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Unit 8: Accounting for Insurance Companies

Contingency Factor: Actuaries are very conservative in their assumptions on mortality, interest notes
and expenses and include a contingency factor to give a safety margin to meet any unforeseen
results. They also allow for the probable rate of lapses or early surrenders of policies before their
term.
Concluding, in determining premium rates the actuary will consider, inter alia:
1. The sum assured;
2. The age of the policyholder, his/her general health and life style e.g. Smoker/
non- smoker;
3. Future investment returns;
4. Future expense levels in administering the policy;
5. Allowance for contingencies given the uncertainties involved;
6. The target profit;

7. The price at which similar products are being sold by other companies.



Caselet optimising a global insurance company’s procure-to-
pay function

the client’s challenge
A global insurance group had already established a shared services/global in-house centre
(GIC), but was concerned that the promises around savings and customer satisfaction
made by its previous advisory firm were failing to be realised. As a result, it engaged
Everest Group to assist with analysing and optimising its Procure-to-Pay (P2P) function.

insight to action
Putting its Service Improvement methodology to work, Everest Group initiated a rigorous
data collection activity to capture baseline costs and construct a comprehensive view of
the current P2P environment (FTEs, costs, application environment, and organisational
structure). Everest Group also extensively analysed the client’s spending distribution
across all its purchases. Leveraging its extensive knowledge of P2P best practices gained
by its frequent interaction with outsourcing providers and the marketplace in general,
Everest Group quickly formulated a list of “gaps to best practice,” and built a detailed
implementation plan to jump those gaps to the desired future state. Further, Everest Group
suggested a large-scale procurement enhancement project to cleanse the vendor master
file, analyse and optimise spend, dramatically reduce the number of vendors it currently
used, and employ strategic sourcing initiatives.
impact
Via its Service Improvement methodology, Everest Group was able to rationalise the
client’s P2P accounting resource base by more than 30 percent, and the client is currently
realising savings of more than 18 percent on total spend. End users of the P2P process
are reporting enhanced satisfaction with the management reporting being provided and
on time vendor payment percentage has risen from 68 percent to 98 percent. As a result,
millions of dollars in available discounts are now being realised as well. Consequently,
the client engaged Everest Group to optimise its “Order to Cash” and “Record to Report”
accounting processes.

Source: http://www.everestgrp.com/functions/finance-accounting/case-study-optimizing-procure-to-pay-function-for-
insurance-company.html

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