The insurance industry generates incredible dollar amounts. Insurance losses reached $145 billion worldwide in 2024, according to Aon, the sixth-most expensive year on record. How does an insurance company's balance sheet absorb all of that? Luckily, risk is everything about insurance.
“We know that there will be major catastrophic events,” says Andrea Hecht, CFO of CSAA Insurance Group. “Ready” can mean a lot about insurance, but for the finance team, plans to handle not only natural disasters but also economic changes such as sustained inflation and rising long-term interest rates. It means to set up.
At CSAA Insurance Group, a Walnut Creek, California-based auto and homeowner insurance provider, Hect's job ensures that disruptive events and economic surprises do not wreak havoc on the company's financial performance. That's what it is.
In an interview, Hecht explained some of the best practices he uses to protect his company financially and decide which lever to pull when something unexpected happens.
How does a CFO pivot a company's financial strategy when a major event occurs?
The important first step is to recognize the impact of events on key financial metrics. For insurance companies, important events affect measures such as loss rates [losses on claims relative to premiums earned] and the validity of surplus such as direct written premiums and effective policies and topline metrics. [those active and providing coverage]. From there, CFOs can make informed decisions about the next steps, such as cost reductions, fee declarations, etc. [formal requests to adjust premiums] Or suspend strategic investments until the organization's financial position improves.
The executive leadership team needs to understand the potential consequences of the situation. If key leaders are not following the next step, organizational strategies that shift outcomes will inevitably fail.
Of course, not all important events are the same. There are two types. What you know will happen in the end and are unexpected.
The first good example of the insurance industry is a massive, catastrophic event. An example of an unexpected event is the period of high inflation seen over the past three to four years. Again, CFOs need to coordinate the appropriate business units for the reaction. That response requires cutting back rates, reduced underwriting risk options, or, in more extreme cases, blocking growth.
What can CFOs do to ensure the financial stability of their company throughout the year?
The Foundation is a comprehensive financial plan directly linked to strategic goals, reflecting the current operating environment. However, the business must be engaged in creating this financial plan. You need to take both top-down and bottom-up approaches.
Furthermore, during times of uncertainty, executive leadership needs to understand the scope of possible outcomes. Often, this happens when implementing a scenario plan. For example, when inflation began to increase dramatically, I created multiple scenarios based on the assumption of how long it would last. This helped me understand which lever I needed to pull.
It also emphasizes capital to ensure financial stability in the event of a large wildfire, storm, or other catastrophe in the year. Leaders across the organization should have financial insight to interpret these test results and understand the output of their decisions.
What are some of the innovations you witness in the financial profession? How should CFOs adapt?
The biggest innovation that comes to mind is the use of generator AI. From customer interactions to helping you detect and prevent fraud and analyze financial results, it can impact everything. If fully accepted, it can dramatically affect our daily work lives.
I think it's important for CFOs to help businesses think about responsible ways to use this technology and be smarter about it from a financial standpoint. AI is the area where you can invest heavily and it is the CFO's job to ensure that the right returns are generated.
Do you think the quiet financial trends in 2024 will explode in 2025?
Many insurers have pivoted on cost-cutting strategies as inflation persisted in 2024. The market is beginning to soften [more competition among insurers to underwrite personal and business risks]So this year we are entering the investment phase.
Gen AI could actually explode in 2025. We also hope that Software-as-as-as-as-based solutions will continue on their upward trajectory. While on-premises IT investments can be expensive to maintain and slow to respond to changes, the cloud can help you need IT infrastructure and become a whim.
