Growing challenges of Planning and Forecasting process

The uncertainty created by the COVID-19 crisis has created a unique set of challenges for insurance companies. These circumstances weren’t foreseen or planned for, including a massive disruption in expected new business, reduced interest rates and investment performance, increase in claims cost, changes in customer outlook, focus shifting towards cutting cost, and consolidating assets.

The severe disruption has rendered even the most effective budgets and operating plans obsolete. There has been extreme pressure on financial planning functions to come up with a new approach towards financial planning and performance management.

Organisations foresee a need to build in flexibility and scenario modelling into the financial planning process, and also to continuously monitor financial performance and liquidity.

Why Insurers Need to Transform Their FP&A Function

Budgeting and planning processes have never been an easy task, the lack of critical business insights, inefficient processes, inadequate technological and analytical enhancement, spread of the pandemic has made planning process even more difficult with a sudden and severe disruption to the business environment.

In response to these complications, Insurers must transform their FP&A functions with the following ideas in mind.

  • Focus on reforecasting cash flow and scenario assessments both from internal and external stakeholders viewpoints, such as shareholders, investors, creditors, etc.
  • Enable robust forecast assumptions and drivers to confidently communicate the expected impact of the pandemic. This could include topics such as:
    • The overall impact on business demand
    • How new ways of working and a work-from-home environment potentially impact the business in areas including channel utilisation, workforce productivity, etc.
    • The potential exposure to demand, supply chain, counterparties, etc.
  • Forecasting tools that can adequately capture downside scenarios, incorporating impacts of fixed and variable costs as well as sales and operational planning issues
  • Understanding the potential impacts on bank covenants and credit agreements
  • The need for sufficient forecast information to enable effective decision making

Redefining the Focus of the Financial Planning & Analysis Function

Redefining the Focus of the Financial Planning & Analysis Function

As a result of the situation caused by the pandemic, there is a unique opportunity for insurers to rethink and innovate as they adjust and respond.

Look towards the Future

Look towards the Future: FP&A needs to facilitate thinking about the long term and residual effects of the crisis and any future uncertainties. These include changing customer outlook as well as continuing market volatility and fluctuations. Resulting in a need for reassessing investment portfolios and exposures to potentially reduced investment earnings as well as protecting capital and security for policyholders and key stakeholders.

Develop Scenario Analysis & Plan

Develop Scenario Analysis & Plan: Identify potential scenarios, including best and worst case scenarios, critical assumptions, and leading indicators. These need to be continuously monitored and reassessed to track any potential impacts on premium trends, outflows including increase in claims reported.

Stress Testing

Stress Testing: FP&A teams must run financial stress testing for the worst scenario for medical insurance claims. This enables the businesses to plan for contingencies and take immediate action, if they arise.

More Dynamic Reporting

More Dynamic Reporting: Analytics solutions can provide better insight into future performance, as well as broader utilisation of driver-based modelling to connect the dots between operational decisions and their financial outcomes.

Real-Time Projection Modelling

Real-Time Projection Modelling: Insurers needs to build a robust model to estimate the outcomes under different potential scenarios

Reassess Company Investments

Reassess Company Investments: This includes refinancing outstanding credit, accounts receivable and payable. All these parts of the balance sheet will requires deep diagnostics during this period. Research and development, capital allocations, and IT capabilities to optimise the organisation’s investment portfolio is the need of the hour.

Analysing Impacts on Supply Chain

Analysing Impacts on Supply Chain: This ensures that production schedules, open orders, and future commitments are reviewed in light of expected changes in customer demand for the company’s products.

FP&A Maturity Curve

FP&A Maturity Curve

Phase I - Understand current position: This includes developing a comprehensive understanding of company`s historical and current market and financial trends, as well as future indicators

Phase II - Scenario assessment and stress testing: Multiple scenario modelling should be performed for best case, worst case, a momentum case of trends continuing on the current trajectory, and a most likely case. In this way, it can be ensured that a breadth of outcomes are being explored

Phase III – Determining a coherent set of initiatives and identifying trigger points: This includes identifying initiatives that were built into the financial plan, new initiatives based on current scenario, and initiatives that may be required to manage crises. Early recovery from downturns usually results in outsize gains in the market for companies.

Phase IV - New ways of working: This includes technological advancement, cross functional collaboration and dynamic reporting. Organisations could further empower members of the FP&A team to act as sentinels for recovery and resilience.

Dimensions of FP&A:

Dimensions of FP&A

FP&A Outlook for the Future

In times of uncertainty, insurance FP&A function are required to pursue resilience through a staged approach to stabilising, reimagining, and transforming operations.

  • Resilient processes: This includes a robust, responsive and recovery business plan process, and developing contingencies for the possibility of an extended impact on the financial forecast
  • Flexible planning model: Flexible multiple scenarios focused on plan processes and five or six potential pain points for the company — the geographies, products, and business units, for instance, where the company expects to see significant value leakage.
  • Accelerate digital engagement: Insurers with matured digital capabilities, service and retention, and claims are well positioned to weather the crisis.
  • Future-proof the organisation: It’s essential for insurers to begin redesigning operating models, to both, reduce dependence on legacy systems and increase resilience during future events. This approach should include exploring geographic disaster recovery, site operational risk protocols, supply chain resilience, and workforce flexibility.
  • New ways of working: Insurers should build in capabilities and technological advancement. For instance, this could include rapid planning and forecasting. Cross-functional collaboration and dynamic reporting can help FP&A teams to adapt to a virtual delivery model.


While economic condition may improve in the wake of pandemic, some things are likely to change permanently, such as a customer outlook, supply and liquidity management.

The financial analysis and planning process needs to be highly responsive and adaptive to changing economic condition. Companies are heavily reliant on their FP&A teams to help them navigate through the crisis and make critical business decisions.


Prashant Chaturvedi
Vice President,
Head of Finance Transformation/F&A,
(UK & Europe), EXL

Salil Kumar
Senior Manager,
CFO Advisory,
Insurance Consulting, EXL

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