The Insurance Treasurer’s Guide to Mastering Cash Forecasting

Written by Sergio Garcia
May 10, 2024

The insurance industry is no stranger to adaptation. While core functions remain, how companies operate has drastically changed. Today’s treasurers face a far more intricate landscape making cash forecasting in insurance more difficult than ever before.

According to a report from Deloitte, inflation continues to influence consumer spending, resulting in less premium growth in advanced markets such as North America and Europe. Meanwhile, the growing middle class across Asia creates new opportunities to compensate for losses in advanced markets. 

Treasurers are increasingly expected to be strategic partners to leadership as insurance organizations seek to navigate these risks, challenges, and opportunities. Most insurers are realizing that reacting to risks may not be good enough and are undertaking transformation efforts aimed at preventing losses from happening in the first place.

In this dynamic environment, cash flow forecasting is critical for navigating uncertainty and building business resilience. Accurate forecasts empower treasurers to make strategic decisions regarding investments, liquidity, and solvency. But achieving this mastery requires two key ingredients: automation and high-quality data. In this blog post, explore how these elements work together and the specific complexities insurance treasurers face in crafting their forecasts.

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The Evolving Landscape of Insurance Cash Flow

The insurance industry, once known for its relative stability, has witnessed a surge in complexities brought on by the digital age:

  • A Diverse Ecosystem of Payments: Customers now wield a diverse arsenal of payment options, from traditional credit cards to the likes of Stripe and WePay. Adding to this complexity are micro-transactions for specific coverages and financed annual premiums. Reconciling this ever-growing web of payments can be a herculean task, especially for global insurers with a vast geographic footprint.
  • The Scourge of Fraud: Insurance fraud has morphed into a multi-billion dollar industry, with estimates suggesting a staggering $308 billion lost globally each year. This necessitates that treasurers factor in the potential financial impact of fraud when constructing cash flow forecasts and managing cash flow.
  • Keeping up with Regulations: The 2008 financial crisis served as a stark reminder of the importance of robust liquidity management in the insurance sector. Regulatory reforms have ushered in stricter liquidity requirements, mandating that treasurers not only ensure a strong overall cash position but also meet specific liquidity needs across different business units.
  • Forecasting is Increasingly Complex: The claims landscape is undergoing a metamorphosis. Health insurers, for instance, are grappling with a surge in mental health-related claims due to increased awareness and societal acceptance. The rising cost of car repairs due to inflation creates a ripple effect, as even minor accidents can lead to significant payouts. Heightened competition in the insurance market further complicates the picture, as insurers vie for customers with ever-more competitive rates. These combined factors make crafting accurate cash flow forecasts a delicate balancing act for treasurers.

While navigating these various trends and data points make forecasting an often overwhelming challenge, fortunately, the tide of technological innovation is rising. Treasury management technology has rapidly evolved in recent years, equipping practitioners with powerful tools to help build more valuable forecasts. The first step to achieving this is by improving cash visibility and data quality. 

The Importance of Data Quality to Improve Cash Forecasting in Insurance

The foundation of any accurate cash flow forecast is good data. In the fast-paced world of insurance, where even minor discrepancies can have significant impact, the quality of a treasurer’s data becomes paramount. Here’s where the importance of centralized and organized bank data comes into play.

Traditionally, bank data for insurance companies has often been scattered across various spreadsheets and individual bank portals. This siloed approach creates a monumental task for treasurers who need to consolidate information from multiple sources manually.

This process is not only time-consuming and inefficient, but also prone to errors due to human data entry mistakes. Imagine the potential consequences of a misplaced decimal point or a typo in an account number when forecasting millions of dollars in cash flow!

Centralizing bank data through a platform like Trovata eliminates these risks. By leveraging open banking APIs, Trovata establishes a secure and direct connection to your bank mix, automatically pulling in real-time data. This eliminates the need for manual data entry and consolidation, ensuring the accuracy and consistency of the information feeding into your cash flow forecasts.

cash forecasting in insurance

But the benefits extend beyond mere accuracy. Centralized data provides a holistic view of your company’s financial health across your global operations. Treasurers can see all incoming and outgoing cash flows in one place in real-time, allowing you to identify trends, make informed decisions about resource allocation, and anticipate potential cash flow shortfalls. This level of transparency empowers proactive cash management, enabling treasurers to take timely action to optimize liquidity and ensure the company has the resources it needs to meet its obligations.

