Financial & actuarial reconciliations for insurers: How to ensure data aligns

In this blog, our Insurance Lead, Piers Williams, explains why firms can’t afford to overlook the importance of financial and actuarial reconciliations.

Data shapes the underwriting principles that underpin the insurance products we all depend on.

But it’s often used by different teams across the organisation. Finance and actuarial teams often interpret and manipulate the same data for their purposes. The result? Varied formats and levels of granularity. So, firms could be relying on inaccurate data to quantify and report on risk.

Despite their significance, actuarial and financial reconciliations are often overlooked by firms. So, it’s important to understand why financial and actuarial reconciliations are fundamental controls – and how to ensure the data aligns.


Why are financial & actuarial reconciliations so crucial?

Reconciliations ensure data is aligned, accurate, and consistent. It provides a layer of control which validates the integrity of information used for:
• financial reporting
• actuarial reserving purposes; and
• information that feeds into annual accounts and regulatory submissions.

Financial and actuarial reconciliations also show you if your actuarial reserving is aligned and accurate. This reduces risk and uncertainty and frees up reserves.

So, you’ll need to regularly reconcile finance and actuarial data to ensure they align. If you have differences in your accounting and actuarial data, you must reconcile these variations and have a unified dataset for reporting cycles.


How does IFRS 17 change things for firms outside the US?

IFRS 17, which went live in January 2023, represents the most significant change in insurance accounting requirements in 20 years.

It aims to ensure all UK firms report premiums, claims, and overall performance using the same standards and approaches. As part of this, it seeks to harmonise financial and actuarial reporting across the insurance market.

According to EY, “there are significant opportunities to use IFRS 17 as a catalyst for further changes needed in supporting functions such as finance and actuarial.”

“Whatever the approach,” the firm adds, “we believe that only with a truly integrated solution that closely connects the data, systems and process environment between finance and actuarial will insurers be able to meet the challenges of the future.”

However, many insurance organisations have put in place large and complex business systems to meet IFRS 17 requirements. And each firm will take a different approach to meeting requirements.

So, while the standard is an opportunity for your firm, you also need robust financial and data controls to align data sources. And you’ll need to ensure your systems, processes and data flows are working together to meet your business objectives and outcomes.


Do I need to automate financial & actuarial reconciliations?

An automated reconciliation solution will allow you to bridge the gap in datasets. So even if your data doesn’t match, there is enough detail to investigate and remediate the break in the data.

Finance and actuarial functions analyse data at different levels and require matching at different levels of granularity. So automating will also help you manage reconciliations at the lowest level of granularity or any required level of aggregation. This ensures data aligns and provides detailed insights into discrepancies, which you can quickly investigate and remediate.

Due to the complexity of the actuarial models, firms usually run them once a year – at most quarterly. But, with an automated system, you can reconcile your data more frequently to find issues proactively as they occur. Not two or three months – or even a year – later.

Rule-based matching engines also handle high volumes of data. An automated tool will ingest and standardise data to a comparable level of granularity. It then verifies the alignment of data so you can integrate it into annual accounts and regulatory submissions.

So, while you can use manual processes for this, it’ll take up a lot of time for back-office teams. You’ll have to throw more resources and staff at the problem. And it’ll also be more dull and monotonous for your team, as they’ll have to spend hours manually inputting and reconciling high volumes of data.

Automated financial controls will also allow you to achieve accurate actuarial reserving and safeguarding compliance with regulations like Solvency II. It’ll also highlight potential over or underfunding of future liabilities, so you can rectify these much quicker.


The bottom line

Insurance organisations shouldn’t overlook financial and actuarial reconciliations. They align financial and actuarial data needed for reporting cycles and ensure it is accurate.

Automating your reconciliations and financial controls will allow you to bridge financial and actuarial datasets without having to throw more headcount at the issue. It’ll also help you get a full overview of data, so you can use it to make smarter business decisions and improve controls and governance.

Our insurance solution improves efficiency, allows you to spend minutes (not hours) on reconciliations, and cuts operating costs by 75%+. Find out more about how it will help you comply with reporting obligations here.