International accounting principles based on the asset/liability measurement approach require new rules for assessing not only assets, but also insurance claims/losses, obligations and provisions (“liabilities”). Closely related to this is the statutory requirement of asset/liability management, that insurance and asset portfolios must be categorized on the basis of their risks and contributions to profit, right down to the level of individual portfolio segments, and must be assessed jointly.
The current “Solvency II” regulations still under discussion at the European Commission even go one step further. In addition to the risks deriving from asset and insurance portfolios, it will be necessary in future to differentiate market risks, operational risks and bad debt risks and fund these with risk capital. The regulations concerning the German Corporate Governance code require seamless financial reporting which must be able to recognize corporate crises at an early stage and to decide on the appropriate counter-measures. The personal liability exposure of management board and supervisory board members vis-à-vis the company can only be minimized through ongoing analysis of the relevant KPIs on risks deriving from assets, insurance business and operating processes.
In addition to these reporting requirements placed on insurance companies from outside, many insurance companies have come under considerable pressure after posting poor figures over recent years. In order to be successful in this field, insurance firms also need up-to-date, comprehensive and reliable information about the company’s potential profit sources and risk exposure.
It is one of the peculiarities of the insurance business that much of the information required for the monthly, quarterly or annual reports is not available at the time they are actually prepared. This is why, when reports need to be produced quickly, key parameters such as premiums, claims/losses or brokerage fees need to be estimated, at least in part. In the inwards reinsurance sector, this problem is even more acute as information on premiums and claims/losses must be gathered, condensed and exchanged across different insurance companies. An insurance company’s reporting procedures must therefore be able to accurately combine actual data, estimates and forecast data at the time of reporting.
To this end, insurance portfolios, assets and operating procedures, which have generally been viewed in isolation in the past, need to be linked more closely and enable faster combined evaluation. In addition, external data from other insurance firms, external providers or the Internet must be included in the reporting, placed in the required context and assessed jointly.
In many insurance companies and groups, the reality is quite different, however. Reporting data is stored in disparate, unconnected portfolio, claim, sales, payment, assets and accounting systems. Considerable effort is involved in gathering together the information, preparing it for presentation, and distributing it to recipients. The procedures in place for obtaining and preparing data are often too time-consuming and slow. The reporting process is characterized by media discontinuity and manual operations.
Business Content for financial statement data
Using SAP Business Intelligence, ConVista Consulting AG has created two solutions related in content that are specific to insurance companies. Firstly, insurance-specific Business Content was developed for financial statement analysis data for German property, life and health insurance companies. This Business Content makes the financial statement data of German insurance companies compiled since 1975 by a team headed by Professor Dieter Farny available in SAP BI. The solution makes it possible for external market analyses to be integrated with comparatively little effort into the company’s own reporting system. The data is supplied by KIVI Kölner Institut für Versicherungsinformation GmbH. The KPIs from the financial statements are broken down by subject area, for example claims/losses, operating costs, insurance business results, growth parameters or asset structures. The logical data models developed in the shape of InfoCubes with KPIs and characteristics can also be used for company-specific, freely customizable reports, which can be easily integrated into an Internet portal solution.
Consequently, the value of KIVI Business Content data does not just lie in the prepared reports, but also in the considerable expertise gathered in generating KPIs for company analyses. Using KIVI Business Content reduces the outlay that would otherwise be regularly required for compiling financial statement data for presentation purposes.
The developments were made within a dedicated name space registered with SAP. This facilitates installation and prevents clashes with the insurer’s other business management solutions.
Internal data prototype
In practice, however, financial statement data provides the starting point for – or a valuable addition to – insurance companies’ strategic analyses. Timely risk and success management are only possible through direct access or direct feedback to the company’s internal data down to the most detailed level possible.
In order to present data integration in a practical way across vastly different data sources, the Business Content has also been linked up, in prototype form, to one insurer’s internal insurance data – such as premiums, claims/losses and brokerage data. Obtaining and linking up the data from various legacy systems is the real challenge in building the SAP Business Information Warehouse (SAP BW) for an insurance company. In practice, the SAP BW solution can also be used to classify insurance-specific data down to the level of individual contract types, client groups and sales channels.
The combination of the insurance company’s internal data and external KIVI data supports new analysis methods based on an aggregated comparison with competitors at corporate level and extending right down to the individual insurance types or client groups of the insurance company itself. SAP BW integrates the various financial statement data and provides powerful reporting via a standardized user interface.
Business Explorer and the user-friendly interface can be used to produce rapid, customized reports using MS Excel. These can be published in HTML on the Internet or on the SAP Enterprise Portal (SAP EP). SAP EP distributes the data throughout the company and uses comments, for example, to assist in the use and interpretation of the data. By directly sending data from SAP EP using the Information Broadcasting function or by several persons collaborating through the use of SAP EP, it is possible to break new ground in communications and team work.
Integrated reporting process
Setting up the BW solution is onerous for an insurance company, as the data structures that have grown up over time need to be analyzed and interlinked, the legacy systems hooked up to SAP BI and the data prepared in SAP BI. It is therefore recommended that the solution be implemented in technically related sections where the content is ‘self-supporting’. The predefined KIVI Business Content makes it possible to present the benefits and potential of the BW application throughout the company with a minimum of time.
Experience shows that, once the work needed to construct a structured SAP BW solution has been done, this opens up further potential uses. The depth of the mapped information from legacy systems, the easy access and the ability to customize how this information is coupled on an ad hoc basis mean that SAP BW data can be used as more than just a control, accounting and management instrument. The more detailed the information, the broader the potential circle of users. These include insurance companies’ business line managers, marketing departments and investors. The SAP Financials product range provides powerful analysis, simulation and presentation tools for data processing.
In many insurance companies, considerable effort still needs to be made to produce a comprehensive, highly integrated reporting process with constantly updated data from legacy systems. The reporting processes should be revised promptly, however, so that the data can be used not only for known reporting requirements but also for future requirements that cannot yet be defined accurately. If such efforts are not made, there is a risk that insurance companies will become increasingly lost in standalone solutions and will be plagued by the problems that such a scenario throws up. The integrity, quality and up-to-date status of data stored in disparate, unconnected databases cannot be guaranteed over the long term.