Recommended: How Insurance Treasurers can Simplify Bank Reconciliation

Taming the Transaction Stream: How Tagging Fuels Better Cash Flow Forecasts

The insurance industry deals with a diverse range of transactions, from premium collections and claims payments to reinsurance recoveries and investment income.

For treasurers, navigating this complex web of cash flow can be akin to untangling a tangled mess of holiday lights. Here’s where Trovata’s tagging capabilities shine, empowering treasurers to categorize transactions and build more accurate cash flow forecasts.

With a modern treasury platform, every premium collection, claim payout, and investment transaction is automatically tagged with a clear and consistent label. You can create custom tags to categorize transactions based on specific criteria, such as:

  • Line of Business: Tagging transactions by line of business (e.g., auto insurance, health insurance, property insurance) provides valuable insights into the cash flow performance of each individual segment. This empowers treasurers to identify areas of strength and weakness, allowing for strategic resource allocation and targeted forecasting efforts.
  • Policy Type: Further granularity can be achieved by tagging transactions based on specific policy types within each line of business. This allows treasurers to analyze the cash flow associated with, for example, comprehensive car insurance versus liability-only coverage, or individual versus group health plans.
  • Payment Method: Understanding how customers are paying their premiums is crucial for cash flow forecasting. Tagging transactions by payment method (e.g., credit card, bank transfer, electronic check) provides insights into customer preferences and potential delays associated with different payment methods.
  • Claim Type: Accurately forecasting claims is a perennial challenge for insurance companies. Trovata’s tagging system allows treasurers to categorize claims payments by type (e.g., auto accidents, property damage, medical claims). This facilitates trend analysis and identification of potential spikes in claims payouts due to seasonal factors or unforeseen events.
cash forecasting in insurance

By leveraging these tagging capabilities, treasurers can transform Trovata into a powerful tool for generating granular and highly accurate cash flow forecasts.

The ability to filter and analyze transactions based on custom tags allows for a deeper understanding of the various factors influencing a company’s cash flow. This empowers treasurers to make data-driven decisions, mitigate risk, and ultimately, navigate the uncertainties of the insurance landscape with greater confidence.

Unveiling the Future: Unlocking Powerful Cash Flow Forecasting and Scenario Planning

With improved cash flow visibility and organized data, you’re in prime position to not only build more powerful cash flow forecasts, but you can also plan for a wide array of scenarios to fortify business resilience.

cash forecasting in insurance

Building Powerful Cash Flow Forecasts: With accurate and up-to-date data readily available, treasurers can leverage Trovata’s advanced forecasting tools. The platform allows for the creation of customized forecasts that take into account historical data, current trends, and seasonal fluctuations. Gone are the days of relying on gut instinct or outdated spreadsheets. Trovata empowers treasurers to build reliable and insightful forecasts that serve as a roadmap for navigating the complexities of the insurance industry.

Planning for Every Eventuality: The true power of Trovata lies not just in its ability to forecast the expected, but also to prepare for the unexpected. By leveraging the platform’s historical data and forecasting capabilities, treasurers can model various scenarios, such as a surge in claims due to the impact of inflation or a shift in interest rates. This proactive approach allows you to identify potential risks and develop contingency plans to mitigate their impact.

A Future-Proofed Approach: In the ever-evolving insurance landscape, adaptability is paramount. Trovata empowers treasurers to move beyond reactive cash management and embrace a proactive, future-proofed approach. By providing a clear view of the present and the ability to model potential futures, you’ll be equipped to navigate uncertainty with confidence, ensuring your organization remains resilient and prepared for whatever tomorrow may bring.

Mastering Cash Forecasting with Trovata – Navigate Uncertainty with Confidence

The insurance industry thrives on managing risk, but accurately forecasting cash flow in a dynamic environment remains a constant challenge. By leveraging Trovata, insurance treasurers can move beyond basic forecasting and build powerful, accurate models that inform strategic decision-making. 

Are you ready to transform your cash flow forecasting? Book a demo today to discover how Trovata can empower you to build a more resilient future!

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