The insurance industry is facing fundamental challenges that will drive strategies for growth and transform treasury operations. Insurance customers are changing their behaviour and looking for new ways to interact with providers. At the same time new competitors in the technology space are challenging established organisations. Insurance companies with a clear strategic focus on digital interaction can realise significant growth opportunities, particularly in fast-growing emerging markets such as China and India as well as growing market share in developed markets.
Insurance companies need to forge partnerships that can help achieve strategic objectives. Creating digital partnerships with new age technology organisations is key. Nest to this is finding a trusted banking partner with a strong innovation focus who drives digitalisation and harnesses technology to provide smart, secure and intuitive methods for insurance companies to interact with their partners alike – anytime and from anywhere. Here we highlight the areas where banking partners can be instrumental in this transformation journey
Meeting Liability and Capital Challenges
Realising these opportunities will not be easy and requires an efficient and cost-effective operating model. The low-yield environment and tightening regulatory landscape, together with high levels of available capacity driving down insurance rates, has produced a tough environment that challenges the industry’s ability to produce adequate returns and meet its liabilities. In addition, insurers are faced with heightened capital requirements from the Solvency II regime, which will introduce a different way to manage capital, as well as changing overall asset allocation and portfolio management behaviour. Clearly, as regulation imposes change, this means added costs and complexities.
Basel III – while not an insurance regulation – is also having an impact as stricter bank capital adequacy requirements raise the bar in terms of accessing bank funding. Add to this political strife, such as conflicts in the former Soviet Union and across the Middle East and you have an unprecedented combination of economic, regulatory and geopolitical pressure on insurance companies, resulting in a greater need for transparency, efficiency and control.
Insurers feel digitalisation across the whole value chain. While digitisation is actively pursued to support improved client interaction and new digital sales initiatives, it also has the potential to drive better decision making in underwriting departments. For treasuries, digitisation, coupled with centralisation and simplification of processes, leads to greater automation and efficiencies in claims settlement and premium collection
Centralisation is less simple for insurance companies than for companies in other sectors. They operate in a more stringent regulatory environment, often subject to strict controls that do not permit co-mingling of funds and may require balances to be held locally. While the process is complex, it can be done and will provide enhanced investment options, increased visibility and greater control. Simply put: if everything is in one place, it becomes easier to manage. Moreover, being able to see all processes in one place helps companies to detect idle balances – enabling them to free-up cash and resources, which improve working-capital processes overall.
Liquidity is not the only aspect of operations that can be centralised. Centralising payments via the use of payment factories can also enhance efficiency. Indeed, centralising treasury processes – often through shared service centres (SSCs) – can transform operations. Having all treasury operations in one place makes it easier to view and monitor. This enhanced visibility not only increases control, but helps insurance companies mitigate risk. SSCs also help companies introduce approval levels and standards, as well as reduce fraud risks. Finally, and perhaps most importantly in the current environment, SSCs help companies to reduce costs by choosing a low-cost location to host their SSC.
Since its launch last August, treasury operations in Europe are largely standardised thanks to the single euro payments area (SEPA). With account portability and standardised rules for euro automated clearing house (ACH) and direct debit collections, SEPA can be a catalyst to re-engineering cash management structures and making efficiency gains, often within a wider strategically centralised payments and receivables management, whether through an SSC or a payments and collection factory.
Multiple, often fragmented, communication channels can be replaced by simpler, more standardised systems and formats. Insurance companies should first look at their objectives and how channels systems work with their current infrastructures and core treasury management system (TMS), enterprise resource planning (ERP) and insurance underwriting platforms. They can then decide whether they would like to change their infrastructure to fit a system or technology, or if they would like their technology to deal with the existing infrastructure. It is important to gain an understanding of the objectives and organisational structure upfront, and then make decisions as to how you want your systems to operate and interface both with banking and company internal partners.
Yet despite these challenging times, insurers remain ambitious. It is through innovation and embracing the digital agenda that insurance companies will differentiate themselves. Those looking to optimise their technology investments and define a strategic path forward must partner with their financial service providers to both leverage and steer their technology investments and to reap the huge rewards of digitisation. Transforming treasury operations through automating, centralising and simplifying processes is a key component of this.
Many banks around the world, large and small, continue to experience major security failures. Biometric systems such as pay-by-selfie, iris scanners and vein pattern authentication can help.
The implementation date of Europe's revised Markets in Financial Instruments Directive, aka MiFID II, is fast approaching. Yet evidence suggests that awareness about the impact of Brexit on MiFID II is, at best, only patchy and there are some alarming misconceptions.
Despite all the automation and improvements that digital banking has the potential to achieve, customers and their needs still form the very core of the banking sector.
Banks might feel justified in victim blaming when fraud occurs, but it does little for customer confidence.