For about half of all life insurance companies, getting results from financial models takes more than a week. That's why about two-thirds of companies rank run-time requirements as one of the top three challenges of their companies' financial modeling practices, according to a recent survey of 23 life insurance CFOs by Towers Watson.
This speed issue could be related to the fact that financial model implementation often competes with other priorities within the enterprise. CFOs report that while investment in IT is generally a high priority in life insurance, financial models specifically are not.
"The feedback from insurers on prioritizing day-to-day challenges reflects the importance they're placing on finding solutions to reduce run time, which in turn allows them to create an environment that yields a faster and more confident decision-making process," said Jack Gibson, managing director, life insurance consulting, Towers Watson, in a statement. At the same time, he noted, "CFOs are dealing with opposing business priorities when it comes to investing in their infrastructure. While they recognize the importance of financial modeling tools, they're more inclined to procure the latest and greatest in information technology infrastructure."
In addition, CFOs indicated that long-term care and life reinsurance products need the most work, with half not at all satisfied with their modeling capabilities for long-term care products, and a third dissatisfied with life reinsurance models.
This has led to a greater push for changes in model governance, to ensure that model output correctly informs business users. Sixty-five percent of CFOs plan changes to their governance processes.
“A firm grasp on an organization’s financial modeling process allows a CFO to gain confidence. Strong audit controls and good governance practices are essential to this step,” said Steve Verhagen, senior life insurance consultant, Towers Watson, in the statement.