosures
- Solvency monitoring
- Cost optimization
- Business planning
- Risk management and Internal control environment
- Finance workforce
- Readiness for climate related financial disclosures (TCFD)
Business growth is a top priority for a majority of CFOs, and business planning, cost reduction and IFRS17 implementation also rank highly amongst top priorities. Legacy technology and systems complexity and the lack of change execution capability are seen as the most significant inhibitors.
Despite the global pandemic, CFOs did not face significant delays in the Q2 2020 reporting timetable. However, the pandemic is impacting some accounting judgments, and most insurers are reviewing their claims’ assumptions and are preparing additional disclosures. The pandemic, combined with a persistent low-rate environment, has also changed insurers’ risk profiles, with an increased emphasis on protecting the capital position, and CFOs are taking a number of measures to maintain solvency within the target zone.
Many insurers are intending to reduce their cost base over the next 12 months and to make their planning process more agile and strategic. Controls have become increasingly important with the move to remote working, and most CFOs are planning to automate up to 20% of their finance controls in the next 12 months. Insurers are also starting to integrate consideration of Climate Risk within their business, including financial reporting.
Overall, the pandemic is an accelerator of finance transformation as a competitive advantage. Balancing technical knowledge with resilience and openness to change, change management and commercial skills will be critical.
This article outlines the insights coming out of the survey around the top CFO priorities.
Business growth, business planning, cost reduction and IFRS17 are top priorities for CFOs
Business growth is a top priority for 26 out of 45 CFOs (58%) over the next 12 months, and the number one priority for 19 of them, especially in the UK, Spain and Italy. This focus goes much beyond business recovery; it refers to how CFOs can help their business reset and capture the next wave of growth post pandemic as customer behaviours change. COVID-19 has amplified the emerging trend of finance functions to better enable the business and overall profitability through providing better insights and investment decisions. One respondent mentioned pivoting to a different sales channel mix as a result of the lockdown. Another highlighted that current market conditions were making growth attractive in certain product lines, and that capital was being allocated to these areas of growth potential. Another underlined the importance of adapting at speed and at scale to increase market share.
23 CFOs (51%) rank business planning in their top three priorities in the next 12 months. The environment has never been as uncertain as in these days, therefore the importance of financial planning and analysis (FP&A) capabilities booms. Business planning is an important tool to equip top management and the Board with critical information to steer the business. Insurers have focused on making the process more agile to respond tactically to COVID-19. Many CFOs see a need for a closer collaboration across finance, risk and the business to address these challenges. There is an acceleration of technology-led FP&A transformation to align the process with strategic needs.
Cost reduction remains high on the agenda. Expense ratios are under pressure in a number of segments of the insurance market as a result of the knock-on impact on premiums and claims. 18 CFOs included cost reduction in their top three priorities. The CFO is a key sponsor/enabler to ensure enterprise-wide cost reduction programs deliver on time and within budget.
IFRS17 remains a high priority for most of the European insurers. It’s a number one priority for many continental insurers in the next 12 months. With 30 months until go live, it is critical to keep momentum given how transformative and complex IFRS17 can be, especially for life insurers.
- Capital optimization remains a high priority in the short-term as COVID-19 is testing capital resilience and more medium term to support business growth.
- Financial close and market communication are an immediate focus and less important in more distant time horizon.
- Other high priorities highlighted by CFOs include strategy, downside protection, finance transformation, business integration, group-wide target operating model re-design, cost of funding, adjusting their business model to a sustained low interest rate environment, and finance workforce development.
- Financial services are facing increasing pressure from regulators and stakeholders which will force insurers to focus more on climate change and sustainable finance.
* For more information regarding our full survey, please reach out to our author Stavros.Violaris@cy.ey.com