Stories by Numbers

The Chief Financial Officer (CFO)’s expanding role and the importance of embedding sustain-ability into insurance operations were key topics at the Canadian Insurance Accountants Association (CIAA)’s 47th Annual Conference in Gatineau, Quebec on Sept. 22, 2010.

CFOS: TELLING THE FINANCIAL STORY

The role of the CFO has evolved dramatically from the days when a CFO was expected merely to provide numbers and data, according to Phil Mayers, CFO of Genworth Financial Canada. He was speaking at a CEO/CFO panel at the CIAA conference.

Mayers noted today’s CFOs need to partner with their companies’ different business units and act in a mentor/advisor role. A well-rounded CFO keeps the CEO up to speed on potential problems, acts as a risk manager, fosters staff development and works effectively with the company’s board of directors.

“As a CFO, become a business student,” Mayers advised. “Know your business and the issues that drive it so you can become a key contributor. If you don’t understand the drivers of your business, you could panic and make bad decisions. Constantly ask,’Why?'”

In asking these questions, CFOs can help fellow executives and managers prevent a “group mentality” from forming at the board and management levels. “We need contrarians on management teams, people who are persistent about getting their point across,” Mayers said. “As CEOs and CFOs, we need to encourage this. It’s important to have diversity within an organization. So hire different types of personalities — including contrarians.”

Questioning assumptions is important to a CFO, who is also responsible for making sure everyone in an organization is educated about the benefits of strong capital and risk management. “These are not just the purview of financial and risk people,” Mayers said.

Although CFOs are constantly referred to as “the numbers people,” they are increasingly being asked to take on a prominent role in risk management. This means being able to explain clearly the context around the numbers. Thus, the best CFOs are often the best storytellers. When dealing with the CEO, the CFO needs the skill to be able to “tell a story from the numbers,” Mayers said.

Paul Field, CEO and CFO of the Old Republic Insurance Group, agreed. “As a CEO, I’m already bombarded with data,” he said. “Every set of data tells a story, so give me the story. The data is only there to support the story. The CEO needs to understand the key drivers and risks; this is where the CFO comes in.”

Of course the CFO works with corporate executives other than just the CEO. Ross Betteridge, executive vice president and CFO of Travelers Canada, pointed out the necessity of a strong orientation process for new board members. “Our job is to give them the confidence that they have the basic knowledge to execute their duties,” he said. “The CFO and the financial team can take a lead here and run them through the complete strategic plan and structure of the company and outline their accountability.”

Betteridge said it’s important to do this early on. He suggested the Institute of Corporate Directors (ICD) programs as a good place to start. “Help them manage their responsibility and earn their confidence,” he said. “It takes time to gain it, but you can lose it quickly. You can never be overly prepared with the board.”

Betteridge suggested it was no coincidence that all three panelists worked outside of finance at some point during their professional careers. Having such a broad base of professional experience is key to a CFO being valued as a business partner who can bring other perspectives to the table.

INSURERS AND SUSTAINABILITY

Insurers who don’t integrate sustainability throughout their business activities do so at their own peril, according to Glen Oxford, national property claims manager ofThe Co-operators.

“The insurance industry is the second-largest asset-based industry in the world and we have sizable clout,” Oxford said at the CIAA’s 2010 annual conference. “The fact is, climate change has a direct effect on our investments and underwriting activities.” He pointed out that global disaster damage has increased 20-fold since the 1970s. Insurance claims related to severe weather have doubled every five to 10 years since the 1950s, even when adjusted for inflation. And yet, even though the industry’s awareness about the cost of climate change is high, the industry is still lagging when it comes to emission reduction plans and risk assessments, Oxford said.

Insurers have two choices, he added. One would be to “do nothing about climate change and be defensive in the face of disasters, reacting with higher premiums, higher deductibles, lower limits, exclusions, non-renewal and finally withdrawing from markets.” The other option would be to become a catalyst for change through thoughtful, sustainable actions. This would mean working towards improved building codes, disaster preparedness and education; advocating for better public policy; integrating emissions reduction and risk management; and using scientific research to develop more responsive products and services.

Oxford knows first-hand what goes into creating a sustainability policy designed to benefit the company and society.The Co-operators initiated its wide-ranging Climate Change Strategy in 2007. “We wanted to manage our own footprint and become an industry leader in sustainability,” Oxford said of the plan. “We started by targeting energy use in our buildings, business air travel, paper use and the corporate vehicle fleet. We began tracking our carbon emissions in those areas and set a reduction target of 10% by the end of 2010. By the end of 2009, we’d already reached 12%. Last year, we adopted a new claims system that will be completely paperless by 2014.”

Implementing the strategy’s mandate involves researching safety, life and health risks and developing sustainable products and services for the company’s clients. As examples, Oxford cited The Co-operators’ hybrid vehicle discounts and Enviroguard, a product that encourages policyholders to replace their damaged property with more eco-friendly and sustainable products.

Climate change continues to resonate with the public as a pressing issue despite the economic downturn, Oxford said. This is a plus for insurers promoting a sustainability policy. “Insurers will see their reputation enhanced and appeal to the growing legion of consumers who chose to do business with socially responsible organizations,” he said. “We have a direct link to most homeowners and business, and we have the ability to change behaviour and policies by communicating with our clients.”

And just like consumers want to do business with socially responsible companies, employees and potential employees want to work for these kinds of companies. Becoming an employer of choice means aligning the company with a strong sustainability policy, Oxford said. The payback will be more motivated employees, better staff retention and the ability to recruit the best employees. Other benefits to the policy will be improved risk management, cost savings and eco-efficiencies.

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As a CFO, become a business student. Know your business and the issues that drive it so you can become a key contributor. If you don’t understand the drivers of your business, you could panic and make bad decisions. Constantly ask, “Why?”