. Think ahead Business planning for the P&C industry

22943 jc Business planning:22943 jc Business planning
1/2/08
11:42
Page 3
Think ahead.
Business planning
for the P&C industry
. .
.
.
Audit Tax Consulting Corporate Finance
22943 jc Business planning:22943 jc Business planning
1/2/08
11:42
Page 4
Think ahead
Business planning for the P&C industry
The challenges ahead
The potential for effective Business Planning is often
under-recognised
‘Business Planning’ covers a wide variety of inter-related but
separate activities, all culminating in a business plan. The business
plan sets out the company’s internal and external strategic objectives
and how the company intends to achieve those objectives. This plan
gets driven down through the company by the budgeting process.
The need for more robust and strategic planning by senior
management is increasingly important for insurance and reinsurance
companies due to a number of factors, including:
• the softening market;
• inflow of new capital;
The inter-relationship of activities within Business Planning
creates particular challenges
From our experience there are a number of key challenges that need
to be addressed in order to obtain the maximum benefit from the
planning process:
• Generic planning tools struggle to handle the additional
complexities of the insurance industry.
• Key resources spend considerable additional effort working
around the limitations of the chosen tools, rather than focusing
on business issues.
• The ability to quickly understand the impact of certain scenarios
on the financial forecasts i.e. sophisticated ‘what-if’ analysis.
• increased shareholder expectation;
• The significant amount of configuration required may lead to
difficulty in supporting such a solution internally, especially over
the longer term.
• globalisation of the insurance industry; and
• a changing global regulatory environment.
Revenue planning is a key component of Business Planning
Revenue is the lifeblood of any business. Knowing the timing and
source of revenue streams is therefore key to being able to optimise
its use.
Figure 1 illustrates the central role of revenue planning within the
planning function. The majority of insurance and reinsurance
companies recognise this. Although revenue planning often sits at
the heart of sophisticated enterprise systems, the demands for
flexibility and speed lead to many companies relying on unstructured
systems, particularly spreadsheets. These tend to be developed on
an ad-hoc basis over a number of years and require the dedicated
expertise of key individuals for their continued usefulness. This
results in risks around flexibility, scalability, auditability, key-man risk
and operational effectiveness.
• Projects need a number of extended iterations before a workable
solution is created. This leads to increased cost and
implementation delay.
• The challenges presented above significantly increase the risk of
non-delivery.
• There is a high likelihood of reduction in planned scope to
safeguard the delivery of key aspects of revenue planning within
acceptable timescales and budgets. Therefore, the full value is
often never realised resulting in a less effective and less efficient
planning capability.
• The configuration environment, language and semantics constrain
planning activities.
Insurance companies face additional complications within the
revenue planning process, including:
Figure 1: Functional position of revenue planning
• taking account of claims forecasts split between claim types;
Finance department
• external reinsurance arrangements and different types of
reinsurances; and
Planning
HR
General
Revenue
Planning
Planning
(RPE)
Reference
Expense
Underwriting
• intra-group reinsurance arrangements.
Business planning requires a model capable of handling all the
above complexities. This is of paramount importance as claims are
an insurance company’s biggest expense and are also inextricably
linked to revenue.
Reporting, particularly from Excel based models, can also be
inflexible and uninformative. Adjusting models and their outputs to
take account of new legislation or regulatory requirements is a time
consuming, error-prone and expensive process.
The Revenue Planning Engine has been developed as a direct
response to the need to reduce the risks and improve the
effectiveness of business planning for general insurers.
22943 jc Business planning:22943 jc Business planning
1/2/08
11:42
Page 5
Think ahead
Business planning for the P&C industry
Deloitte Revenue Planning Engine
• multiple reinsurance contracts, including intra-group reinsurance;
An innovative solution to a complex business requirement
Deloitte’s Revenue Planning Engine (RPE) is a unique, market-leading
product that specifically deals with the complexities of the insurance
and reinsurance industry. It has been designed by insurance
professionals specifically for use by insurance companies. The RPE
consists of a .NET engine that can easily be integrated and
configured with other systems and a custom-built user interface.
