|[February 06, 2013]
Life Insurers Assess Financial Modeling Trends in Towers Watson Survey
NEW YORK --(Business Wire)--
Chief financial officers (CFOs) from large and midsize life insurance
companies agreed that financial modeling, an increasingly important tool
for their business, remains a work in progress, according to a new
survey by global professional services company Towers Watson (NYSE,
NASDAQ: TW). The survey explored pressing financial modeling issues for
life insurers, including model governance, business priorities and how
insurers use financial models.
Survey results offer a view into where life insurers see limitations
with their financial modeling. All respondents reported a certain level
of confidence regarding their financial modeling results, though nearly
two-thirds (65%) recognized the need for improvement. When CFOs were
asked how satisfied they are with the timeliness of their models'
results, only 13% said extremely satisfied, and 17% said not at all.
Most CFOs (91%) expressed uneasiness with the time required to interpret
model results before their teams could actually begin acting on the
"Our survey revealed that despite advances made in financial modeling at
many life insurance companies, there are ever-increasing demands placed
on companies by their stakeholders to improve the speed and usefulness
of their financial models," said Cheryl Tibbits, director and life
insurance consultant at Towers Watson. "However, new technologies are
available, allowing for more improved and efficient approaches to
Uses and Challenges
The survey assessed respondents' varying levels of satisfaction with
their organizations' financial modeling capabilities by life insurance
product type. Given a grouping of product types to choose from, CFOs
indicated that long-term care and life reinsurance products need the
most work, with half (50%) not at all satisfied with their modeling
capabilities for long-term care products, while 36% expressed
dissatisfaction with their financial modeling capabilities for life
Insurers were asked about the biggest challenges theyface in getting
what they need from financial models and instructed to choose the top
three. More than two-thirds (70%) named managing competing priorities as
their biggest challenge, followed by run-time requirements (44%) and
model features/functionality (39%). When asked which of these challenges
they would address first, run-time requirements (22%) ranked as their
most pressing priority.
"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.
According to the survey, life insurance CFOs have mixed views on how
they govern their financial models to minimize the potential for model
output to incorrectly inform management decisions. Most companies have
dedicated resources in place to build and run models, and specialized
modeling expertise concentrated in different areas, such as on corporate
modeling teams (70%) and business units (61%). Only 13% use an outside
vendor. Over half (52%) of participants reported that model governance
process in their organization is somewhat developed, while 22% indicated
very developed governance. Yet despite these encouraging findings,
nearly two-thirds of CFOs (65%) plan to make changes to their governance
process, and just 26% do not anticipate making any modifications.
"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.
The survey also examined insurers' attitudes toward financial modeling
tools and how financial modeling competes with other business
priorities. Two-thirds (66%) of the participants said their
organizations aim to extract the full value of their financial modeling
tools. When asked to prioritize areas for further investment, 39% ranked
information technology infrastructure as a high priority, yet only 4%
considered investment in financial modeling a similarly important
objective. Fifty-seven percent of respondents said they would weigh
proposed investments in financial modeling against other potential areas
before making a final decision on where to spend their budget.
"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," said Gibson.
CFOs also provided a glimpse of their anticipated financial results,
reporting slower growth compared to results from the Life Insurance CFO
Survey conducted by Towers Watson last year. The majority of respondents
revealed that their new life and annuity premiums, GAAP net revenue and
GAAP net income remained flat or declined in the second quarter of 2012,
compared to the same quarter in 2011.
About the Survey Program
Towers Watson's Life Insurance CFO Survey program provides ongoing
research on issues of importance to the North American life insurance
industry. The program enables CFOs and financial executives to benchmark
their company's approach to financial issues and challenges against
those of their competitors. Participants benefit from Towers Watson's
independent analysis of the survey results, as well as perspectives on
key issues facing the life insurance industry. This survey program was
first launched in 2002, and includes responses from CFOs and senior
financial executives from large and midsize North American life insurers.
About Towers Watson
Towers Watson (NYSE, NASDAQ: TW) is a leading global professional
services company that helps organizations improve performance through
effective people, risk and financial management. The company offers
solutions in the areas of benefits, talent management, rewards, and risk
and capital management. Towers Watson has 14,000 associates around the
world and is located on the web at towerswatson.com.
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