Towers Watson Survey Shows Life Insurers Financial Modeling Trends [Manufacturing Close – Up]

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.

The survey explored pressing financial modeling issues for life insurers, including model governance, business priorities and how insurers use financial models.

According to a release, 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 percent) recognized the need for improvement. When CFOs were asked how satisfied they are with the timeliness of their models' results, only 13 percent said extremely satisfied, and 17 percent said not at all. Most CFOs (91 percent) expressed uneasiness with the time required to interpret model results before their teams could actually begin acting on the information.

"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 financial modeling."

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 percent) not at all satisfied with their modeling capabilities for long-term care products, while 36 percent expressed dissatisfaction with their financial modeling capabilities for life reinsurance products.

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 percent) and business units (61 percent). Only 13 percent use an outside vendor. Over half (52 percent) of participants reported that model governance process in their organization is somewhat developed, while 22 percent indicated very developed governance. Yet despite these encouraging findings, nearly two-thirds of CFOs (65 percent) plan to make changes to their governance process, and 26 percent do not anticipate making any modifications.

Towers Watson is a professional services company that helps organizations improve performance through effective people, risk and financial management.

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