The secure and controlled environment of the RPE enables the user
to quickly adjust the underlying assumptions and separately save the
resulting revenue projections. This is combined with the ability to
plan and report at different levels of detail and allows the user to
carry out stress and scenario testing on the key drivers of the
business – e.g. premium rate movements, retention rates, loss
experience and investment experience.
The insurance specific nature of the RPE enables it to deal with the
complexity of planning within the insurance and reinsurance market
including:
• flexible reporting functions;
• implementation of varying and complex group structures;
• monthly, quarterly, half-yearly or annual projections;
• multiple asset classes;
• non-standard earnings for both premiums and claims (e.g. multiyear policies);
• multiple types of expenses and commissions;
• premium and claims inflation; and
• international tax issues.
The highly flexible reporting capability of the RPE is illustrated in
figures 2. This allows the user to quickly compile standard regulatory
reports, or design a report tailored to their own needs, whilst
integrating with audit trail and version control requirements.
For example, this allows Lloyd’s syndicates to generate reports in the
format of a Syndicate Business Forecast, which can be submitted
directly to the Lloyd’s of London website.
The RPE is evolving to include new functionality and to incorporate
the implications of future legislation. This currently includes
upcoming changes to IFRS and the Solvency II requirements for
European insurers. We provide the very highest level of service, with
upgrades and installations supported by insurance and technology
professionals and insurance specific documentation.
• earning/underwriting year basis – enabling forecasts based on
different accounting bases;
• multiple currencies;
Figure 2: Structure of the Revenue Planning Engine in an enterprise environment
Expense
planning
Capital planning
HR planning
Enterprise
Systems
e.g. Financial
Actuals
Reserving
Web Services/COM Interface
Enterprise
reporting
Revenue Planning Engine
Planning model
Data
Enterprise
Database
Calcs
Interface
Profit & Loss
account
Balance sheet
Lines of
business
LoBs
Entities
Cash flow
statements
Assets
RI Contracts
Regulatory
reports
Finance
Underwriting
inputs
Ad hoc
reports
Macro
assumptions
Portal & Workflow Technology
Finance
Acturial
Operations
22943 jc Business planning:22943 jc Business planning
1/2/08
11:42
Page 6
Think ahead
Business planning for the P&C industry
Our strong relationships with marking leading planning tool
providers, including Hyperion, Cognos, Business Objects and SAP,
enhance our ability to ensure that our clients’ planning processes
deliver full value for money. Our technology integration team are
available to assist with the deployment of best practices using
generic planning tools.
The performance management process includes planning,
budgeting and forecasting. Our view is that these should be fully
integrated as a continuous cycle of activities. An Integrated
Performance Management process ensures that every step of the
process is fully informed. Changes made in one area of the process
filter efficiently through the whole performance management
system. Having an Integrated Performance Management (IPM)
process is therefore crucial for deriving the maximum benefit from
your performance management structure.
techno logy archit
ect
ure
Forecasting
Strategy
Intervention
p le
eo
Analysis
and organisa
tio
n
Planning
Value creation
ev
el o
D
The integration process
Deloitte has extensive experience in all areas of Business Planning
discussed in this document.
ated
e gr
Int
External
reporting
ew
pment and re n
Management
reporting
Co
al
1. An integrated solution
Revenue planning is only part of the planning process. The Deloitte
RPE can be fully integrated with existing planning applications of
your organisation. Figure 2 (below left) illustrates how the RPE is
able to take the results of more generic expense and HR planning
processes and incorporate these, along with assumptions regarding
underwriting and finance, directly in future financial forecasts.
In addition, it is able to allocate macro-level expenses to more microlevel activities. By integrating the Deloitte RPE with existing expense
and HR planning systems, the result is an internally consistent,
integrated business planning platform.
