Although quite different from each other, the banking industry and the insurance industry have one common challenge to face in the coming years: to achieve finance modernization on a wide scale. Because their services are in such high demand—and because they rule key aspects like health, wellbeing, and livelihood—banks and insurance carriers are under much pressure to solve this particular issue.
To survive and stay relevant in their respective industries, these organizations need to build a financial foundation that allows them to be agile, resilient, digitally-driven, and more responsive to the individual needs of their customers. The question is, how can they do so? What concrete steps can banks and insurance companies take to achieve modern finance practices that are in line with the times?
The way forward lies in identifying key finance processes, overseeing their modernization, and aligning those modernization efforts with the individual goals of each organization. To help banks and insurers get a good start, here are four critical processes that constituent organizations can adopt. These should allow banks and insurance companies to slowly break free from their restrictive, obsolete legacy systems and duly transform them into industry leaders for the 21st century.
One process that banks and insurers should explore is cloud computing. A cloud computing solution will allow the consolidation of large swathes of financial data, thus acting as a single source of truth. Staff will be able to access this data and run all the necessary computations from wherever they are, as long as they are connected to the internet and have all the requisite hardware and software with them. Since they are no longer limited to working with the institution's financial data from only one site, this can translate to greater productivity for vital financial matters.
Cloud computing solutions will make it easier for both banks and insurance carriers to crunch the numbers for particularly complex items like those that are related to risk management. For example, one application for banks calculates expected credit loss or ECL. For insurers, a proper application for cloud computing is underwriting their insurance policies. In both cases, cloud computing will empower organizations to take charge of their calculations and eliminate cumbersome barriers that affect their speed, accuracy, and productivity.
Real-Time Data Analytics
Real-time data analytics is another process that will bring both banks and insurance companies close to full finance modernization. For example, an organization may already possess many data on current market trends that affect customers' behaviour. But without the analytical tools to update or make sense of this data, the organization's business intelligence will only go so far.
Both banks and insurance organizations will benefit from onboarding real-time data analytics tools to their current repertoires of financial technology. These tools will allow them to cull deeper insight into trends and improve their decision-making skills for financial matters. For banks, real-time data analytics tools may be extremely useful in engineering new banking products; for insurers, they will come in handy when personalizing customers' insurance plans.
Banks and insurers alike will secure a significant advantage in their finance modernization efforts if they embrace widespread automation for their financial processes. Automation will work best if implemented in rote financial tasks that would otherwise be resource-heavy on the company, especially in terms of electricity consumption or overtime pay.
Some examples of financial processes that can be enhanced through automation are treasury management, balance sheet management, customer billing and credit, accounts payable and accounts receivable, and regulatory compliance for financial reporting. In addition, the heightened business efficiency from automation could save a bank or an insurance company much money, and therefore add to the organization's overall value.
Natural Language Processing
Numbers aren't the only thing that should be involved in finance modernization. For example, both banks and insurers would do well to explore natural language processing (NLP), or the branch of artificial intelligence that develops a computer's abilities to recognize text and speech as a human does.
Organizations that implement NLP can use this capability to quickly process language and the context in which it is used for financial transactions. This can allow both banks and insurers to utilize machine translation for transactions made in different countries, therefore proving extremely useful if an organization from either sector wants to expand its operations around the globe.
Another application of NLP in finance is the detection of legitimate financial transactions through the use of attached language. For example, NLP solutions will help staff from a bank or an insurance company filter out authentic human language from the text that seems suspiciously riddled with "spammy" word choices, therefore indicating the possibility of a fraudulent transaction.
Both banks and insurance companies must remember that process isn't the only thing critical to achieving wide-scale finance modernization. It's also essential to synergize human efforts from finance, information technology, actuarial, and risk teams. In addition, for every new process incorporated into the company, there has to be stakeholder agreement about what good it will serve and what returns the investment will usher in.
If you're part of the leadership of a bank or insurance company, you must recognize that these changes are imminent. But do your best to ensure that the finance modernization efforts bear good fruit and that they are well-suited to the company's individual goals.