Page 51 - Finanancial Management_2022

Example insurance renewal propensity rates

Age at Renewal year Blended
policy 1 2 3 4 5 total
inception 30% 50% 60% 66% 70% 52%
17–20
21–30 50% 60% 66% 70% 72% 62%
31–40 60% 70% 76% 80% 82% 70%
41–50 70% 80% 86% 90% 92% D 81% B
51–60 80% 90% 92% 90% 88% 87%
61–70 75% 85% 75% 70% 60% 75%

71–80 70% 60% 50% 30% 15% 61%
A
59% 73% 79% 82% 84% 73%
C

Example insurance renewal propensity rates
business dynamics to deliver value gains Improved business value is
or avoid value loss.
Increasing the complexity of the achievable through the
prediction methodology can reduce the
accuracy of forecasts, although it development and effective use of
may improve accuracy for a few
exceptional cases. informative forecasting processes.
It is possible to see how significant
benefits could be gained from automating
predictive analysis, but this must be
complemented by oversight from
finance experts.
Once built, a forecast should then be
flexed to run various scenarios that test the
impact of assumptions. These risk- actual performance, credibility is built in Creating one cohesive story to project
weighted scenarios should capture the the quality of the forecast. future business performance results in
impact of the disruptive factors relevant to integration within the forecasts across:
the business to produce a forecast based Integration of forecasts y Temporal periods: For example,
on a range of possible outcomes rather Short-term forecasts, which tend to be operational plans, short-term
than one specific outcome. derived at a relatively detailed level and forecasts, budgets, investment
supported by stated underlying plans, long-term forecasts, risk
Level of detail assumptions, can achieve high levels of management, and strategic planning.
The level of detail used in the forecast accuracy. Variance analysis provides y Data types: For example,
should be sufficient to facilitate improving timely and high-quality feedback, nonfinancial, profitability, cash
business predictability, whilst building improving understanding of performance flow, and on- and off-balance-sheet
confidence. However, if too much detail is and the accuracy of future forecasts. measures sourced from across the
used, there is a risk it becomes onerous to Long-term forecasts tend to be business.
maintain, provides an unjustified illusion produced as a totally separate exercise, at a By developing one dynamic forecast, it
of credibility, and creates barriers higher level, and with limited documented is easier to ensure there is realistic
hindering management engagement. justification for the assumptions made. It progression through time and enable the
As understanding of the more is rare that a business reviews historic business focus to be shifted to long-term
predictable elements of the business long-term forecasts against subsequent value creation.
improves, it is possible to increase actual performance, as there is little to be Creating a clear line of sight between
automation and maintain greater levels of gained when the original forecast is unfit current and long-term performance helps
detail. By verifying the forecast against for purpose. to improve the understanding and

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