Figure 3: Illustration of the cyclical relationship of the elements of the
performance management process
P
Deloitte RPE is tailored to fit within your organisation
The Deloitte RPEis available for use in 2 formats:
Budgeting
Operational
reporting
m
mm
tfor
on info
rm ation pla
2. Desktop application
The standalone RPE product enables smaller and medium sized
companies to quickly improve their business plans and advance their
forecasting process. The facility to ‘Check In’ and ‘Check Out’
assumptions results in an easy to follow audit trail, allowing users to
see the impact on their business of specific assumptions. The design
of assumption and reporting templates can also easily be tailored
to the individual company’s requirements, including generating
Lloyd’s SBFs.
22943 jc Business planning:22943 jc Business planning
1/2/08
11:42
Page 1
Think ahead
Business planning for the P&C industry
Gurpreet Johal
Partner
Actuarial & Insurance Solutions
Tel: +44 (0) 20 7303 3046
Mob: +44 (0) 7879 812 503
gjohal@deloitte.co.uk
Stephen Ross
Partner
Corporate Finance – Insurance
Tel: +44 (0) 20 7303 2185
Tel: +44 (0) 7810 655 898
steross@deloitte.co.uk
Keith Taylor
Senior Manager
Actuarial & Insurance Solutions
Tel: +44 (0) 20 7007 8284
Mob: +44 (0) 7771 826 248
keittaylor@deloitte.co.uk
David Clissitt
Partner
Tax – Insurance
Tel: +44 (0) 20 7303 2509
Mob: +44 (0) 7814 309 876
dclissitt@deloitte.co.uk
Andrew Downes
Partner
Audit – Insurance
Tel: +44 (0) 20 7303 5332
Mob: +44 (0) 7920 507 366
adownes@deloitte.co.uk
Roy O’Neil
Partner
Consulting – Enterprise Applications
Tel: +44 (0) 20 7303 0984
Mob: +44 (0) 7814 309 958
royoneil@deloitte.co.uk
Richard Hurley
Partner
Consulting – Technology Integration
Tel: +44 (0) 20 7303 8912
Mob: +44 (0) 7867 758 366
rhurley@deloitte.co.uk
Deloitte & Touche LLP
Hill House
1 Little New Street
London EC4A 3TR
Tel: +44 (0) 20 7936 3000
Fax: +44 (0) 20 7583 1198
www.deloitte.co.uk
22943 jc Business planning:22943 jc Business planning
1/2/08
11:42
Page 2
In this publication, Deloitte refers to one or more of Deloitte Touche Tohmatsu (‘DTT’), a Swiss Verein, its member firms,
and their respective subsidiaries and affiliates. As a Swiss Verein (association), neither DTT nor any of its member firms
has any liability for each other’s acts or omissions. Each of the member firms is a separate and independent legal entity
operating under the names “Deloitte”, “Deloitte & Touche”, “Deloitte Touche Tohmatsu”, or other related names.
Services are provided by the member firms or their subsidiaries or affiliates and not by the DTT Verein.
In the UK, Deloitte & Touche LLP is the member firm of DTT, and services are provided by Deloitte & Touche LLP and
its subsidiaries. For more information, please visit the firm’s website at www.deloitte.co.uk
Deloitte & Touche LLP is authorised and regulated by the Financial Services Authority.
This publication has been written in general terms and therefore cannot be relied on to cover specific situations;
application of the principles set out will depend upon the particular circumstances involved and we recommend
that you obtain professional advice before acting or refraining from acting on any of the contents of this publication.
Deloitte & Touche LLP would be pleased to advise readers on how to apply the principles set out in this publication
to their specific circumstances. Deloitte & Touche LLP accepts no duty of care or liability for any loss occasioned to
any person acting or refraining from action as a result of any material in this publication.
© Deloitte & Touche LLP 2008. All rights reserved.
Deloitte & Touche LLP is a limited liability partnership registered in England and Wales with registered number
OC303675. A list of members’ names is available for inspection at Stonecutter Court, 1 Stonecutter Street,
London EC4A 4TR, United Kingdom, the firm’s principal place of business and registered office.
Tel: +44 (0) 20 7936 3000. Fax: +44 (0) 20 7583 1198.
Designed and produced by The Creative Studio at Deloitte, London.
Member of
Deloitte Touche Tohmatsu