Life Insurers Assess Financial Modeling Trends in Towers Watson Survey

  Life Insurers Assess Financial Modeling Trends in Towers Watson Survey

CFO survey reveals that model run-time requirements are a leading challenge
and top priority

Business Wire

NEW YORK -- February 6, 2013

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

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 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.”

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 reinsurance products.

Insurers were asked about the biggest challenges they face 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

“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.

Model Governance

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

“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


Towers Watson
Josh Wozman, +1 703-258-7670
Binoli Savani, +1 703-258-7648
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