Insurance accounting subledger; The missing piece?


The problem.

The insurance IT landscape is most of the times a very complex one. It consists of multiple policy management, claim handling, reinsurance, payments and other systems generating a huge number of daily transactions.

A common integration layer for all these sources, depicting their financial related transactions is the organization’s accounting system. But usually, it contains just enough information for high-level reporting and just the minimum in order to perform functions like third party payments. This is more or less expected since detailed business context information can’t be handled by a general purpose accounting system designed to serve any kind of industry.

Here is a non-exhaustive list of issues that are common is such architectures;

  • The IT landscape consists of multiple systems which feed a general purpose accounting system for which mapping of bookings to their originating business transactions is difficult.
  • Collections and disbursement processes are sometimes slow, inaccurate and fragmented resulting in customer, intermediary and vendor dissatisfaction.
  • Finance departments cannot easily create diversified statutory and regulatory reports due to lack of detailed information.
  • CFOs cannot play their intended strategic role since they do not have the required data foundation to build upon.
  • Audit cycles are taking too long and data consistency is a reoccurring issue.
  • Open items in core systems close after separating collection lots by line of business, distributing transactions back to core systems, making collections more complex than they should be.
  • Reinsurance departments deal with a pile of reports and have to perform manual calculations.
  • Commission and incentives calculations are hard since you have to combine information from multiple systems. Many times errors occur due to non-uniform application or rules and payments cannot be mapped easily to individual source records.

A solution.

An accounting subledger can help fix the problems related to lack of detail, ambiguity, and fragmentation. Like other accounting sub-ledgers which hold more detailed information than the General Ledger, an insurance subledger integrates detailed information from all source core systems in a specialized and flexible data layer.

It is by no means just a data storage layer but an active component performing many functions itself. Here are some examples;

  • Intermediary commissions calculations and clearings based on commission rules and commercial policies.
  • Reinsurance premiums, claims and commissions calculations based on reinsurance treaties. Generates all relevant reports and performs remittances.
  • Can be used for dunning, perform collections and disbursements utilizing various collection and payment methods across all lines of business.
  • Creates accounting postings with highly detailed information regarding business entities down to the cover level of a policy. This is quite important since it can overcome the inability of source systems to handle specific exceptions or agreements over multiple lines of business.

Does it fit a data warehouse architecture?

A subledger is not a data warehouse solution component, but it could add great value to a business intelligence project by being a reliable data source. It contains reconciled information from all lines of business with satisfactory detail levels.

Actually, many modern analytical tools like SAP BW, Microsoft Analysis Services, Tableau, Qlik, etc. could potentially be directly fed by the subledger repository, eliminating the need for an atomic data warehouse layer.

Is it a panacea?

An insurance subledger implementation is not the only strategy which can tackle the problems mentioned in this article but it seems to be a very good one, all things considered. Apart from its obvious benefits regarding financial accounting, it can become a catalyst for other initiatives regarding, for example, risk management, reporting & analytics, even CRM, by considerably shortening their implementation cycles. Taking these into account, a sublegder project can be easily justified.

Get more info on this subject.

If you found this topic interesting, please leave a comment with your point of view or questions and feel free to contact improvIT in order to schedule a more in-depth discussion regarding your own landscape. Our experienced consultants can answer your questions and help you formulate your implementation strategy.


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